Real Property Outline – Curran – Spring 2011

NOTE: How to approach a contract:1) Is there a contract?

a. Did the parties intend a contract to be formed?b. Was there offer (not just a letter of intent), an acceptance to the offer, and some consideration?

i. If acceptance amended a term to offer, it is a counter-offerii. Consideration: Deposit on purchase price constitutes consideration

c. Elements of a contract must be present:i. Fundamental elements: parties, property, price

ii. Conditions and terms must not be so vague that the contract is uncertain2) Is the contract enforceable?3) Deposits: Look at deposits after determining whether contract is enforceable – different results if k is not.

How to approach a Question: 1) Look at contract itself: SFK, Property Disclosure Statement2) Legislation, real estate counsel rules and RESA, LTA, Law and Equity Act3) Cases: General principles from cases, specific cases to deal with particulars.

Definitions:- Conveyance: Actual instruments used by which ownership or an interest in the land is transferred from one party to another –

the documents used to transfer land. Includes the documents being prepared and executed. o Moment of conveyance is the transfer of executed and signed documents.

- Encumbranceo Burden on title that limits fee simple: any charge, lien, mortgage, judgment, covenants, and easement.o Prevents the vendor from having clear and free title.

- Covenant: Positive or negative promise to do or not to do something – CL only recognizes restrictive covenantso Registered on title, run with the land and binds successive purchaserso Can apply to have a covenant dischargedo Examples: Covenants restricting height of buildings, restriction from cutting down certain trees.o S. 219 Land Title Act recognizes statutory covenants

- Easement: Party with an easement over land has a right to do something on that land for a particular purpose. o Ex. easement to access an adjoining property, for utility and sewage line, for entry onto property to make repairs.o Registered on title and run with the land. Party does not own the easement, but owns the ability to use the land for

the specified purpose.- Lien: Encumbrance on the property used as security for payment of a debt or a claim of a debt

o Notifies potential buyers of financial outstanding dealings that the property will be implicated ino Vendor must discharge the lien before the conveyance – otherwise the purchaser will obtain a property with an

outstanding lien on it

The Real Estate Market and the Business of LawCauses of high solicitor liability:

- Residential real estate law is leading area for claims from the Lawyer’s Insurance Fund o Policy coverage: Coverage for insured lawyers in BC. Claims reported to Lawyer’s Insurance fund, and if they are

within the deductible, the lawyer can avoid repercussions.- Communications: Failure to consult with and receive instruction from client, breakdown of communication with legal assistant

and lawyer, failure to inform client of charges on title, failure to receive and fulfill undertakings- Oversights: Sloppy practices – not great moneymaker so lawyers take shortcuts to speed process - fail to confirm dates, send

documents, confirm contract, notice charges on title or hold backs on purchasing price, drafting errors, improper searcheso the world subject to exceptions – such as subject to property tax.

- Unmanageable risk (aka fraud)- Legal issues – changing law and changing approaches (ex new ability to e-file)- Engagement Management Failure in managing and meeting expectations: Client expected lawyer to do something that they had

not undertaken to do - No trail of communication or confirmation of instructions or changes or instructions: Confirmation of title, changes in instruction

must be in writing

Lawyer Oversight: How lawyers are regulated- 1. Legal Professions Act: Establishes Law Society BC, which establishes how lawyers will be certified, how they will conduct

themselves. Attached to Lawyer’s Insurance Fund. - 2. Law Society Rules: Sets out how you become a member, disciple procedures, how Law Society is governed

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- 3. Law Society of BC: Residential Conveyance Procedure Checklist: Procedure for residential conveyance (initial contract, review validity of purchase contract, search title in LTO, consult with client and obtain instruction, follow up with client, obtain freehold transfer, closing, post-closing procedures.

- 4. BC Real Estate Practice Manual: Reference forms and Precedents for conveyance matters- 5. Professional Conduct Handbook: Chapter 12: Statement of how lawyers are to conduct themselves in their dealings, general

canons of legal ethics, specific rules.o Lawyers can hire employees, must lawyer must maintain contact with client at all times, must directly supervise

employees, must maintain actual control of the files.o Legal assistants can be delegated tasks, but lawyer maintains full professional liability.o Paralegals can draft documents, cannot review documents before signing or review search reports. o If lawyer is realtor and lawyer – lawyer can show the property, can held execute necessary documents

Regulatory Context: Context in BC – Aboriginal Rights and Title, Torrens SystemAboriginal Title

- Unextinguished Aboriginal title and rights on BC land- Recognition of Aboriginal rights by courts: entitlements to use or ownership of land is a pre-existing legal right that is not

constitutionally protected by is not recognized by statute.- Aboriginal title – unique proprietary interest arising from prior use and occupation of land that confers exclusive use and

occupation to the land. Can be infringed but not extinguished by the Crown (burden on Crown title) (Delgamuuk v BC)- Aboriginal title is not registrable in the BC LTO (Uukw v BC)- Cannot register encumbrances on existing land:

o Decision to refuse to register a certificate of pending litigation (challenge to fee simple transaction on basis that Ab title exists on the land) upheld (Skeetchstn v BC)

- Title claim failed on technicality, but in obiter judge held that the Ab band had title on 200 hectares of land that has not been extinguished by private land conveyance of fee simple title. (Tsilhgot’in Nation v BC, 2007)

- Indian reserves not party of Torrens system, but some FN through special acts of Parliament have opted into Torrens system.

Colonial Torrens SystemLand Title Act

- Purpose of Torrens System: Certainty of title and transparency allows us to easily enter into land transactions without worrying about charges on title

- Facilitates transfer of land: Title search shows all encumbrances on title in central location; no need to search anywhere else. - S. 20: Unregistered instrument does not pass: Instrument must be registered in compliance with the LTA in order to operate a

transfer or charge land. - Indefeasible title: Registration of certificate of title is conclusive evidence that the person named on title is indefeasible

entitled to land in fee simple. Ownerships is against the world, regardless of past encumbrances and ownerships (S. 23)o Subject to certain qualifications: Crown dispositions (municipal taxes, public easements, rights of expropriation, etc.)

- Title obtained through registration – instruments must be registered to have an impact on title (S. 20)- Registered indefeasible title owner is protected against actions for the recovery of land, absent narrow circumstances (S. 25) - S. 22: Instrument is effective as from the time of registration, regardless of the date it was executed- Charges: Registered owner of a charge less than fee simple is deemed to hold a valid interest in the land (S. 26)

o Registration of the charge gives notes of the interest on which the charge is registered (S. 27(1))o If there is a mortgage on title, the vendor must deal with the mortgage before he can transfer land (S. 27(2))

- Priority of competing charges is based on date and tile of registration (S. 28)- Notice is irrelevant for land transfers: All instruments must be registered on title – Except in the case of fraud, anyone taking

land from a registered owner is not affected by unregistered interest (S. 29)- S. 24: Title by prescription abolished- S. 33: An equitable mortgage or lien is not registrable

Strata Property Act- Sets out particular special rules for common lands and common assets provided for the creation of legal division of parcels

called strata lots - Each owner has ownership in fee simple in their own particular unit, and everyone owns the common property as property in

common (halls, landscape). - Government structure – strata council – rules for common property, creates by-laws

Property Law Act- Contains substantive law

Family Relations Act- Spouse who is not registered on title may be given rights to title

Fraudulent Conveyance Act & Fraudulent Preference Act- Cannot assist someone to convey land if the purpose os to defraud creditors- Chapter 4 Rule 6 Professional Conduct handbook: Lawyer must not engage in conveyance that they know is fraudulent/purpose

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is to defraud creditors. BC Residential Conveyance Procedure Checklist: Steps in a Conveyance

- Purchaser’s lawyer often acts for the purchaser and for the bank (who provides the mortgage. Purchaser’s lawyer has responsible to:o 1) Gather information: Search title, collect financing information, search tax holdbacks, etc.o 2) Prepare and execute documents – confirm with cliento 3) Effect the conveyance: receive funds, register documents, pay out funds.

- Purchaser’s lawyer will use Checklist – checklist identifies issues that must be addressed – HST, client identification and verification, restrictions on handling cash, Aboriginal rights

- Checklist identifies rsks:1. Initial Contact- Client identification and verification rules: satisfy yourself that the legal identity of purchaser is such so that they could continue with the

conveyance, confirm terms of your retainer – see Law Society report. o Generally over the phone

- Retainer agreement: Establish parameters of what you will and wont’ do for the client, cost, client instructions – confirm terms of retainer. o Send letter to client regarding these terms – limits liability.

- Consider conflict of interest problems. - Obtain and review purchase agreement for whether it meets form requirements, problems with the conveyance. 2. Review Purchase contract and property disclosure statement/Client Interview to discuss particulars- Ensure valid/enforceable contract, discuss any deficiencies with the client- Adjustment date must be defined:

o Date when all the financial matters to do with the property switch from the purchaser to vendor, and the vendor is not longer responsible for taxes/insurance. Purchaser takes on responsibilities.

