by Jordan Overholt, Chinneck Law.
The Agreement of Purchase and Sale (“APS”) is Ontario’s standard-form contract for the purchase and sale of land, and its Section 10 contains two important deadlines that all parties to a land transaction must understand.
The first deadline is the Requisition Date, which is the date by which Buyer must demand (or “requisition”) Seller remedy a property’s title deficiencies (like the presence of liens and/or mortgages) discovered during Buyer’s search of title.
The second deadline is the date by which Buyer must requisition Seller:
- close out any outstanding work orders or deficiency notices affecting the property; and
- remedy any issues that would otherwise impede Buyer from lawfully carrying on with a property’s present use.
If Buyer misses these deadlines, Buyer must accept the property with any and all defects it has (barring some minor exceptions).
More importantly, if Buyer makes his requisitions on time, and if Seller cannot or will not then satisfy them, Buyer has the right to exit the deal and take back his deposit.
Of course, at any time after Buyer makes his requisitions, Buyer may choose to waive one or more of them and take the property with one or more specific defects intact.
Sound simple enough?
Unfortunately, some parties (and their lawyers) do not always see it that way.
In 1418885 Ontario Ltd. v 2193139 Ontario Limited:
- Buyer and Seller entered into an APS for the purchase and sale of a large Ontario property advertised as containing “a pub-style restaurant with patios, a nine-hole golf course, twelve residential apartments, a two-storey home, and a banquet hall” (the “Property”).
- Two deposits totalling $150,000.00 were paid by Buyer to Seller.
- During his title search, Buyer discovered that the twelve residential apartments were not permitted under the relevant zoning bylaw (meaning that an aspect of the Property’s current use could not be lawfully continued by Buyer once Buyer owned the Property).
- By the Section 10 deadline, Buyer requisitioned that Seller provide “on or before [the completion date], an amendment to the local zoning bylaw to permit the current use [of the twelve residential apartments] to continue legally after [the completion date]”.
- In response, Seller’s lawyer stated that the twelve residential apartments were a “legal non-conforming use” (which, if true, meant that although the twelve residential apartments did not comply with the current zoning bylaw, they had complied with a previous zoning bylaw and were thus “grandfathered in” under the old zoning rules).
- Unconvinced, Buyer’s lawyer conducted a further investigation and confirmed with the zoning authority that the twelve residential apartments were not “grandfathered in”.
- Buyer’s lawyer advised Seller’s lawyer of this discovery.
- Buyer and Seller then carried on taking standard preparatory steps to complete the transaction as scheduled.
- On the completion date, Buyer advised Seller that he would not complete the transaction because the issue with the twelve residential apartments remained unresolved.
- Buyer demanded Seller return his deposit pursuant to Section 10, and Seller refused.
In refusing to return the deposit, Seller argued that Buyer’s (and Buyer’s lawyer’s) conduct leading up to the completion date constituted a waiver of Buyer’s zoning requisition. Seller argued that because Buyer had already waived his zoning requisition, Buyer could not then rely on it as a basis to exit the transaction on the completion date. Taking this argument to its logical conclusion, Seller argued, Buyer had actually breached the terms of the APS by refusing to complete the transaction on the completion date. Accordingly, Seller argued, Seller was entitled to keep Buyer’s deposit.
Shockingly, the trial judge agreed.
The trial judge based his decision on the following facts:
- In an amendment to the APS, Buyer agreed to assume all existing tenants of the twelve residential apartments once the transaction was completed;
- Buyer’s zoning requisition contained the request that Seller have the current zoning bylaw amended to allow for the continued existence of the twelve residential apartments;
- After sending his zoning requisition, Buyer’s lawyer then advised Seller’s lawyer that Buyer was prepared to waive his zoning requisition if Seller first provided Buyer with certain rental and golf course documentation; and
- After making his zoning requisition, Buyer (and Buyer’s lawyer) then carried on toward the completion date acting as if Buyer intended to complete the transaction (behavior that was, essentially, standard closing protocol, including Buyer’s lawyer creating and exchanging with Seller’s lawyer draft closing documentation and other typical inter-law-office communications).
Fortunately, Buyer appealed.
In reversing the judge’s decision, the Court of Appeal first referenced the law of waiver as it applies to contracts:
Waiver occurs when one party to a contract (or proceeding) takes steps that amount to foregoing reliance on some known right or defect in the performance of the other party. It will be found only where the evidence demonstrates that the party waiving had
- a full knowledge of the deficiency that might be relied on; and
- an unequivocal and conscious intention to abandon the right to rely on it.
The intention to relinquish the right must be communicated. Communication can be formal or informal and it may be inferred from conduct. The overriding consideration in each case is whether one party communicated a clear intention to waive a right to the other party.
The Court of Appeal then concluded that none of the facts relied on by the judge, either individually or taken together, could constitute a clear intention to waive Buyer’s zoning requisition. This was because:
- Buyer’s agreement to assume the existing tenants was consistent with Buyer’s willingness to complete the transaction should the zoning issue be rectified (so that the tenants could legally occupy the twelve residential apartments post-completion);
- Buyer’s inclusion of a solution to the zoning issue in the body of his zoning requisition was nothing more than a suggestion provided for the benefit of Seller;
- Buyer’s willingness to waive his zoning requisition in exchange for other information was nothing more than an offer to resolve the matter in an alternative fashion, and one that remained unaccepted by Seller; and
- In the days leading up to the completion date, Buyer (and Buyer’s lawyer) did nothing improper by preparing to complete the transaction as scheduled, as Buyer had the obligation to place himself in the position of being ready, willing, and able to complete the transaction should Seller satisfy Buyer’s zoning requisition in time.
Fortunately, justice prevailed, with the Court of Appeal ordering that Seller return Buyer’s $150,000.00 deposit, together with two years’ worth of interest and an additional $25,000.00 for Buyer’s legal
 2018 ONCA 54.
 Ibid at p 10.