Breaching contracts comes with hefty price
By AdvocateDaily.com Staff
A recent decision from Ontario’s Superior Court shows that when buyers breach the terms of a purchase agreement in commercial real estate deals they run the risk of forfeiting their deposit, says Toronto real estate lawyer Daniel Bernstein.
The case 2336574 Ontario Inc. v. 1559586 Ontario Inc. 2016 ONSC 2467 (CanLII) deals with the parameters of good faith in a dispute between the vendor and a purchaser of a newly constructed commercial condominium, he tells AdvocateDaily.com.
The purchaser requested a number of extensions to the interim occupancy date, and the vendor granted them each time, Bernstein notes.
“When the interim closing finally took place, the purchaser’s solicitor was notified of the final closing date — within the time frame set out in the purchase agreement,” he says.
The purchaser’s solicitor then requested a two-month extension of the closing date, which the vendor rejected, explains Bernstein, a lawyer with Weltman Bernstein.
“He then requested a two-week extension with an additional $10,000 deposit, increasing the total deposit to $50,000. This request was also rejected. On the scheduled closing date, a Friday, the vendor’s solicitor delivered the vendor’s closing package to the purchaser’s solicitor. The vendor’s solicitor — advised late that afternoon that the purchaser’s solicitor had left for the day — wrote to the purchaser’s solicitor that the purchaser had committed an anticipatory breach of the purchase agreement and thus the agreement was at an end,” he says.
The following Monday, the purchaser’s solicitor notified the vendor’s solicitor that he would have funds to close the next day and requested the vendor’s solicitor’s banking details for funds deposit, Bernstein points out, noting the vendor’s solicitor did not respond.
Bernstein says the court applied the reasoning from a decision in Bhasin v. Hrynew, 2014 SCC 71 (CanLII), which established that the common law imposes a duty on parties to perform their contractual obligations honestly.
“Accordingly, even though the purchaser was prepared to close only two days later, the contract was breached and the purchaser was found to have forfeited his deposit of $40,000.00 based on the default provisions in the purchase agreement,” he adds.
The court referenced two additional cases that Bernstein says demonstrate the obligations of good faith — Yam Sent Pte. Ltd. v. International Trade Corp. Ltd., where it was ruled that "such duty of good faith is measured by the specific relationship between the parties,” and Mid Essex Hospital Services NHS Trust v. Compass Group UK and Ireland Ltd., where the court held that such duty depends on “whether, in the particular context, the conduct would be regarded, as commercially unacceptable by reasonable and honest people.”
Based on the relationship of the purchaser and vendor in this case, the court ruled that good faith meant sticking to the terms of the contract, Bernstein notes.
“The purchaser was obligated to provide the full amount of money required on the closing date, and the vendor was obligated to provide good title to the purchaser on the closing date. The vendor wasn’t required to take a few dollars less or wait a few days for the closing funds just like the purchaser was not required to take less than full title or get ownership a few days later. Good faith meant sticking to the contract — not bending the contract, even just a little bit to one’s side will,” he says.