- Confirm requirements for chosen method of financing- Confirm property size, price, secure dates.- Determine whether there are any unwritten representation or warranties – anything no in the contract that is important to the client. - Address zoning concerns, problems under FRA, and environmental considerations, whether a survey certificate is necessary.3. Search title- Due diligence for whether title is marketeable – clear and free of encumbrances (with only those encumbrances purchaser is ok with). - Obtain a search of property (Land Title Search) and a plan of the property from the LTO, - Ensure registered owner on title is same as vendor on the contract- Determine level of tax that will be applied on property, confirm with client- Review the purchase contract with client to ensure they understand and that it embodies everything that they think will happen during the

conveyance4. Follow-Up from Interview and Title Search- Send client a letter summarizing everything (state of title, etc)- Contact vendor-solicitor, confirm closing procedure- Financing: If mortgage on title for purchaser to assume, assume it is assumable, otherwise order payout statement to discharge mortgage.- Discuss any encumbrances with vendor’s lawyer- After discussion with vendor’s lawyer, confirm everything in a written letter5. Prepare Documents- Forms for land transfer, for charges, for mortgage documents, tax return Statement of adjustment: Shows exactly who owes what at what

point in time6. Matters before Closing- Ensure all searches have been returned and reviewed- Undertakings: Chapter 11 Rule 8 and 8.1 deemed undertakings

o Establish appropriate undertakings for closing with vendor’s lawyer, obtain client’s consent. - Obtain mortgagee’s consent and assume mortgage- Execute all documents with client, receive necessary funds to complete.- Deposit funds in trust account. 7. Registration- Arrange for registration of Land Title documents in LTO.8. Closing procedures- Conduct post-registration index search to ensure on intervening charges or encumbrances. - Request and obtain funds from mortgagee’s solicitor. - Pay out balance of the funds to seller, real estate agent, mortgagees, tax authorities.- Obtain and register and discharges of mortgage- Obtain certificate of title. - Report to your client on registration.9. Post-closing- Transfer funds from trust account to pay fees and disbursements- Pay any holdback amounts after appropriate confirmation.- Ensure the lender has repaid mortgage and dischar- Present final report to your client, enclosing certificate of title. - Close file, retain it for a reasonable period (10 years is the requirement under Law Society Rules)LIMIT LIABILITY: - Keep paper trial of what was said and agreed to and have this confirmed by client- Continue to do title searches along the way to ensure clear title.

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MARKETING THE PROPERTY- Licensees represent either a vendor or purchaser- Vendor’s licensee: provide an estimate of the value of the property, advertise the property using mechanisms such as MLS,

and negotiate the terms of sale on your behalf- Purchaser’s licensee: seek property that you would find desirable, advise you on merit of the property, advise you on how

much to offer, negotiate purchase terms, arrange financingo Purchaser’s licensee creates the contract for purchase and sale – will execute documents, will use Checklist (above)

- Licensee provides advise and holds himself out to vendor/purchaser as expert reliance on this expertise by vendor/purchaser is what gives rise to liability.

Regulatory Framework- Statutory rules apply to licensees – will be liable for breach of Real Estate Service Act- Common law and tort rules apply – liable for breach of contract at CL, negligence- Can bring action against licensee:

o (1) Under Real Estate Service Act and Rules, o (2) In Contract – breach of warranty, breach of contracto (3) In Tort – negligent misrepresentation, professional negligence, fraud.

Real Estate Services Act: - Establishes Real Estate Council that governs the licensing and discipline of realtors- Explicit regulation of licensees – statutory duties of licensees

o Council rules and bylaws impose further obligations: disciplinary proceedings, regulation of licensees, etc.o Disciplinary procedure: Rules establish administrative penalties for licensees who contravene Rules

- Application: Act applies to every person who provides real estate services, whether or not they receive remuneration, or act on their own behalf (Section 2)

o S. 1: Real estate services: Rental property management, strata management, trading services (advise on price, making representations about the real estate, showing real estate, negotiating a price, presenting offers, etc.)

- Licensing:o S. 3: Anyone providing real estate services must be licensedo S. 4: One cannot bring an action to receive remuneration for one’s real estate services unless one is licensed to

provide real estate services at the time.Statutory Sanctions of Licensees: REAS:

- Part 4: Discipline proceedings and other regulatory proceedings (fines)- Part 5: Special compensation fund for fraud and misappropriation of funds

NOTE: Real Estate Developing Marketing Act (REDMA) – disclosure requirements by owner-builder- Formerly Part 2 of Real Estate Act- Applies to any developer who markets a development unit in BC

o Lawyer who is marketing Real Estate must comply with this Act- Disclosure requirements to first time buyers from owner-builder who knows the quality of the property and the by-laws that

surround ito Must disclose: name of developer, his expertise, how the strata assessments are made, etc.

- Lawyer can market under this disclosure for 9 months, at which point the lawyer must obtain new disclosure (i.e. who is new developer, etc.)

- Ensures adequate disclose to purchasers regarding development unit, helps first time buyer assess their risk in purchasing a new property.

Personal Information Protection Act BC- Regulates how private sector organizations collects and discloses personal information- When requesting information, licensees must seek consent in “working with the Realtor” document gives person a right to

know why their information is being collected

Real Estate LicenseesRelationships with Principal:

- Licensees viewed as agents of the vendor or purchaser (who is principal) acting on their behalf Licensee given authority to make representations on behalf of the principal.

- Licensee has a fiduciary relationship with their principal- Agency relationship may arise without oral or formal written contract, may be implied from dealings with and for the

purchaser- Law recognizes a gratuitous agency where the principal authorizes the agent to act on his behalf, and the agent does so

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- Once law recognizes an agency relationship, the agent will have to perform to the standard of a reasonably competent real estate licensee acting for the purchaser.

Agent’s Authority:- Licensee has authority to find a willing purchaser, - To negotiate a deal- Authority ends with completion of the deal between vendor and purchaser

Representing the Seller, Buyer, or Both: Who is the Principal?- Listing licensee (and its brokerage) Agent for vendor

o Engages with vendor, gives advise, lists house for sale. o Note: Once vendor joins MLS, they sign a contract that anyone from the brokerage may show their property, not

just the listing licensee. - Selling licensee Presumption of being agent for purchaser - but could also be a licensee with no pre-existing relationship

with vendor or purchaser, could also be the listing licensee.- Categories unimportant for determining whether licensee owes a duty to the vendor or purchaser: depends on the nature of

the relationship and who relied on the licensee for his advise. Types of Contract:1) Exclusive Buyer-Agency Contract:

- Contracts between buyer and agent not normally used. - Licensee may require a contract to formalize the relationship between purchaser and agent and clarify roles – ex. specifies

that agent may work with purchaser for a specific time period to sell the home2) Limited Dual Agency Agreement:

- Agreement entered into when a real estate agent acts for both the vendor and the purchaser that limits the fiduciary obligation to avoid a conflict of interest.

- Purpose of obtaining dual agent: facilitate the speed and efficiency of transactions, obtain licensee who is an expert in dealing with certain kinds of property.

- General Rule: Because of difficulties in avoiding divided loyalties, general rule that agent should not act for vendor and purchaser.

- Exception: Will full and fair disclosure of the conflict and with the parties consent, licensee can act for both sides of the transaction:

- Agent can act for both vendor and purchaser under limited dual agency agreemento Must be agreed to and signed by vendor and purchasero Signed as an addendum (attachment) to the SFK of purchase and saleo Parties agree and acknowledge that the brokerage and its licensee will be the agents for both the buyer and seller

and will represent them as limited dual agents. - Agreement limits the CL and statutory duties of full disclosure owed to the vendor and purchaser to the extent necessary to

allow one licensee to act for both parties. - Limitations to licensee’s duty as agent: Agreement:

o A) Brokerage must deal with buyer and seller impartially (duty to be fair)o B) Brokerage will still have duty of disclosure, but limited by:

i) Brokerage will not disclose the maximum price the buyer is willing to pay or the minimum price the seller is willing to accept; or any other terms they are willing to accept;

ii) Brokerage will not disclose the buyer’s motivation for selling or leasing unless authorized by the seller to do so;

iii) Brokerage will not disclose personal information about the parties other than what is necessary for the transaction documents unless authorized in writing

o C) Without limiting Clause 3B, the Brokerage will disclose to the Buyer defects about the physical condition of the Property known to the Brokerage

- Limitations avoid conflict of interest

Licensee as dual agent for himself as vendor and for purchaser: (DeJesus v Sharif)- Limited dual agency agreement cannot apply to limit the licensee’s fiduciary obligations when the agent himself is acting as

vendor or purchaser. o When licensee is also vendor, the purchaser must obtain ILA and licensee cannot be dual agent for himself and

purchaser. o Not possible for agent to be impartial between the two principals when he himself is one of the principals:

impossible to avoid conflict of interest.- When licensee sells property for which he has a legal or beneficial interest, or advances money as a loan to his principle,

there is a presumption that he breached his fiduciary duty as agent and abused his position to influence the principal to buy.o Presumption can be rebutted by proving that the transaction was fair and the licensee fully disclosed their interest

in the property or in the transaction, and that the principal was advised to obtain ILA.

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DeJesus v Sharif- Facts: Contract of purchase and sale and dual agency agreement signed stating that vendor would act as licensee for himself to sell his own

duplex and for purchaser. Two days later, signed addendum stating that purchaser was advised to obtain ILA and hire a realtor. Purchaser wanted property to use as care home. Vendor did not tell purchaser she was paying more than the fair market value of the property. Problems with duplex – unable to bring revenue. Purchaser sold property, suffered loss.

- Held: Licensee liable for breach of fiduciary obligation by not disclosing material information regarding the property’s fair market value. Dual agency agreement does not limit fiduciary obligations, and addendum does not apply because it was entered into after the fiduciary obligation was breached.

