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Court orders builder to return deposit following “misleading conduct”

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QUICK HITS

  • An Ontario case highlights the rare instances in which a purchaser can recover a deposit from an APS when unable to close. 
  • The case of Naeem v. Bowmanville Lakebreeze West Village Ltd. involves a misled buyer seeking deposit relief due to a misrepresented closing date amendment. 
  • The court ruled in favour of the buyer, emphasizing that misleading conduct by the seller can factor into decisions about deposit forfeiture relief in APS situations.

 

Once a purchaser provides a deposit for an Agreement of Purchase and Sale (APS), there are very limited circumstances in which that purchaser can recover their deposit in cases where the purchaser refuses or is unable to close. 

The case of Naeem v. Bowmanville Lakebreeze West Village Ltd. illustrates the limited scenario can lead to the purchaser getting their deposit back. 

 

Facts

 

Shireen Naeem (the buyer) entered into an APS with new home builder, Bowmanville Lakebreeze West Village (the seller), to purchase a new home at 39 Larkin Lane in Bowmanville, Ont. The terms of the APS were as follows: 

(a) A purchase price of $629,900; 

(b) A deposit of $82,916.19 which included décor and structural upgrades; 

(c) A requirement that Lakebreeze comply with certain conditions if it sought to change closing dates; 

(d) A closing date of Sept. 14, 2017; and 

(e) An outside closing date of Jan. 14, 2019

A Tarion addendum was also included in the APS, which outlined how the closing date would be altered. 

 

The sequence of events

 

Lakebreeze requested to change the “firm” closing date of May 14, 2018, to a “delayed” closing date of Mar. 21, 2019 (which was beyond the “delayed” closing date stipulated in the APS). Lakebreeze provided notice of this change on May 2, 2018 (which was well beyond the required notice period). 

Shortly thereafter, a representative of Lakebreeze left a voicemail for the buyer on Aug. 27, 2018, to advise her that the dates were being moved. The representative then sent an email to the buyer requesting that she call them regarding the new closing date. 

The call was returned by the buyer’s son, who was advised — by the representative — that the buyer could send in a request for a preferred closing date. The son then asked whether or not the buyer could get her deposit back. The representative told him that someone would call back to provide a response, but, according to the buyer, no one ever did. 

The buyer emailed Lakebreeze on Aug. 28, 2018, asking for a closing date of either Apr. 30, 2019, or the first week of May 2019. Lakebreeze’s representative emailed the buyer back the following day advising her that the latest possible closing date was Apr. 23, 2019 because this was the latest date in order to “stay in the delayed compensation eligibility.” (This was a misstatement because, according to the APS, the buyer was already entitled to delayed compensation eligibility because the closing date was beyond the “firm” closing date). 

The representative followed up by sending an email to the buyer, attaching a draft amendment to the APS for her to sign. The buyer signed the amendment, and the closing date was delayed to Apr. 23, 2019. At the time she signed the amendment, the buyer was not aware — nor was she told — that she did not have to sign the amendment and that the APS was actually voidable at this juncture. The buyer did not seek legal advice before signing the amendment. 

On Apr. 12, 2019, the buyer asked Lakebreeze if the APS could be amended to add two new parties (her daughter-in-law and her son). Lakebreeze reminded the buyer that Apr. 23, 2019 –— the closing date —was approaching. On the closing date, the buyer responded, asking if she could add three new parties to the APS and delete herself from the agreement entirely. Lakebreeze refused and advised the buyer that they were terminating the APS. 

On May 16, 2019, the buyer attempted to reinstate the APS. Lakebreeze responded by advising her that the APS had been terminated and that the deposit was forfeited. 

 

The buyer’s position 

 

The buyer submitted that she was misled (deliberately) by Lakebreeze’s representative because the representative did not inform her that Lakebreeze had breached the APS by setting an improper “delayed” closing date and that the requested amendment would have had the effect of alleviating Lakebreeze of said breach. 

The buyer also submitted that she was not advised of the fact that signing the amendment was voluntary and that she could have either set a new closing date herself or accepted Lakebreeze’s repudiation of the APS and gotten her deposit returned. 

The buyer argued that the court should exercise its discretion to grant her relief from forfeiture of the deposit because the forfeiture was out of proportion to the damages suffered by Lakebreeze and because allowing Lakebreeze to keep the deposit would be unconscionable. 

Lakebreeze’s position 

 

Lakebreeze claimed that it was not in breach of the APS by moving the closing date because the Tarion addendum functioned as a “guideline” rather than a binding agreement. The agreement was also voidable by the buyer, yet she chose to sign the amendment. 

Lakebreeze further submitted that the buyer should be barred from making any argument that she should be relieved of her obligation because she voluntarily signed the amendment and because she should have obtained legal advice (as was contemplated in the APS) before she signed the amendment. 

Lakebreeze also pointed out that the buyer made a last-minute request to add parties to the APS and to remove herself (which made it clear that she was unable to close the transaction because of her financial situation) and that the buyer did not attempt to reinstate the APS until well after she was advised that the APS was terminated. Additionally, the buyer offered no evidence that she was able to close the deal on any of the prior closing dates. 

Finally, Lakebreeze submitted that “(t)he delay of the closing date as agreed to in the amendment inured to the benefit of the Buyer due to her difficulty in financing.”

