The Latest on the Duty of Good Faith in Real Estate Transactions
By Irvin Schein, Litigation Lawyer, Mediator, and Arbitrator
Originally published at irvinschein.com.
The case of Sarai et al. v. Singh et al., 2023 ONSC 2102 (CanLII) is an important reminder of the duty of parties to a real estate transaction to act in good faith.
In this Application to the Ontario Superior Court of Justice, three applicants entered into an agreement of purchase and sale with three respondents on May 24, 2021, for the purchase of a 14-acre property in Caledon to be used by the applicants to accommodate their growing trucking business. The transaction had a closing date of November 30, 2021.
The agreement provided that the applicants would provide their $100,000 deposit to the respondents’ lawyer in trust within 48 hours of the respondents’ acceptance of their offer.
However, the respondents did not bother to tell the applicants who their lawyer was until May 28, 2021.
Within 24 hours thereafter, the applicants provided that lawyer with a bank draft to satisfy the deposit. The bank draft was accepted by the respondents’ lawyer.
Over five months later, on the day before closing, one of the respondents, a Mr. Singh, notified the applicants that he did not intend to close. Singh’s position was that the delivery of the deposit was too late because it was not within 48 hours of acceptance. The applicants had therefore breached the agreement and thus Singh did not have to close.
The applicants asked the court to declare that the agreement was binding and to require the respondents to close the transaction. They argued that the respondents had conducted themselves as if the agreement was binding until just before closing. Specific performance was the appropriate remedy because the property was so unique that damages would not be an adequate remedy. Finally, they argued that Singh was acting in bad faith by relying on the deposit clause when the respondents had failed to identify their lawyer, to whom the deposit was to be delivered, until after the deadline.
Singh pointed out that the applicants could have delivered the deposit directly to the respondents within the 48 hours and that, having failed to do so, the applicants had breached a fundamental term of the agreement of purchase and sale.
The court had no hesitation in granting the application. The respondents had made strict performance of the deposit condition impossible by delaying in identifying their lawyer. Furthermore, they waived strict compliance with that deadline by accepting the deposit when it was delivered.
The court also considered Singh’s failure to notify the applicants in writing about his position until the very last moment to be completely unreasonable. Singh did not act in good faith and, given the uniqueness of the property and this unreasonable behaviour, the applicants were entitled to specific performance.
There are a number of important lessons to learn from this decision.
Firstly, the court will have no sympathy for behaviour that is patently unreasonable. If a party to a transaction intends to take the position that the agreement has been breached by the other party, it is incumbent upon that party to give timely written notice of that position. A failure to do so may be considered unreasonable and bad faith behaviour.
Secondly, if one wishes to take such a position, it is critical that one not act in a manner that is inconsistent with that position. In this case, acceptance of the deposit after the 48-hour deadline period contemplated by the agreement amounted to a waiver of that deadline so that it could not be relied upon at a later date as a breach of the agreement of purchase and sale.
Thirdly, where a party has an obligation to do something, the other party cannot make satisfaction of that obligation impossible and then claim that the agreement has been breached.
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