- Note: Clean hands doctrine: o Plaintiff must come with clean hands (no wrongdoing), but there must be a direct connection between the plaintiff’s wrongdoing

and the claim against the defendant for the court to limit the remedy to the plaintiff

Duties:Duties from Agent to Principal

- Real estate brokers and salespersons are subject to statutory regulation- Contract law: Agent may enter into a written agreement with the vendor or the purchaser - typically these agreements are

rudimentary and say very little about the duties of the agent. - Typically, the general law is more significant than the statutory provisions or any written contract

Statutory Duties: Real Estate Service Act:

- S. 35: Professional Misconduct and Conduct Unbecoming of a Licensee:o (1) Licensee commits Professional misconduct when they:

(a) contravenes this Act, the regulations or the rules; (b) breaches a restriction or condition of their licence; (c) does anything that constitutes wrongful taking or deceptive dealing; (d) demonstrates incompetence in performing any activity for which a licence is required; (e) fails or refuses to cooperate with an investigation by council or a superintendent (f) fails to comply with an order of the real estate council, a discipline committee or the superintendent; (g) makes or allows to be made any false or misleading statement in a document that is required or

authorized to be produced or submitted under this Act.o (2) Licensee commits conduct unbecoming of a licensee when their act:

(a) is contrary to the best interests of the public, (b) undermines public confidence in the real estate industry, or (c) brings the real estate industry into disrepute.

- So licensee has duty to not do any anything that constitutes wrongful taking or deceptive dealing, duty to act in the best interest of the public and not bring the real estate industry into disrepute.

Real Estate Counsel Rules: Duties to Principal:- Rule 3-3(2): Can modify duties between parties- Rule 3-3: Subject to subsection (2), if a client engages a brokerage to provide real estate services to or on behalf of the client,

the brokerage and its related licensees must do all of the following:o (a) act in the best interests of the client;o (b) act in accordance with the lawful instructions of the client;o (c) act only within the scope of the authority given by the client;o (d) advise the client to seek independent professional advice on matters outside of the expertise of the licensee;o (e) maintain the confidentiality of information respecting the client;o (f) disclose to the client all known material information respecting the real estate services, and the real estate and

the trade in real estate to which the services relate;o (g) communicate all offers to the client in a timely, objective and unbiased manner;o (h) use reasonable efforts to discover relevant facts respecting any real estate that the client is considering

acquiring;o (i) take reasonable steps to avoid any conflict of interest;o (j) if a conflict of interest does exist, promptly and fully disclose the conflict to the client.o (2) By agreement between the brokerage and the client, one or more of the duties under subsection (1) may be

modified or made inapplicable.- Rule 3-4: Licensee has a duty to act honestly and with reasonably care and skill- Brokerage must enter a written service agreement with client before it can represent and offer services to client, unless this

requirement has been waived by the client. (Rule 5-1). o Copy of the agreement must be delivered to clients upon its execution (Rule 5-2)

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o Licensee must obtain permission to sign the agreement on behalf of the client (Rule 5-3)o Signed agreement must be delivered to each party to the estate and the brokerage (Rule 5-4)o Licensee must not induce any party to an agreement to break the agreement for the purpose of entering into an

agreement with another party (Rule 5-5). - Disclosures: Disclosures must be in writing (Rule 5-8)

o Licensee must disclose to their principal if they have an interest in the trade (if they will directly or indirectly acquire real estate from the trade) (Rule 5-9)

Indirectly: Licensee will sell property to a 3P, who will then sell the property to the licensee.o Licensee must disclose the nature of the relationship and of the representations he will provide to the client,

whether he will provide services to any other person, and whether he expects to receive remuneration from any other person (Rule 5-10)

o Licensee must disclosure any anticipated remuneration other than that being paid directly by the client – ex as a result of recommending a home inspector or lawyer, (Rule 5-11)

o Other than remuneration, must disclose any anticipated benefits in relation to rental property management services and strata management services before benefit is accepted (Rule 5-12)

o Must disclose material latent defects to a client before agreement to acquire or dispose of real estate is entered into. Licensee cannot withhold a disclosure if a client instructs them to do so.

Material latent defects: Not readily ascertainable – defect cannot be discerned through a reasonable inspection of the property. Defect renders property dangerous, unfit for habitation or for the purpose for which a party is acquiring it, and it would be a great expense to fix.

- Duty to obtain license:o Licensee must not pay or be paid by a person relating to real estate services if the person is unlicensed (Rule 6-1)o Brokerage must not provide real estate services on behalf of a person unless that person is licensed in relation to

these services. (Rule 6-2)

Duties in Contract and Tort:- The duties of the licensee can be modified by agreement between the parties however licensee must always act with care- Duties in contract and tort exist even if there are no fiduciary duties

1. Duties to obey instruction of our principal (Glasner v Royal Lepage)- Instructions from principal must be reasonable and lawful

2. Duty to exercise reasonable care and skill (S. 35 RESA, Baille v Charman)- Standard of care: a licensee acting for a vendor or purchaser must provide his services to the standard of a reasonably

competent realtor in that particular market and must exercise reasonable care, skill and knowledge (Price v Malais)- Specialist: Higher standard of care applies to licensees who hold themselves out as specialists in that particular type of

property (Baille v Charman)o Licensee who holds themeslevs out as experts (ex expert in waterfront property) must exercise a duty of care and

skill and diligence higher than the usual standard of care of reasonable diligence and skill.- SOC applies whether the agent is paid directly or indirectly y sharing the commission paid by the vendor’s agent.- Recognized duties:- 1) Property Valuation: Property valuation must be reasonable.

o Duty to exercise the degree of care and skill of a reasonably skilled licensee in that market, not to the skill or an appraiser (Nixon v Eden)

So not necessarily best value for propertyo Advise you give to your principal for value of property, and advise for price they should buy/sell must be reasonable

- 2) Duty to Verify Material Facts:o Duty applies to both selling and listing licensee (Fletcher v Hand)o Even if listing licensee says that verified all facts, selling licensee has duty to verify material facts (f fundamental to k)o Both licensees have duty to verify that renovations to property have been done in accordance with municipal

policies before selling property (Jakube v Sussex Realty) o Stated goal of purchaser in buying property may dictate licensee’s duty: licensee has duty to verify facts that they

know are material to the purchaser (Price v Malais) – ex. Constructing a pool on property.- 3) Marketing Material: (NOTE: Multiple Listing Service: Open to realtors and public to upload property to the listing)

o Duty of reasonable care and skill in preparing marketing material (MLS), duty of accuracy and competenceo Where purchaser relies on marketing material, and the marketing materials prove not to be true, purchaser can

rescind the k for fundamental error. Ex. assertions on the soundproofness of the building

- 4) Preparation of the Purchase Contracto Duty to exercise reasonable care and skill in drafting and enforceable contract of purchase and sale. o Liable in negligence for failing to provide title clear of encumbrances, and for allowing principal to sign contract that

without clear title (Price v Malais)

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- 5) Duty to act with Skill and Diligence:o Must exercise skill and diligence in listing property, showing property, attempting to sell the property

3. Duty to not mislead or deceive principal (Knoch Estate) see Duty to not make Fraudulent or Negligent Misrepresentation (pg 10)Contractual Duties to Vendor may include:

- Confirming information provided by the vendor about the property being sold, (title, size, zoning, etc)- Following the instructions of the vendor and pointing out if an offer received from a purchaser is inconsistent with those

instructions; - Drafting an agreement that is not ambiguous, unenforceable, or contrary to the vendor's instructions- Reviewing the agreement of purchase and sale to ensure that the vendor does not promise to deliver an unencumbered title

or vacant possession when the vendor is unable to do so - Striving to obtain as high a price as possible for the property being sold.

Contractual Duties to Purchaser may include:- Confirming the information provided by a vendor or a vendor's agent about the property being sold (title, size, configuration,

dimensions, water supply, zoning) - Following a purchaser's instructions and to pointing out if an offer or an amended offer received from a vendor is inconsistent

with those instructions; - Following a purchaser's instructions about the acceptable range for monthly mortgage payments or the duration of the term

in a mortgage to be assumed etc.- Purchaser’s agents who provide false or inadequate information are liable for negligent information – ex info about income,

expenses, financial performance of a business or income-generating property, zoning of property, etc.

Damages- An agent is responsible to his or her principal for any loss occasioned by the agent's want of proper care, skill, or diligence in

the carrying out of the agent's undertaking. - When an agent breaches his or her contract or duty of care, he or she may not be entitled to be paid a commission and may

be liable for damages Baillie v. Charmano BUT an agent may still be entitled to a commission if the breach is not material or causative of the vendor's or

purchaser's loss.- An misrepresentation that affects the purchaser’s ability to enjoy the property and that goes to the core of the contract

entitles the purchaser to repudiate the contract (Price v Malais)

Price v Malais:- Purchaser told licensee they wanted to construct pool on property. Listing licensee failed to mention a water easement on property

prohibiting building of structures within 10 feet of easement. Licensee allowed purchaser to sign agreement for purchase and sale that stated the property had “good title”. Purchasers sought to repudiate contract.

- Held: Easements are common to he area and licensee had a duty to disclose its existence. Easement constitutes a significant burden on title that limits the purchaser use and enjoyment of the land. Licensee negligent in failing to provide necessary care and skill (in preparation of purchase contract – no clear title, failure to verify and disclose material facts)

Fiduciary Duties:- In addition to duties in k or tort, realtor may have fiduciary responsibilities: heightened duties of disclosure and allegiance to

the principal beyond the contractual obligation, cannot be in a conflict of interest with principal (ex. cannot make a secret profit/benefit from purchase)

- Fiduciary duties mirrored in the S. 35 Real Estate Service Act, Real Estate Counsel Rules, and tort law- Fiduciary duties can be contracted out of with consent of principal.- Presumption in law that listing licensee owes fiduciary duty to vendor (DeJesus)- Presumption in law that selling licensee owes fiduciary duty to purchaser - Rebuttable by licensee by showing that the relationship was not one of reliance, trust and confidence, based on the

circumstances.- Other relationships may give rise to fiduciary relationship depending on facts: must be reliance and change of position based

on this reliance. - Onus on licensee to prove that they have discharged their fiduciary duties (Ocean City Realty)- It is the nature of the relationship, but the specific category of acts involved that gives rise to fiduciary duty (Baille v Charman)

Test for Fiduciary relationship:- Beneficiary relied on and reposed trust or confidence in the person who assumed the responsibility to act in their best

interest. - Principal relied on licensee to make recommendations/give advise in their best interest because of their skill and expertise, is

vulnerable or dependent upon the fiduciary exercising its discretion or power because of this trust and reliance, and altered their position due to this reliance.

