Is the Buyer Entitled to Vacant Possession?

This was a question that arose in the recent case Sivasubramaniam v. Mohammad, 2018, decided by the Honourable Mr. Justice Robert Charney of the Ontario Superior Court of Justice on 16 May 2018.

Shripragas Sivasubramaniam as a Buyer submitted an Offer to Purchase 16 Cragg Crescent in Ajax, Ontario. The Defendant Mohammad accepted striking an Agreement dated 15 April 2015.

At issue was:

Which party breached the terms of the APS when the deal failed to close on April 29, 2015?

Paragraph 2 of the APS provided for vacant possession on closing:

This Agreement shall be completed by no later than 6:00 p.m. on the 29^th day of April, 2015. Upon completion, vacant possession of the property shall be given to the Buyer unless otherwise provided for in this Agreement.

There were no other terms in the APS relevant to the issue of vacant possession.

The APS did not require the purchaser to assume or accept a tenant, and there is no reference in the APS to the home being tenanted.

 The Buyer was purchasing the home to live in with his wife, two children and his mother.

When he purchased the home he was living in a condominium with his family. In reliance on the purchase of the new home he listed his condominium for sale. Since he was selling and vacating his family’s condominium to pay for the new home, receiving vacant possession was an important condition of the APS for the applicant.

Here is an excerpt from the decision:

[12]           The MLS real estate listing description of the property did state: “Aaa Tenant” (sic).

[13]           The applicant’s Supplementary Affidavit states that he saw the reference to a tenant in the listing, and he advised his own realtor that he did not wish to purchase a tenanted property, since his intention was to move into the property with his family.

The applicant also states that his real estate agent raised this issue with the respondents’ real estate agent on March 9, 2015, when he submitted his offer to purchase the property.

He states that the respondents’ real estate agent stated, in the applicant’s presence, that the tenant would be moving out by or before the closing.

[14]           The applicant visited the property in April 2015 with his real estate agent after the APS was executed to inspect the property, as per Schedule A of the APS. 

At this attendance they met a tenant, who appeared concerned with the purpose of their visit.

The applicant and his real estate agent advised the tenant that the applicant had not agreed to assume any tenants upon closing, and this was a matter that the tenant would have to take up with the respondents.

Then, there was the matter of the correspondence exchanged by the respective lawyers on behalf of the Buyer and Seller. I will set it out from the Judge’s decision because it is rather lengthy:

Lawyers’ Correspondence

[15]           At this point, the applicant’s real estate lawyer, Mr. Maharaja, became involved in correspondence with the respondents’ real estate lawyer to try to address, inter alia, the issue of vacant possession.

The details of this correspondence are set out below because these details are relevant to the issue of anticipatory breach.

[16]           On April 15, 2015, the requisition date under the APS, Mr. Maharaja wrote to the vendor’s real estate lawyer, Ms. Chegini, regarding the vacant possession/tenancy issue. His letter stated:

I am writing this letter to specifically mention about the tenancy issue in the subject property. Please note that the purchaser anticipates that the sellers would have taken necessary steps to deliver vacant possession of the property on completion. Purchaser is making all arrangements to move into the subject property on the completion date. Any delay will cause my client serious financial and other damages to the purchaser. Therefore, I hereby request you to pay special attention to this matter.

[17]           On April 16, 2015, Mr. Maharaja again wrote to Ms. Chegini, as follows:

We acknowledge receipt of your responses for the requisitions submitted to your office. We have observed that the documents as revised by you contravene the terms of the Agreement of Purchase and Sale in writing between the parties. We specifically noticed the deletion with respect to delivery of vacant possession of the subject property. We have discussed this issue with our client and my client advises us that he will not be in a position to accept any document that alter or amend the terms of the Agreement of Purchase and Sale in writing. Accordingly, we expect to have the documents executed by the sellers without any alteration or deletion and any alteration or deletion will be considered as breach of terms.

[18]           On April 17, 2015 Ms. Chegini replied:

[T]he matter regarding the assumption of the tenancy is one that should be negotiated between our clients and their realtors, the subject agreement of purchase and sale DOES NOT require vacant possession.