 

Court’s decision: Altering the closing date

 

The court determined that the Tarion addendum was a “guideline,” and therefore, the parties were not precluded from amending the dates set out. The court also noted that since section 4(a) of the addendum stated that “any amendment not in accordance with this section is voidable at the option of the Purchaser,” any amendment that was non-compliant and that altered a closing date was voidable (but not invalid). 

The court also held that:

1) The parties were able to alter the closing date by virtue of a mutually agreeable amendment (as was argued by Lakebreeze);

2) The buyer could have sought legal advice, and she could have better understood her rights with respect to voiding the APS and getting her deposit back;

3) At the time of the request to extend the closing date, the buyer agreed to extend it;

4) The buyer could not close the deal on the extended closing date of Apr. 23, 2019, as a result of her financial situation. 

 

Did Lakebreeze mislead the buyer?

 

The evidence before the court demonstrated that the buyer was misled by Lakebreeze’s representative because the buyer “was told that she had to agree to a closing date of no later than Apr. 23, 2019 or she would lose her eligibility for delayed compensation” (which was untrue) and because she “was not alerted to the fact that the notice period for a request by Lakebreeze to further delay the closing date had passed nor that the extension of the closing date rendered the contract voidable should she wish to do this.” 

The court acknowledged that Lakebreeze was not required to provide the buyer with legal advice. Ultimately, however, Lakebreeze’s conduct went beyond merely making a request of the buyer without explaining the options available to her. 

In response to the buyer’s request for a closing date later than Apr. 30, 2019, Lakebreeze’s representative should have told her that she was entitled to a later date — instead, the representative chose to deliberately mislead the buyer. At this point, the buyer was actually entitled to void the APS and get her deposit returned. 

Another reason why the court held that Lakebreeze misled the buyer had to do with “the failure to answer the Buyer’s son’s question about the possibility of getting the deposit back.” 

 

Forfeiture of the buyer’s deposit: The law 

 

Lakebreeze sought to hold the buyer to the strict terms of the agreement despite the fact that it deliberately misled her about the terms of the agreement. The court found that Lakebreeze’s conduct did not necessarily amount to a breach of the APS, but it did factor strongly into the court’s analysis with respect to whether or not the buyer would be relieved from forfeiting her deposit.

The court pointed out that section 98 of the Courts of Justice Act, which allows a court to “grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just” — was to be given a fair, large and liberal interpretation. 

The court also held that granting relief from forfeiture is a “power is predicated on the existence of circumstances in which enforcing a contractual right of forfeiture, although consistent with the terms of the contract, visits an inequitable consequence on the party that breached the contract.” 

Furthermore, since courts grant relief from forfeiture of a deposit (in the context of agreements of purchase and sale) “where the deposit constitutes a penalty,” the court found it important to determine whether the deposit was out of proportion to the damages suffered and whether retention of the deposit would be unconscionable. The court also clarified that a finding of unconscionability “must be exceptional and strongly compelled on the facts of the case.” 

The court then referred to paragraph 30 of the Redstone Enterprises Ltd. v. Simple Technology Inc. decision, which outlined factors to be considered in determining whether forfeiture should be considered unconscionable. Some of these factors include: 

a) The relative bargaining powers of the parties

b) The relative sophistication of the parties; 

c) The existence of bona fide negotiations; d) The nature of the relationship between the parties; 

e) The gravity of the breach; and 

f) The conduct of the parties.

 

Forfeiture of the buyer’s deposit: Application of the law to the facts 

 

Lakebreeze was a builder and vendor of residential homes who was in the business of negotiating agreements of purchase and sale with prospective homebuyers. The buyer was a widow who worked two jobs whilst undergoing cancer treatment in order to save enough money to put down a deposit on a home for her family. 

Negotiations between Lakebreeze and the buyer (regarding the extension of the closing date) involved Lakebreeze failing to answer the buyer’s question (regarding the return of her deposit), misstating the facts (with respect to the period of eligibility for delayed compensation), and going ahead with producing an amendment with a closing date that was contrary to what the buyer requested. Lakebreeze also engaged in such conduct whilst knowing that the APS was voidable at the request of the buyer without any penalty. 

Lakebreeze suffered no loss as a result of the failure to close the transaction yet wished to hold the buyer to the amendment. The court found that it would be unconscionable to do so.  

Lakebreeze was to return the deposit of $82,916.19 as well as pre-judgement interest to the buyer.

 

Summary

 

When a purchaser and a builder and vendor of residential homes (in the business of negotiating agreements of purchase and sale with prospective homebuyers) enter into an APS, there may be issues with the agreed-upon closing date. 

Negotiations regarding amendment of a closing date will be found to be misleading if: 

1) One of the parties misstates the facts to the other party with respect to agreeing to a certain date and then forges ahead with producing an amendment with a closing date contrary to what was requested by the other party;

2) One of the parties fails to answer the other party’s question regarding the return of a deposit and/or 

3) One of the parties was not alerted to the fact that the notice period for a request by the other party to delay the closing date has passed (thereby rendering the contract voidable). 

Such misleading conduct will not necessarily amount to a breach of the APS, but it will factor into a court’s analysis of whether or not a requesting party should be relieved from forfeiting his/her deposit. 

 


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