- No fiduciary duty if beneficiary does not repose trust and reliance in the licensee. Mere fact that licensee is agent for the purchaser or vendor for certain purposes, this does not establish a fiduciary relationship (Knoch Estate)

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o Payment of a commission and references to the licensee in a contract are not determinative of whether a fiduciary relationship exists (so licensee is entitled to make a profit from transaction, no duty to avoid conflict of interest) (Knoch Estate)

Fiduciary duties:- Duty to be loyal – main responsibility of fiduciary. - Duty to avoid conflict of interest

o Cannot put own interests in conflict with Principal’s interestso Conflict rule: Absent fully-informed consent, fiduciary should not enter into engagements in which he has an

interest that is adverse or potentially adverse to the beneficiary’s interest- Duty not to make a profit (especially secret profit) – Part of conflict of interest

o Real Estate Counsel Rule 5-11: License must disclose any remuneration other than what is being paid by cliento Profit Rule: Absent consent, fiduciary should not profit from the fiduciary relationship beyond the agreed

remuneration If fiduciary profits, these profits must be accounted for (Baille v Charman)o Duty not to make a secret profit is very strict

If principal has reposed trust in the licensee, licensee has duty to disclose all profits they make from the transaction – including re-selling the property for a higher price to make a profit (Baille v Charman)

- Duty of full disclosure: o Duty to disclose all material information to beneficiaryo Test: Whether a reasonable person in the agent’s position would consider it likely that the information would

influence the conduct of the principal.o Duty to disclose all information that may impact the way principal interacts with the licensee or that may influence

the principal’s conduct. - Agent cannot act for two principals without consent

o Rule 5-10: Licensee must disclosure if acting as dual agent. o Dual agent’s fiduciary duties: Dual agency agreement does limit duty of disclosure, but licensee still has a duty to

disclosure the fair market value of the property (DeJesus v Sharif)- Fiduciary relationship does not end with the original signing of the agreement of purchase and sale: agent has a continued

obligation to disclose his interest in the transaction even after the contract is signed (ex. to re-sell property later) (Baille v Charman)

Baille v Charman- Selling licensee owes fiduciary obligation to vendors because licensee had written a letter acknowledging that he was acting in the vendor’s

interest, knowing tha tit might influence the vendor to lower its selling price. - Vendors relied on selling licensee’s recommendation to reduce price and altered their position = licensee had a fudicuary duty not to make a

profit.- Held: Licensee breached this duty by reselling the property at a higher value and making profit. - Damages: Profits to licensee will be awarded to plaintiff, also awareded the loss of the two commissions and the accounting of net profits on

the resale of the vendor’s home.

Duty from Principal to licensee- 1. Duty to disclose all material facts to licensee – especially regarding the state of the property

o Must be honest on what you tell your licensee about the status of your property o Ex. roof leaks, areas built without permit

- 2. Duty to cooperate with listing licenseeo must be reasonable cooperation: Ex. Must make house available for showing.

- 3. Duty to pay commission

Duty from Agent to Third Parties (duties in tort) (usually statement between listing licensee and potential purchaser)- 1. Licensee owe a duty to exercise with care in giving advice to third parties who rely on this advise (i.e. not to make

negligent or fraudulent misrepresentations) (Hedley Byrne Ltd v Heller)- Quasi fiduciary relationship between potential purchaser and listing licensee (Bongo v Holt)

o Quasi-fiduciary relationship regarding statements on the quality/state of the property: where a purchaser alters his position as a result of reasonable reliance on statements made by the listing licensee, liability is attracted due to a breach of duty of care.

o Duty to gather all relevant information for purchaser and to check details.

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- 2. Duty to disclose all material latent defects:o Rule 5-13 of Real Estate Counsel Rules

- Duty not to make Fraudulent or Negligent Misrepresentation. o If 3P relies on licensee’s false information or wrong advise about the state of the property, liability in negligence or

fraud may arise.- Statements giving rise to negligent misrepresentation can be made by:

o Misrepresentation: Statement must be about something material to the contract that leads to an incorrect belief as to the state of the property or the transaction itself.

o 1) Positive statements by licensee: Licensee has a duty to ensure their positive statements are true. Ex. statement that they are no leakage problems in the house

o 2) Marketing materials for property False information on MLS can be negligent misrepresentation.

o 3) Licensee’s failure to verify facts stated by vendor: Licensee’s failure to verify vendor’s greatly inflated facts about the ability to build a well on the property

constitutes a positive negligent misrepresentation (Fletcher v Hand)- Elements of the tort of negligent misrepresentation are (Hedley Byrne Co):

o (1) a false statement by the defendant; o (2) the defendant owing the plaintiff a duty of care; o (3) the defendant failing to meet the standard of care (breach of duty of care); o (4) the plaintiff reasonably relying on the information or advice and o (5) the plaintiff suffering damages.

- Elements of the tort of fraudulent misrepresentation are:o (1) a false statement by the defendant; o (2) the defendant knowing the statement is false or being indifferent to its truth or falsity; o (3) the defendant having an intent to deceive the plaintiff; o (4) the false statement being material and the plaintiff being induced to act; and o (5) the plaintiff suffering damages.

- Liable for Misrepresenting Material facts the licensee is expected to know:o Licensee may be liable for misrepresenting facts that they should know.

Ex water and gas easements common to the area and it is general policy of agents to search title. Liable for failure to discharge this obligation of verifying and disclosing existence of easement (Price v Malias)

o Misrepresentation must go to fundamental aspect of the property – must fundamentally alter the character of the property

Ex. Agent should know municipal by-law requirements of a lot he is selling, so it is reasonable for purchaser to rely on his statements. Agent liable for negligent misrepresentation for representations made about the ability to build on a lot (Betker v Williams)

Ex. NO negligent misrepresentation for licensee’s failure to tell purchaser about a by-law prohibiting building on the first 7 feet of the property because this restriction does not fundamentally alter the quality of the property (Turner v Novak)

- Liable for Failure to Verify Material Facts from the Vendor:o If a fact is material to the contract, then the licensee is under a duty to ensure that the information is correct

(Fletcher v Well)o Where there are evident discrepancies or the licensee suspect something contrary to what he has been told, he is

obliged to check it out Ex. Vendor’s statements that they had obtained permits to renovate property not verified by licensees.

Liable for negligent misrepresentation (Jacube v Suffix Realty Group)- To determine whether there was negligent misrepresentation, court will look at:

o 1) Quality of property: did purchaser still get what they were contracting for despite the negligent misrepresentation, or did the misrepresentation alter the fundamental character of the property

Misrepresentation must go to the character or quality of the property to find liability (Turner v Novak)o 2) Intended use of property: Agent must understand the particular qualities the purchaser wants to make sure they

don’t misrepresent any of these facts. - Reliance:

o Purchaser must show they relied on the representation and that the reliance was reasonableo Reliance may not be reasonable if licensee is not a specialist in the area – ex not liable for representations about

water front propery if not specialist here.- Disclaimers to avoid liability: Ex. disclaimer in MLS “representations about size of room is to be verified by the purchaser”

Bango v Holt: Fiduciary relationship between purchaser and listing licensee

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- Purchasers agreed to purchase property with intention of renting out a suite in the property. Property advertised and shown as duplex rental property when really the permit for a duplex had expired Vendor signed statutory declaration swearing the duplex would only be used as a single living unit. Licensee failed to check the permits and had no knowledge of the expired permit or the statutory declaration.

- Held: Liable for negligent misrepresentation. Even though not selling licensee, she was engaged as a specialist for revenue producing properties and had duty to gather all relevant information and verify statements regarding the quality of the building for purchaser. Purchaser relied on the agent as a specialist, she purported to give advice knowing that purchaser relied, and thus had a duty to exercise special skill and care. Purchaser specifically looking for duplex = so this goes to fundamental term. Vendor liable for fraudulent misrepresentation – he knew the purchaser was relying on property for use as duplex.

Agents as Vendors or Purchasers- Agents are entitled to bargain for and purchase properties on their own behalf for their own accommodation, for their

businesses, or for other purposes. - If the real estate agent has a fiduciary relationship with the vendor or the purchaser, then the usual fiduciary rules about

loyalty and conflicts of interest arise: Agent must fully disclose his interest in the transaction and also justify the propriety of the transaction. If an agent attempts to hide or obscure that he or she has an interest in the transaction, there is a breach of fiduciary duty.

- When purchasing, the agent's duty to the vendor will continue after the signing of the agreement of purchase and sale until at least the closing of the transaction

FINANCING THE PURCHASE: MORTGAGESMortgagor: Purchaser of the property/debtor/borrower - person giving the mortgage to a lending institution or creditor. Mortgagee: Lending institution/creditor/person loaning money to a debtorMortgage: Interest in land as security for the payment of a debt or the discharge of some other obligation.

- Mortgage is the particular instrument by which the security of the debt is secured. It is the charge on land and is registered on title, and will be removed once the debt is redeemed.

- Mortgagor gives the mortgage, together with interest in the property, to the lender in return for the mortgagee advancing the principal amount to the mortgagor.