(Upper case emphasis in original)

[19]           On April 17, 2015 Mr. Maharaja replied:

Briefly, my client makes arrangements with the hope that your clients will comply with any and all terms of the Agreement of Purchase and Sale. In the event of any breach on your clients’ part, my client will suffer serious damages. If the sellers have contrary intent kindly advise us, particularly with respect to “vacant possession” as per paragraph 2 of the Agreement of Purchase and Sale.

[20]           Mr. Maharaja followed up with another fax on April 20, 2015, to advise that his client, the purchaser:

…is making arrangements with the hope that your clients will comply with any and all terms of the Agreement of Purchase and Sale. My client is also taken steps to sell the property that he presently residing in, to raise funds for the purchase transaction.

[21]           On April 20, 2015, Ms. Chegini replied:

The letters that you continue to draft and send to my office are a waste of my time and simply put extremely unfounded. If you continue to threaten my client with your unfounded interpretation of the law and attempt to force my client into signing your form of documents I shall report you to the law society of upper canada (sic) for investigation because it is worrying that you have such a limited grasp of real estate law and yet are practicing in this field.  Your form of document SHALL NOT BE signed and I will not waste another minute of my time discussing this matter with you. (Upper case emphasis in original)

[22]           Mr. Maharaja replied the same day:

In response to your last correspondence, please be advised that my client has valid reasons to request your clients to execute my forms of documents. Your forms fail to provide complete and clear information. Particularly, your documents fail to include clauses connected to delivery of vacant possession and existing mortgage particulars. Finally, in my opinion, requesting compliance to the terms of an agreement does not amount to anything that demands complaining to the Law Society.

[23]           On April 21, 2015, Mr. Maharaja again wrote to Ms. Chegini as follows:

Further to my letter of requisitions and subsequent mutual correspondence, please be advised that my client informs me that he has reliable information from the real estate agent that the sellers may not deliver vacant possession of the subject property as agreed in writing on completion of this transaction on April 29, 2015. As I could see from your correspondence, you continue to be ambiguous about the subject of “delivery of vacant possession” and misinterpret the contents of the Agreement of Purchase and Sale…

I reiterate that my client demands vacant possession

of the subject property on the scheduled date. In the event that the sellers fail to comply with the terms of the APS and your office fail to advise your clients properly and knowingly assist them in misleading my client and my office, my client will have no other choice than to hold both the sellers and your office for any and all damages suffered by him.

[24]           Ms. Chegini replied the same day:

The vacant possession clause is intentionally being left as my clients have advised me that the property is currently being tenanted and the tenant has not yet confirmed that he/she shall be vacating the property.

I do understand that this is not ideal for your client, however this is a matter that was discussed between our clients and their respective realtors during negotiations (this is what I am being told).

I have and will continue to stress the importance of vacant possession to my client but I am unable to force the tenant to move out and this matter and all matters relating to this sale have nothing to do with me or my law office. You appear to be taking this matter personally and your continuous threatening and unfounded faxes and emails will not be tolerated by me. I remind to refrain from shifting the blame of this situation on me or my office. 

I have been very honest with you regarding the fact that my clients may not be able to give your clients vacant possession and I have and continue to make efforts for the tenant to vacate the property but unfortunately the tenant is not cooperating. I do recommend that you ask your clients realtor to communicate with my clients realtor and they discuss the situation and try to resolve it.

[25]           Mr. Maharaja replied the same day:

I am not taking this matter personally, but very seriously.

As I presently represent my client, I will not ask my client to handle this matter through the real estate agent or brokerage. (Emphasis in original)

[26]           And Ms. Chegini replied again with the last email of April 21, 2015:

As stated to you before neither I or my client can confirm that vacant possession will be given on final closing. If and when I get any updates on this matter I will update you.

[27]           On April 22, 2015 Ms. Chegini wrote to Mr. Maharaja, taking the position that the APS did not require vacant possession on closing.

She took the position that since the MLS listing of the property noted that the property was tenanted, the purchasers were required to assume the tenancy until the termination of the lease in December, 2015. She concluded:

Ultimately we are ready, willing and able to close this transaction, my client will make all efforts to request that the tenant does vacate the property, but in the event that this is not possible, your client must assume the tenant.

