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Homebuyer's deposit returned following inadequate disclosure

Inadequate disclosure can land vendors in trouble in the event of a collapsed deal, Toronto real estate lawyer Daniel Bernstein tells AdvocateDaily.com.

In a recent decision, Ontario’s Court of Appeal ordered two property owners to return a $50,000 deposit to the prospective buyer who pulled out of the purchase after learning about an easement in favour of a pipeline company that ran under the pool, patio and cabana in the home's backyard.   

Bernstein, a founding member with Weltman Bernstein, says he was unsurprised by the result.

“The sellers' disclosure was lacking,” he says. “You’ve got to be up front with buyers and disclose everything that is required.

“When it comes to easements, anything that is not minor or that will materially affect the use of the property has to be disclosed. That was clear in this case,” Bernstein adds.  

According to court records, the homeowners agreed to sell their residential property for $1,685,000.

The agreement of purchase and sale (APS) stated that the prospective buyer was aware of an easement in favour of a gas line company on the property, but the motion judge found that they were unaware of a second easement that ran directly under the pool, cabana and patio.

The easement, along with a letter of agreement, were both registered on title, stating that the pool and patio were built without the pipeline company’s consent, and required the owners to enter a formal agreement committing to sharing the costs of removing them if necessary.

The decision says the owners' refusal to sign the formal agreement led to litigation with the pipeline company, but the APS made no mention of it.  

Things came to a head when the homeowners asked the prospective buyer to sign the formal agreement with the company, instead, he refused to close the deal.

The property owners sued the would-be purchaser for damages but was met with a counterclaim demanding the return of the $50,000 deposit.

The judge hearing the summary judgment motion ruled in favour of the purchaser, finding that the sellers had breached the terms of the APS, which required title to the property to be free from all restrictions except those contained in the agreement.

“You can have an undisclosed easement if it is considered 'minor' or doesn’t materially affect the use of the property, but this one did. And it wasn’t minor because the pool could have been removed at the discretion of the pipeline company,” says Bernstein, who wasn't involved in the matter and comments generally.

In a brief decision, the unanimous three-judge appeal court panel upheld the motion judge’s decision.

“In order to succeed on his appeal, the appellant must show that the motion judge made palpable and overriding errors in reaching the factual conclusions that he did. The appellant has failed to do so,” they wrote. “The record amply supports the factual findings that the motion judge made.”

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