- The security (interest in land) is redeemable on the payment or discharge of the debt or obligation. - Mortgage creates a debtor-creditor relationship where land is the security to ensure repayment of the debt.- Mortgage is registered against a piece of real property. - Rules of equity prevail over rules of common law for mortgages (S. 44 Law and Equity Act)

o Common law: Construed by form; mortgage is conveyance of legal interest (land itself)o Equity: Construed by substance, mortgage is security for payment of debt

Indicia that an agreement is a mortgage: Courts will look for indicia to determine if an instrument is a mortgage agreement or some other agreement:

- Defined sum/amount of debt – principal amount that will be loaned, whether it is all taken at once- Land charged as security – land is defined- Payment schedule (how much, over what period of time)- Interest rate- Default provisions – ability to seize land if debt not paid by debtor (foreclosure)- Restrictions on use of property - agreement to keep property in same condition as when bank loaned the funds.

History/Nature of Mortgages:- 15th century, practice evolved for the debtor/mortgagor to convey title of the land in fee simple to the creditor/mortgagee while

retaining possession of the land as security for repayment of the debt. o Debtor retained possession, but mortgagee had the legal title of the land as security for repayment of the debt,

subject to his promise to re-convey the title on the payment of the loan, or that the conveyance would be void if the loan was not conveyed.

- Court strictly construed the mortgage documents under contract law: if the mortgagor failed to repay the loan on the date stipulated, the legal title vested absolutely in the mortgagee, and the mortgagor still remained liable for the debt.

o But if the mortgagor paid by the date specified, the property was re-conveyed to him (right of redemption)- Court of equity intervened because of the harsh result of mortgage terms by making it that conveyance of the property was

merely a security, not a legal and equitable transfer of the land itself, for payment of the debt Mortgage became security in an interest in property, and not an actual conveyance of the property itself.

o Mortgagee thus has interest in property, but is not legal owner.

Torrens System- Torrens system adopted equitable view of a mortgage as a charge on land (not an actual transfer of land) as security for

repayment of loano Legal estate doesn’t pass to the mortgagee – their interest in the land is a charge on title

- Rights and powers dealing with mortgages are in statute not CL, but equitable principles about mortgages still valid in Torrens

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System. - Governing Statute of Mortgages: Land Title Act

Land Title Act S. 231:- Prior to 1989 amendments, confusing as to whether legal title passes to mortgagee (North Vancouver District v Calissle)- S. 231 LTA responded to problem by establishing that (1): mortgage is a charge on the estate or interest of the mortgagor to

secure payment of a debt or performance of an obligation expressed in it. Mortgage is NOT a transfer in land. - (2): all equitable and legal principles retained as if it was a transfer of land

o Confusion: If all CL rights remain as per (2), and common law rights are the a mortgage is a transfer in the land itself, does a mortgage give the bank a legal transfer of the land?

- Assumption today that the owner has the legal and equitable rights to land, but these rights are subject to equitable remedies. Mortgage is an interest in the property.

Elements of a Mortgage (in BC)- Both legal and equitable elements of mortgage captured in a mortgage document- Mortgagor and mortgagee are entitled to all legal and equitable rights that would be available to them if the borrower had

transferred his interest in the land to the mortgagee, subject to the right of redemption. (1) Legal Mortgage

- Mortgagor’s right to re-conveyance, equitable right of redemption, equitable estate- Land Title Act ss.224-231, 239

Standard Mortgage Terms: as per Land Title Act- Director sets out statutory requirements for form that mortgage must be filed (S. 227 LTA)- Mortgage cannot be filed in LTO unless it is in this form, and complies with regulations and Act (S. 238 LTA)- Mortgage must be in 2 parts (S. 225 LTA)- S. 225 LTA sets out requirements for registration of a mortgage. Must file 2 parts:

o Part 1 in a form prescribed by regulation (Form B: Prescribed by Director) (S. 225(3)) Parties, legal description of land, signature of mortgagor and witness Terms required by regulation to be included in Part 1 are only those terms contained in the mortgage

itself, and not contained in separate documents (S. 225(3)(d)) Specific terms for interest rate and amount and manner of advance of credit may be set out in a schedule

rather than in Part 1. (Richmond Savings) These terms may vary, and need not be set out in agreement.

o Part 2 are prescribed mortgage terms, express mortgage terms (developed by lender), or filed standard mortgage terms - all other terms of mortgage

Terms either incorporated into the mortgage or if this not done, terms are prescribed by law- S. 225(9): Registrar must not register a mortgage that incorporates more than one set of standard mortgage terms. - Modification of Standard Terms (Part 2)

o S. 226(1): If Part 2 of the mortgage consists of a set of standard mortgage terms, the set may be modified by making additions, amendments, or deletions

o Modifications to Part 2 must be stated in Part 1. o Ex. RBC Standard Mortgage Terms:

Advances: If customer requests that the lender advances all or part of the Principal amount pursuant to another written agreement, this Mortgage will be additional security for that other advance, and the advance will be deemed to be made under their mortgage.

Discharge of Mortgage: When customer has repaid the Loan Amount and interest and performed all obligations under the Mortgage, lender will execute a full release and discharge his rights under the Mortgage.

Mortgagor may skip or delay a payment, Property cannot be rented – must be occupied by owner only, Mortgagor has responsibility for the costs (payout to bank, lawyer fee)

o Terms may specify more than one obligation for one mortgage – multi purpose mortgage (below)- Duties on the mortgagee under the Standard Mortgage Terms: S. 220

o Mortgagee has to give a copy of the standard mortgage terms to the mortgagor (S. 229)(a)), and the mortgagor must acknowledge that they have received a copy (S. 229(b))

o Mortgagee must draw the mortgagor’s attention to amendments that they have made specifically for that mortgageo If mortgagee fails to provide notice or a complete set of terms, mortgage agreement is not void (obligations to repay

still exist), but default terms will apply instead.- Filing Standard Mortgage Terms:

o S. 228: Person wishing to file a set of SMTs must apply to a registrar, accompanying the application with the proposed set of SMT.s

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o S. 230: Registrar may order the mortgagee to file the frequently used mortgage terms as a set of standard mortgage terms

- Land Title Transfer Form Regulation Under LTA:o Part 3: Mortgage terms.

Schedule A, Form B: Mortgage part 1 Schedule B: sets out prescribed standard mortgage terms

- Effect of Mortgage: S. 231o Mortgage is a charge on the land, not a transfer in the estate. o Lender still has CL remedies available to him.

- Multi purpose mortgage:o Lender takes mortgage as security on a piece of property up to specified maximum amount. o Mortgagors can apply for subsequent loans secured by that mortgage without having to amend the mortgage or

put a new mortgage on the property. o Mortgagor can use the same mortgage for multiple uses and split the mortgage into sections with different length

terms – so no need to take out additional loans (ex to buy a car), because the mortgage on property acts as a continuing security to secure all loans by the lender up to the max specified amount.

o This saves costs and time associated with executing further mortgage documents for each advance. o Mortgage agreements that secure multiple obligations (aka multi purpose loans) are valid under S. 225 (Richmond

Savings). LTA does not attempt to limit the type of mortgages that may be registered simply because there is now a

standard mortgage form. Purpose of S. 225 was to simplify registration, to diminish paper flow in the LTO, and to encourage the use

of an easily understandable form of mortgage – multi purpose loans achieve this- Priority of Mortgagee:

o Mortgagor can register multiple mortgages on property.o Legal title can only be charged once with first mortgage. First mortgagee registered will have the legal interest in the

property – and thus will have the right of foreclosure and the right to the sale proceeds from the foreclosure.o Subsequent mortgagees will have an equitable interest in the property that is limited by the first mortgagee’s right

to foreclosure – right to redeem if first mortgage is paid out.o If the first mortgage is invalid, the second mortgagee will be have the right to foreclosure (Richmond Savings)o Two or more registered interests/charges on the same property: Priority is given to the charge registered first in

the LTO – date and time of registration determines priority (S. 28 LTA) Subject to contrary intention in the mortgage document itself – parties may agree otherwise as to what

has priority Subject to priority agreement: Can order priorities through priority agreement registered on title – ex.

agreed by all parties that priority is given to a subsequently registered mortgage

Court’s interpretation of a mortgage for whether it complies with S. 225: (Richmond Savings Credit Union v Nijjer)- Mortgagee will not be faulted for a mechanical error or an error of form – this will not be allowed to undermine the validity

or effect of the mortgage.- If it is clear that the parties had come to an agreement on the term and there was sufficient information such that anyone

could acquire whatever information he needed the mortgage is valid, even if Part 2 does not clearly specify out how much is owed.

- Court will not narrowly apply the technical terms of the Act such that it will overrule parties’ intent.- Court will look at intention of the parties, their expectations, all the surrounding circumstances in reading the contract,

rather than a strict approach. o If there is sufficient information such that anyone could acquire the additional information needed, the agreement

will be upheld even if the exact amount owing cannot be determined by the agreement alone.- Court will try to find a valid mortgage agreement unless a fundamental term of the contract is so uncertain that the court is

unable to determine the parties’ intent (same as contract law).

Richmond Savings v Nijjer- Facts: Plf bank approved mortgage on property in 3 advances (1 loan, 2 lines of credit) all advanced immediately on signing agreement. Bank

is first mortgagee – so has legal right of foreclosure over def bank lender. o Payment problems, bank forecloses property and proceeds held in trust. Both banks who hold mortgage claim that they are

entitled to sum held in trust. o Def bank argues that plf’s mortgage does not comply with S. 225(3)(d) or S. 225(5) of LTA and is thus invalid, and so def bank has

priority to take funds held in trust. - Held: Multi Purpose mortgage is valid and complies with S. 225 LTA, and thus stands in priority over second mortgagee and funds will be

distributed accordingly.