[28]           On April 26, 2015, Mr. Maharaja wrote to Ms. Chegini:

Despite my numerous correspondences, so far you have been ambiguous and failed to state my client whether the sellers will deliver vacant possession of the subject property on completion of this transaction. Instead you have been raising irrelevant issues. Therefore, I am left with the option to make a reasonable presumption and to act on that presumption to better serve my client. Accordingly, from all the communications I received from your office up to now, I can reasonably presume and conclude that the sellers will NOT deliver vacant possession as agreed in writing.

…

In the above circumstances, as I could and my client could reasonably believe that the sellers will NOT deliver vacant possession of the property on closing, my client will halt his efforts to sell his present property and as an effort to mitigate my client’s damages, I will also discontinue working on this file and stop dealing with the mortgagee.  I will wait until I get a signal from your office as to the date on which your client will be ready to deliver vacant possession of the subject property to my client, to advise my client and to resume working on this file.

At the same time, my client will take all necessary legal regulatory steps to recover his damages and discipline those who failed in their duties.

(Emphasis in original)

[29]           April 29, 2015 was the scheduled closing date. On that date Ms. Chegini sent a fax to Mr. Maharaja. The fax cover page stated:

My client and his realtor cannot guarantee a date for vacant possession and they no longer wish for this matter to continue, my client is of the opinion that your client knew from the beginning that he was purchasing a tenanted property and he had the opportunity to purchase this property and assume the tenant as discussed in person when he inspected the property and when he met with the tenant and your client has decided not to do so…My client asks that your client sign and send a mutual release, terminating this agreement. It is a shame that our joint efforts and hard work has gone to waste and this could have all been prevented if the tenant was assumed for the remainder of her lease. My client will not pay me for my time spent on this file, I do hope that your client pays you.

[30]           The letter appended to Ms. Chegini’s fax cover page stated:

Our client is ready, willing and able to close today so long as your client assumes the existing tenant as agreed to between the parties.

As you have indicated that your client shall not be closing today because they no longer wish to assume the existing tenant, we are holding your client in default the deposited monies may be forfeited and paid to our client and our client may look to your client for any damages and costs suffered by our client, including but not limited to any additional legal fees, and mortgage payments.

[31]           Mr. Maharaja replied:

I am in receipt of your last faxed letter which incorrectly holds my client for default.

I had the opportunity to discuss this matter with my client who proposes to proceed with a claim against the sellers who refused to comply with the terms of the Agreement of Purchase and Sale and claims/regulatory proceedings against their representatives for their failures.

Accordingly, my client instructs me to inform you to advise your clients about my client’s intent and prevent them from causing further damages to my clients.

[32]           Finally, on April 29, 2015, Mr. Maharaja wrote to Ms. Chegini to determine whether the vendors were in a position to deliver vacant possession on that date or at some later date. This letter clearly indicates that the applicant was not prepared to elect to terminate the agreement. The letter stated:

Further to my previous correspondence…I hereby request you to provide my office with an update as to the date on which the sellers will be able to deliver vacant possession of the subject property. Nevertheless, your clients’ unwillingness and inability to deliver vacant possession as stipulated in the Agreement of Purchase and Sale constitutes an anticipatory breach therefore does not require my client to tender upon the sellers.

[33]           Mr. Maharaja closed his letter by indicating that his client still wanted the property and was prepared to take vacant possession at a later date:

Apart from all what have taken place, I still believe that your office can take steps to lower any future losses by setting (with the consultation of the sellers) an alternate date for completion of this transaction. Our client informs me that he is in a position to negotiate alternatives.

In this legal proceeding, the Seller argued that:

1. the written agreement is not binding because the applicant knew there was a tenant when he made the offer to purchase the house, and

2) the respondents were told by their own real estate agent that the applicant   would retain the tenant until the end of the lease.

 An affidavit for use on a Court application may contain statements of the deponent’s information and belief with respect to facts that are not contentious, if the source of the information and the fact of the belief are specified in the affidavit.