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o Def was aware of the first mortgage when the second mortgage was registered, and even though the exact amount owing could not be determined by referral to Part 2 alone, there was sufficient information such that anyone could acquire the additional information needed prior to filling out a second mortgage.

- “WBD (will be determined) by the parties at the time of each advance” written in Part 1 for the interest paid for subsequent advances of funds in a multi purpose mortgage is acceptable under S. 225. Interest amount and principal amount needn’t be specified in Part 1.

o Court held that parties had clearly agreed to these terms, and was unwilling to invalidate contract for mechanical error in form by using “wbd”

o The parties understood and agreed to the terms, and as long as the mortgage is registered in the required form the court will not invalidate a contract for a minor technicality.

- Manner in which credit is advanced (by loan, by line of credit) need not be specified in Part 2.o Interest and repayment terms for different advances on the mortgages may vary depending on the agreement between parties -

need not be specified in agreement (Richmond Savings)

(2) Equitable Mortgage- Torrens system in BC: title is paramount, so courts are less willing to acknowledge an equitable mortgage than in other

jurisdictions.o BC: registration of documents carries much greater weight and takes precedent over unregistered documents. o Courts will be more cautious to find an equitable mortgage is created.

- Equitable mortgage: Charge on the property that does not pass the legal estate to the mortgagee, but at equity the contract operates as security for the repayment of the loan.

- S 231(3) LTA – (1) and (2) do no change the equitable law of mortgages. Equity still applies, and the borrower and lender still has common law remedies available to him

Equitable rights: Historically, equitable mortgages can be created in 3 ways:- 1. Interest mortgaged is an equitable or future interest in the land:

o Legal title can only be charged once with first mortgage, but can be infinite equitable mortgages. Second and third mortgages are equitable mortgages.

o Second mortgagee has an equitable interest in land – right to redeem if first mortgagee is paid out.o Inoperable in law, but operate in equity as a mortgage on the equity of redemption.

- 2) Mortgagor has not executed an instrument sufficient to convey legal mortgage o Something lacking in the documentation such that the court cannot recognize a legal contract, but court may

recognize an equitable contract between parties due to behaviour of parties.o Mortgage that fails in law may still operate in equityo English principle: Equitable mortgage is created if it is in writing and there is valuable consideration, if you are

contemplating that the property should stand for security or repayment. o BUT: Must be cautious to apply this approach because BC operates under the Torrens system, and under this

system, title is paramount (Royal Bank)- 3) Deposit of a duplicated indefeasible title (LTA S. 33, 176, 189, 190, 191, 196)

o If you have nothing charged on your land, you can apply to registrar for the title. Title can sometimes then be provided to a lender as security for a loan as a DIT.

o Each property in LTO has 2 indefeasible titles: 1 in LTO, and you can apply to the registrar to obtain the duplicate title under S .176 LTA.

o If a person has title and wants to sell or encumber it, the duplicate title must be returned to the LTO (S. 189 LTA). o If a person wants to register a mortgage or complete a contract of sale, the DIT must be returned to the LTO (S. 195

LTA)o When the title is out of the registrar (out of LTO), title cannot be transferred on encumbered – so the lender who

holds the DIT prevents the property from being transferred/sold/mortgaged by the debtor, and debtor is unable to do anything with the title until they have repaid the loan.

o Lender will hold the DIT, and the debtor’s resulting inability to charge title is used as security for the loano Equitable mortgage is created by the deposit of a DITo S. 33 LTA: Equitable interests are not registerable

Equitable mortgage created by the deposit of a DIT is not reistrable. A person can create a valid equitable mortgage by holding the title, but it will not be registrable – will only

be equitable mortgage. - Most important aspect of equitable mortgage is the equitable right to redeem the mortgage after the legal right has expired.

Creation of an equitable mortgage: (Royal Bank)- Must be the intent of the parties to create obligations to be secured by an equitable mortgage

o Documents should indicate it was the parties’ intent to create an equitable mortgage- No presumption in BC that there is an intention to create an equitable mortgage arising from the deposit of title (unlike

other jurisdictions) – any of 3 reasons are likely for why mortgagor deposited DIT with lender:- 3 reasons why a person might deposit their duplicate indefeasible title with another (with bank):

o 1) For safekeeping

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o 2) As security for an undertaking not to sell or mortgage the property until an obligation to the lender has been fulfilled – Lender holds the DIT so that landowner cannot charge property until repayment.

o 3) To show intent to create an equitable mortgage – i.e. to charge the land in favour of the lender by way of an equitable mortgage as security for the performance of a promise.

- Deposit of Indefeasible title:o Legal implications of a DIT:

If it is out of the LTO, title owner cannot mortgage, transfer, sell the property. Having the DIT out of the LTO encumbers the land so that you can’t do anything to it.

o Equitable implications: In BC, more proof than the mere deposit of a DIT to another party is required to show that the deposit

creates an equitable mortgage. Intent to create equitable mortgage must be clear.

- Factors that would indicate a mortgage has been created: (Royal Bank)o Clear words of pledge, mortgage or charge on the lando Words of seizure, sale, or foreclosure if payment doesn’t occur (i.e. penalty for not paying)o Mortgage debt of an ascertainable fixed sumo Requirement from the bank to deliver a registrable form of a legal mortgageo Suggestion that a registrable form of a legal mortgage was asked for

Royal Bank of Canada v Mesa Estates Ltd (BCCA 1985) – What creates equitable mortgage?- RBC is creditor who is third in line behind 2 other creditors. RBC receives DIT to land. In agreement accompanying the delivery, RBC entitled to

hold the DIT until all obligations are fulfilled. - RBC claims that deposit of DIT creates an equitable mortgage that has priority over other creditors’ registered instruments.- Held: No equitable mortgage created by deposit of DIT.

o Nothing to indicate that it was the parties’ intention to create an equitable mortgage or to support an agreement not to encumber the subject lands

o No factors that would indicate a mortgage presento Nothing that required the bank to deliver a registrable form of legal mortgage (nothing that looked like Part 1 or Part 2 of a legal

mortgage)- No presumption in BC of an intention to create an equitable mortgage arising from the deposit of deeds. - Hallisbury’s quote “an equitable mortgage is created if there is a written document that talks about it being create” must be applied carefully

in BC Torrens system.NOTE: Northwest Trust Co v West – Alberta C.A

- Alberta distinguishes RBC v Mesa Estates – held that by looking at the common intent of parties, the purpose of the deposit of the DIT was to charge the land by way of an equitable mortgage

- BUT not Torrens system

Equitable right of redemption:- Equity recognized that irrespective of the mortgage documents, there was an equitable right to redeem the debt even after the

legal or contractual right to redeem had been lost. - Equity of redemption recognized as an interest in land. - Even after mortgagor defaults, he can still redeem the mortgage. - Right of redemption cannot be contracted away

o S. 44 Law and Equity Act: Equity prevails, so cannot contract away equitable right to redeem- Can only be extinguished by:

o Lapse of time (6 years according to S. 3 Limitations Act)o Foreclosure or sale by court order, oro Sale of the land under the contractual power of sale contained in the mortgage document

Disguised form Mortgages – conveyance with option to repurchase, or mortgage with right for V to redeem?- Issue of whether a conveyance (transfer of legal title) with an option to repurchase is in fact a conveyance with an option to

repurchase or a disguised mortgage.- Disguised mortgage: No intention of absolute sale. Purchaser-creditor loans money to the vendor-borrower, and the

property is held by the purchaser-creditor as security for the loan. Equitable mortgage.o Intention is that vendor-borrower will buy back the property once loan is repaid.

- If equitable/disguised mortgage: vendor-borrower’s failure to exercise his option to repurchase and within the legal expiry date will not bar him from his equitable right to redeem title even though the legal redemption date in the contract has expired.

- BUT If it is a contract for purchase and sale and vendor fails to meet expiry date, then contract defaults. - Must be clear and conclusive evidence that the transfer is a mortgage to call a contract of sale with an option to repurchase

a mortgage– parties intention, communications, and surrounding circumstances must indicate a mortgage (Kreick)o If on its face the transaction appears to be a contract for purchase and sale, there must be very clear intention to

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find the contract is just a transaction for security of a mortgage. (Krieck)o Must be more evidence than vendor’s statement that he intended a mortgage (Blackaby).

- Fact that purchaser clearly wanted to be secured for his loans by taking title and that the vendor agreed to transfer his land as security for this purchase is not a basis to recast a contract for sale as a mortgage alone - so vendor’s failure to exercise the option on time is a breach of contract (Kreick)

o Transaction for sale is nonetheless a sale fully carried out, and will be upheld if there is no basis on which the transaction can be recast as security alone (Krieck)

- Where the documentation is clear and unambiguous and taken alone does not create an equitable mortgage mortgage, this may still be created by evidnece of the parties’ intent to create a mortgage (Blacbbry)

- Cases: Court has refused to recognize an equitable mortgage. Purchasers unable to redeem property past the legal expiry date.

Kreick v. Wansbrough (SCC 1973) – Not mortgage: intention to be secured not enough to override contract- Facts: Purchaser made a number of unsecured loans of money to vendor-borrower, and vendor conveyed to purchaser title to land by an

agreement for sale.- Agreement contained an option for vendor to repurchase all the lands by April 1st. - Vendor did not exercise the option on time. Alleges contract was for a mortgage and he thus has right to redeem despite failing to meet the

expiry date.- Issue: Was the agreement a contract of sale and land with an option to repurchase, or was it a mortgage transaction - so the vendor’s failure

to exercise the option before its expiry date does not bar him from asserting a right to redeem. Held: Transaction was a sale, not a mortgage

- While it was clear that purchaser wanted to be secured for his loans by taking title to vendor's lands, the transaction entered into achieved that purpose; it was nonetheless a sale which was to be fully carried out by payment on a specified date of the balance of an agreed purchase price if the vendor did not sooner exercise his option.

- Loans were made before the agreement for sale. Loans and conveyance are separate contracts, and agreement is not a mortgage. - No evidence of undue influence nor was the purchase price unfair – not an unconscionable transaction- There was no basis on which the transaction could be recast to make it a security one alone to the exclusion of the overriding element of

sale

Blackaby v. Rabson (BCCA 1994) – Not mortgage: Documentation is clear and unambiguous - Plf about to be foreclosed by the second mortgagee who has a mortgage on this property. - Refinancing arrangement with defendant: contract for purchase and sale of title with one-year option to repurchase property at a stated

price, and a one-year lease to the plaintiff. Title transferred to defendant.- Defendant granted plaintiff extensions on repurchase option and lease. Options deadline passed with no further agreement but defendant

continues to accept rent cheques. - Plaintiff then sought to repurchase for agreed to price, but defendant stated he could only purchase property at market value because option

to repurchase had expired.- Plaintiff sued to recover the property, contending that the transaction gave rise to an equitable mortgage under which he had an equitable

right to redeem after the expiration of the option period.Held: Action dismissed – option has expired, plf had no right to extend option.

- Evidence did not establish that parties' true intentions were to create a mortgage transaction, and that in fact their true intention was reflected exactly in the documents.

- Documentation is clear and unambiguous and speaks for itself – do not portray an equitable mortgage – court then examines surrounding circumstances to determine whether anything else conveys an equitable mortgage

o Option had expired, and no evidence that the parties intended to extend the optiono Plaintiff's evidence as to the parties' undocumented intentions and his private understanding of the purpose of the transaction was

not credible.

Mortgagee’s Equitable Right to Foreclosure (remedy)- Court recognized mortgagee’s equitable right to foreclose to realize payment or partial payment of a debt. - After mortgagor has defaulted, mortgagee can apply for a degree of foreclosure to direct the mortgagor to exercise his equitable

right to redeem within a reasonable time (usually 6 months) or be forever deprived of the estate in land. o S. 16 Law and Equity Act

- Order of foreclosure is always subject to be re-opened, if equity demands it- Even if court order is made and sale occurs to 3P, mortgagor may still have the ability to exercise his equitable right to redeem

depending on the circumstances- Court is willing to assist people to exercise their equitable right to redeem if able to pay.- Uncertainty problem: If property is sold on foreclosure sale, equitable right to redeem may arise.- Multiple mortgages on title: First mortgagee has equitable right to foreclose. Second mortgagee does not have right to

foreclose, but still has an equitable right to the property.

Common Elements and unexpressed terms of a Mortgage – read in to mortgage termsCommon Elements:

- 1) Equity of redemption

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o Mortgagor has ability to redeem debt after the contractual right to redeem has passed.o Even if debtor fails to make a payment, breaches the legal mortgage, or fails to exercise option to repurchase he still

has ability to redeem mortgage for a certain period after legal right has passed.o Redemption is a valuable interest in land that the mortgagor can lease or convey to someone else o Mortgagee CANNOT contract away his equitable mortgage by term of contracto Common law rule supported by s.44 of the Equity Act: equity trumps common law

- 2) Collateral advantage o Mortgagee can require a bonus or collateral advantage (additional amount that must be paid to obtain a loan) that

would result in total payment of the loan plus interest o Often occurs in commercial context where mortgagee is making a high investment (high risk of default by

mortgagor), so bonus is compensation for the risko Bonus cannot be unfair or unconscionable, cannot be a penalty, can’t be a clog on equity of redemption, can’t

amount to a criminal rate of interest- 3) Clog on equity

o Mortgage terms cannot prevent mortgagor from redeeming the mortgage (paying it out)o Terms and condition that interfere with or allow contracting out of one’s equity of redemption are void.

- 4) Relevant time period for redeemability o Mortgage must be redeemable - mortgagor must be able to pay it offupon agreed upon terms.o Any time a mortgage term is for more than 5 years, the mortgagor must be able to pay out the mortgage anytime

after 5 years with 3 months interest in lieu of notice (S. 10 Interest Act). Mortgagor must be able to redeem mortgage in 5 years without a huge penalty

o Corporations can contract out of S. 10, but personal/individual mortgages cannot.- 5) Right of first refusal

o Not seen as a clog on equity of redemption even if it is part of the mortgage transaction- 6) Release of liability

o When mortgagor is no longer liable to the mortgagee stated in Property aw Act S. 20-24

Property Law Act ss.20-24: Liability upon assumption of a mortgage- S. 23(1): When property is sold and the new purchaser assumes the vendor’s existing mortgage (rather than obtaining a new

mortgage), the vendor will cease to be liable 3 months after the original mortgage has expired. After this, vendor has no more personal commitment to pay.

o Before: On assumption of the mortgage, in equity and CL the vendor would still have ongoing covenant to pay that doesn’t end.

o S. 23(1) Vendor is no longer liable 3 months after term of original mortgageo Lender may preserve his position by demanding payment from the vendor before 3 months has expired. o So statute cuts of ongoing commitment of indebtedness that exists at CLo This is subject to written agreement

- S. 24: Mortgage Discharge: Original mortgagor (vendor) can request that the mortgagee (lender) release him from liability when he sells the property to a new purchaser, and the lender cannot unreasonably refuse to approve release from liability.

- S. 23 further says lender can sue the purchaser (new mortgagor) in the event of default, even if the purchaser has not yet entered into an agreement with the bank for the new mortgage.

o Mortgage endures between the time that that land is transferred from vendor to purchaser but before the purchaser has made an agreement with the bank for the vendor’s mortgage. Purchaser will be liable to pay the mortgage as son as the transfer of title occurs.

- S. 20-24 only apply to residential mortgages and estates in fee simples (not commercial mortgages, not leases)

Unexpressed Terms/Implied Covenants:- 1) Land Transfer Form Act Part 3. Section 10

o S. 10: Mortgage includes are buildings, reversions and estateso Implied covenant that a legal mortgage includes everything on the land, including the building, easements, waters,

reversions of the estates on the land, remainders, rents etc. - 2) Land Title Act S. 225

o Form of mortgage must be in Part 1 and Part 2 of the LTA regulations and comply with S. 225o Implied covenant that legal mortgage will comply with required form.

- 3) Power of Sale: Foreclosure:o Corollary of right to redemption is mortgagee’s equitable right to foreclosureo Equitable right to apply to the court for a decree of foreclosure, and to compel the mortgagor to exercise their

equitable right to redeem within a reasonable time. Statutory Protections for Mortgagors

- “Consumer protection” provisions enacted to protect mortgagors/debtor from unconscionable transactions.

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- Provisions focus on (1) disclosure to the borrower of mortgage terms, particularly transparency in the rate of interest, and (2) protections from unconscionable mortgage terms such as prohibitions against criminal rates of interest.

- Federal: interest Act, Criminal Code, Bank Acto Parliament concerned about disclosure – when mortgagor enters into a mortgage with a bank or a lender, it is

important that the borrower knows the total cost of the interest and total mortgage cost.o Federal legislation ensures disclosure of mortgage terms.

- Provincial BC: Consumer Protection Act

Definitions:- Interest:

o Price one pays for privilege of borrowing money from lender– used to compensate lenders for the risk of default on lending terms. o Calculated at the end of the calculation period (annually or semi-annually), not in advanceo Complex process to calculate interest - calculation tables required. o Two types of interest:

- 1) Simple Interest: o Interest is calculated for a term of the loan without any compounding.o Interest = Principle rate (loaned rate) x interest rate x amount of time

Ex. Interest rate is 10% per year: $100 x 10% x year- 2) Compounded interest:

o Interest is calculated for a number of years, which are then added to the principal and then calculated again - Add the interest from one year into the next year.

o When interest is recalculated, it will be charged based on principal amount + last year’s interest instalment (not just based on principal amount)

o Compound interest cannot be charged unless provided for in the mortgageo Ex. Borrow $10,000, interest rate 10% with 1 year term of rate but interest is calculated semi-annually. After 1 year: borrower

owes $11,025 ($25 is additional amount of interest) If borrower pays half yearly, must add the additional interest into the principal amount, and then when he pays at the

end of the year, he will pay interest on this larger amount of principal + ½ year of interest. o More common in commercial property transactions

- Nominal Rate:o Rate of interest as stated in the mortgage – ex. principal amount + 10%. o Does not take into account any agreement for compounding interest or the rate stated for compounding.

- Effective Annual Rate: o Rate of interest actually received by lender when compounding, fees, bonuses, taken into effect.

- When calculating interest, must look at how interest is structured (compounding or not, payment instalments, etc) to determine interest, rather than the nominal amount.

Federal Statutory ProtectionsInterest Act: S. 6-10

- Historic – one of first forms of consumer protection legislation in Canada – protection for mortgagorsSection 6: No interest recoverable in certain cases

- Interest is not recoverable on a loan unless the mortgage shows the amount of the principal (sum borrowed) and the rate of interest is calculated yearly or half yearly (not in advance).