In the present case, both parties provided Affidavits. They each refer to their respective real estate agents and what they were told by their respective real estate agents.

Neither real estate agent provided an affidavit. To the extent that the affidavits are based on hearsay evidence from the real estate agent, the facts are contentious and the evidence is not admissible under Rule 39.01(5) ruled the Judge:

[51]           For example, the Seller states in his affidavit: “It was my understanding from Mr. Paikar [the respondent’s real estate agent] that the Purchaser was retaining the tenant until the end of her lease”.

That may well have been the respondent’s understanding with his own real estate agent, but, in the absence of an affidavit from Mr. Paikar,

there is simply no evidence that there was any such oral agreement or understanding between the purchaser or his real estate agent and Mr. Paikar.

The Motions Court stated as follows:

[53]           In my view the terms of the APS are quite clear. Paragraph 2 of the APS expressly provides that “vacant possession of the property shall be given to the Buyer unless otherwise provided for in this Agreement”.

There is nothing in the APS to “otherwise provide” that the purchaser would assume the property with the tenant.

The fact that the MLS description of the property noted that it was tenanted is entirely irrelevant given the terms of sale in the APS.

[54]           Moreover, para. 26 of the APS included an “entire agreement” clause.

[55]           In Soboczyynski v. Beauchamp, 2015 ONCA 282 (CanLII), the Ontario Court of Appeal discussed the general purpose and application of an “entire agreement” clause in a contract. The Court stated, at paras. 43 to 46:

An entire agreement clause is generally intended to lift and distill the parties’ bargain from the muck of the negotiations. In limiting the expression of the parties’ intentions to the written form, the clause attempts to provide certainty and clarity….

In Inntrepreneur Pub Co. Ltd. v. East Crown Ltd., [2000] 41 E.G. 209 (U.K. Ch.), Lightman J. colourfully described the purpose of an entire agreement clause as follows:

The purpose of an entire agreement clause is to preclude a party to a written agreement threshing the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty… For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere….. [Emphasis added in original.]

Legal commentators appear to be united in their view that entire agreement clauses are, generally speaking, retrospective in nature. According to Angela Swan, “An “entire agreement” clause deals only with what was done or said before the agreement was made and seeks to exclude those statements and acts from muddying the interpretation of the agreement; it is a contractual invocation of the parol evidence rule”: Canadian Contract Law, 3d ed. (Markham: LexisNexis Canada, 2012), at p. 600 (emphasis in original); see also John D. McCamus, The Law of Contracts, 2d ed. (Toronto: Irwin Law Inc., 2012), at p. 733.

Justice P.M. Perell agrees. He says that “[t]he parol evidence rule then directs that the written contract may not be contradicted by evidence of the oral and written statements made by the parties before the signing of the contract. The entire agreement clause is essentially a codification of the parol evidence rule”: “A Riddle Inside an Enigma: The Entire Agreement Clause” (1998) The Advocates’ Q. 287 at 290-91 (emphasis added).

[56]           Accordingly, whatever understanding or misunderstanding the respondent had as a result of comments from his own real estate agent before the APS was signed, the APS, by its terms, represents the whole agreement as between the parties. And the terms with respect to vacant possession are clear and unequivocal.

[57]           There is no evidence

that the applicant made any statements or promises to the respondents subsequent to the signing of the APS to suggest that he would waive the vacant possession condition.

Indeed, the correspondence reproduced above is very clear that the purchaser, through his lawyer, insisted on vacant possession in every communication with the vendors’ lawyer.

A party to a contract repudiates by clearly stating that he or she does not intend to perform his or her obligations under the contract.

[64]           In the present case, the correspondence between Mr. Maharaja and Ms. Chegini makes it

abundantly clear that the vendor’s express refusal to give vacant possession to the purchaser on closing meant that it was the vendor who repudiated the contract.

Given the applicant’s intention to live in the property with his family on closing, this breach would deprive the innocent party of substantially the whole benefit of the contract.

[65]           In this regard,

it does not matter if the respondent honestly believed that he did not have to provide vacant possession. The test for anticipatory breach is an objective test, and the vendor’s (or his lawyer’s) mistaken belief that he was exercising a contractual right when he refused to provide vacant possession does not excuse his repudiation of the contract.

[66]           Mr. Maharaja’s letter of April 29, 2015, makes it clear that the applicant was not electing to terminate the agreement, but insisted on its continued performance and tried to find an alternate closing date in which vacant possession would be given by the vendor. Accordingly, the applicant made it clear that it was his intention to keep the agreement alive.

[67]           Significantly,

the applicant did not demand a return of his deposit, which also indicates a continued intention to enforce the terms of the APS….

[68]           The respondent, through his lawyer, took the position that “My client and his realtor cannot guarantee a date for vacant possession and they no longer wish for this matter to continue”.

It was, therefore, the respondent who breached the APS by clearly stating that they would not provide vacant possession on April 29, 2015 or on any date.

The respondents made it clear that they would not propose a new closing date for the property when vacant possession could be conveyed…..

[69]           As indicated above, I have concluded that the vendors were in breach of the vacant possession clause of the APS.

The actual ruling is set forth as follows:

Conclusion

[112]      This Court Orders:

a)        There shall be an order for specific performance of the Agreement of Purchase and Sale (APS), dated March 8, 2015, of the property legally described as Lot 143, Plan 40M2285 and municipally known as 16 Cragg Crescent, Ajax, Ontario.

b)        The Applicant may register a certificate of pending litigation against the property pending the specific performance of the APS.

c)        The Applicant is entitled to a conveyance of the property as provided in the APS on a closing date to take place within 60 days after the date of this order. If the parties need assistance as to the scheduling of the closing or any other matters related to the closing, I may be spoken to.

d)        The Applicant may pay out any liens or charges registered against the property, and any arrears of property taxes, and upon paying the balance of the amount of the purchase price to the Respondent, the Applicant’s real estate counsel may register a deed vesting title of the property in the Applicant on the agreed closing date.

[113]      If the parties cannot agree to costs, the applicant may serve and file written submissions of no more than three pages, plus costs outline and any offers to settle, within 20 days of the release of this decision, and the respondents may respond, subject to the same terms, within a further 15 days.

COMMENT

So, that was quite a case.

According to the Seller’s lawyer:

1. there was no agreement about vacant possession,
2. the Buyer knew about the Tenant in the MLS listing,
3. the Buyer had been aware on visitation to the premises that there was a Tenant,
4. the Buyer has agreed to accept the Tenant through his agent,
5. the Buyer had to accept the Tenant because the Tenant had a legal right to possession.

The Trial Judge concluded:

1. the agreement says vacant possession, that’s written down in the contract,
2. It doesn’t matter what the MLS listing said, it was not part of the contract,
3. Just because the Buyer had been aware of the presence of a Tenant, doesn’t mean that he wants the Tenant to stay, the “deal” was vacant possession,
4. The entire agreement clause prevents any verbal side agreements, otherwise what’s the point putting anything in writing(?),
5. The Buyer was given the legal right to acquire the premises by the Court.

The contract was struck on 15 April 2015 and failed to close on 29 April 2015. Over three years later, on 18 May 2018, the Motions Court Judge ruled that the Buyer was entitled to specific performance of the property.

The values on properties in the GTA escalated substantially over this three year period. The Seller’s lawyer’s arguments didn’t make any sense in April of 2015, nor do they now.

Basically, this has always been very simple and very straightforward:

1. Vacant possession needs to be provided,
2. Any side documents are not part of the deal unless they are specifically attached or referred to in the Agreement,
3. There are no verbal side deals,
4. The agreement must be in writing,
5. The parol evidence rule prevents the introduction of conflicting stories.

This is “trite law”. It has been well-known for hundreds of years. There’s really nothing “new” here. It was a very expensive lesson for the Seller to find out all about this in Court. You will see that the lawyers’ exchange of correspondence really got quite “nasty” at times.

However, as a lesson to a Buyer, sometimes the other party can be obstinate, and will fight for three years to have their own way. This can be costly, but in the end, “well-worth it”.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com