- Failure to comply with S.6: Mortgagee does not get any interest (so banks are careful to comply)- No need to disclose a rate of interest that takes into account a bonus amount to, for example, a mortgage broker (London Loan

& Savings v Meagher)- Only applies to certain types of loan agreements:

o 1) Sinking Fund Plan – nobody knows what this iso 2) Loan repayable on an allowance of stipulated repayment – unclearo 3) When the payment of principal amount and interest are blended

Blended: Payment of principal amount and interest are mixed so as to be inseparable and indistinguishable – easier for true interest rate to be concealed (Kigoran Hotels)

- Where amount of principal and rate of interest are clearly stated (not blended), there is no concealment of the interest rate, and S. 6 does not apply (Kilgoran)

o If payments are capable of being separated so that it is easy to understand what is the principal amount and what is the interest rate, this is not a “blended payment”

- Purpose of S. 6: Disclosure requirement protects mortgagor from having concealed from him the true rate of interest he is paying – ensures that there is on concealment of interest rate. (Kilgoran)

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- Today: Interest calculations very complex:o Courts will only treat payment as “blended” under S. 6 where there is inconsistency in the mortgage documents or

ambiguity in the way payment must occur.o If document does not disclose the true rate of interest because it is concealed, payment will be considered

“blended” and S. 6 will apply.o As long as the interest is not concealed, payments are not considered blended.

- Although we are not sure to what kind of mortgage section 6 actually applies, everybody adheres to it b/c of the severe consequence of possibility of running afoul of it.

Kilgoran Hotels v. Samek (SCC 1967) 1967- Facts: Commercial mortgage provided for quarterly repayments on specified dates at specified rate. - Motion to declare no interest is chargeable as the mortgage did not comply with S. 6 because calculated quarterly, not yearly or half yearly.- Held: Motion dismissed. No concealment of interest rate - amount of interest and principal is clearly stated. This is not a blended payment

because it is very simple to differentiate what is interest and what is principal, and so S. 6 does not apply.Note: Construction loans – tend to be risky, so higher interest rates.

Section 7: No Interest Recoverable Beyond that so Stated- No interest rate recoverable that is greater than the rate shown in the mortgage documents. Agreed to rate is the total

amount recoverable.

Section 8: No fine allowed on payment of arrearso Arrears: part of a debt that is overdue after missing one or more payment.

- Mortgagee cannot charge an interest on arrears that is higher than the interest due on the principal.- If the interest rate increases on arrears after the mortgagor has defaulted on a payment, this offends S. 8.

o Cannot charge higher interest rate after default than you did before default - Triggering event for causing an increased rate of interest cannot be the fact that the borrower has gone into

default/bankruptcy. - S. 8 does not prohibit an increased interest rate that is fixed and becomes payable simply because of the passage of time.

o If interest rate for all money owning increases due to the passage of time, this does not offend S. 8 regardless of whether default has occurred or not (Reliant Capital)

- Purpose of S. 8: Protect property owners against abusive lending practices, while recognizing that parties are generally entitled to freedom of contract (Reliant Capital)

- To determine whether an interest rate increase offends S. 8, court will consider: o Whether the structure of the interest arrangement is penal in nature upon default (Reliant Capital)o Wording of the agreement – does it state that interest rate increases during passage of time? Then valid under S. 8o Context – commercial or residential contract (construction k often has high interest)

Reliant Capital Ltd. v. Silverdale Developments (BCCA 2006) - Facts: Mortgagee made loan to respondents for commercial construction project. - Mortgage secured principal sum for term of 13 months. Interest rate was 14% per annum for first 12 months, and then 20% for the final

month.- Payments on loan went into default and mortgagee commenced foreclosure proceedings- Claim for declaration that the increase in interest one month before due date is prohibited under S. 8 because it is penal and is related to the

default.Held: Mortgage does not offend S. 8.

- Interest provisions of increased rate nor prohibited by S. 8, and is not a penalty because it became payable by a fixe date, regardless of whether the payments owing under the mortgage were in default or not.

o Increased interest rate was payable one month before the end of the mortgage term regardless of whether there is a default in payment or not, and did not depend on default, so S. 8 does not apply.

o Clause did not offend s. 8 because it did not stipulate higher rate of interest being charged on arrears than on other monies owing on loan -- Interest rate was valid and enforceable

- Here, the mortgagee plan was tailored to the mortgagee because of the amount of risk in the transaction for the last month. - NOTE: Court rejects the “legitimate commercial purpose” test that looked at whether there was a legitimate purpose for the loan agreement.

Test must be “what is the purpose of S. 8.”

Section 9: Overcharge may be recovered- Any overpayment of interest may be recovered back from a lender

Section 10: When no further Interest payable- Borrower/mortgagor cannot be locked into a mortgage for more than 5 years. After 5 years, the mortgagor can pay out the

mortgage by paying the principal remaining with 3 months in lieu of notice. - Applies to any mortgage that endures past 5 years (most) - Exception (2) Only applies to mortgages given to individuals, not corporations.

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Criminal Code s.347 : Criminal Interest Rate offences- Everyone who (a) enters into an agreement or arrangement to receive interest at a criminal rate, or (b) receives a payment

or partial payment of interest at a criminal rate, is guilty of (c) an indictable offence or (d) a summary offence.- Criminal rate of interest – one that exceeds 60% per annum on the credit advanced under the agreement. - Two separate offences: (Degelder Construction)

o (a) Illegal to enter an agreement to receive interest at a criminal rate Offence occurs when agreement is entered into, and is provable by the terms of the agreement itself. Violated only if the agreement on its face expressly imposes an annual rate of interest above 60% -

provision must be narrowly construed. If agreement permits the payment of interest at a criminal rate but does not require it, there is no

violation of S. 347(1)(a) (but may be liable under (b)).o (b) Illegal to actually receive a payment or partial payment of interest at a criminal rate

Offence is the actual receipt of payment or partial payment of interest at a criminal rate, and can apply even if the actual agreement does not require a criminal interest to be paid but nonetheless gave rise to actual payment of interest above 60%

Interest rate is calculated at the time the actual interest is repaid Cannot determine whether s.347(1)(b) has been violated until the mortgage has been fully paid

out and variations in the interest rate have been accounted for. Liability grounded in the actual rate received – i.e. the varied rate, and not the contractual terms

Provision must be broadly construed for what constitutes “interest” as the total of all charges and expenses paid for advancing credit.

NO violation where a payment of interest at a criminal rate arises from a voluntary act of the debtor, that was under the debtor’s control and not compelled by the lender or by the occurrence of a determining event set out in the agreement.

Transaction that is legal when entered into cannot become illegal because borrower voluntarily choose to pay early (Nelson v CTC Mortgage)

- Broad definition of interest: interest is the aggregate of all charges and expenses (including fees, commissions or penalties) incurred by a borrower for advancing credit under an agreement - everything attached to the price of gaining access to the principal amount

o Includes bonuses, difference due to shortened period of repayment, signing fees, administrative fee.o Even if rate of interest on its face is not criminal as per (a), actual payment may be criminal under (b).

- Separate but complementary offences: provisions are not mutually exclusive. Will always be liable under both when the interest does not depend on the actual terms of the loan.

Degelder Construction Co. v. Dancorp Developments Ltd. (SCC 1998) – S. 347 CC - Facts: Developer received a mortgage loan to finance construction project. Loan agreement required the developer to pay substantial fees

and bonuses in addition to a conventional interest rate.- Term of the loan agreement was for 11 months, but the developer did not repay the loan for over three years.- Developer subsequently brought an action claiming that the trust company had received payments of interest at a criminal rate of 75% per

annum, contrary to s. 347(1)(b) of the Criminal Code. Held: No criminal rate of interest was paid.

- Here, interest payments made by the developer, calculated over a period of three years, did not constitute interest at a criminal rate.- Debtor who voluntarily chooses to pay out mortgage early, and chooses to pay criminal charge = NOT violation of S. 347 (b).

Bank Act s.450 – Disclosure on Cost of Borrowing from Bank- Chartered banks must discloses to the borrower the cost of borrowing if the borrower is a natural person- Codifies disclosure requirement of the interest rate and total cost of borrowing- Does not apply to loans for business purposes and certain other prescribed classes of loans.

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Provincial Statutory ProtectionsBusiness Practices and Consumer Protection Act Part 5

- Applies only to residential and personal transactions (not business transactions)- S. 4-9: Protects consumer/borrower from unconscionable transactions, - Part 5: Protects borrower by ensuring disclosure from lender

Section 4 & 5: Relief for Deceptive Acts or Practices- Provides relief to borrower who establishes that a lender engaged in a deceptive act or practice.- Deceptive Act or practice: Oral/visual/other representation by supplier that is deceiving or has intent to mislead the consumer,

and has the effect of deceiving or misleading the consumer- Legislature’s characterization of “deceptive” has been used by the courts to strike down mortgage agreement:- Bain v Empire Life Insurance BCSC 2004: Court used “deceptive act or practice” to strike down agreement

Section 8: Court can grant relief for Unconscionable Acts or Practices- Court can grant relief for any matter it considers unconscionable – jurisdicition to “right a wrong”- Sets out factors for the Court to consider when looking to see if transaction was misleading or unconscionable.

o 1) Whether lender subjected borrower to under pressureo 2) Whether borrower was taken advantage of due to disability or ignorance or inability to understand transaction.o 3) Whether costs grossly exceeded costs to like transactionso 4) Whether there was no reasonable method of repayment at the time transaction was entered intoo 5) Whether terms so harsh that they were inequitable.

Section 9: Prohibition on Unconscionable Acts- (1) General prohibition on suppliers engaging in unconscionable acts or practices in a consumer transaction

o Supplier: Person who supplies goods or services including real property (goods include credit)o Consumer transaction must be primarily for a personal or family purposo Consumer is an individual (not business or commercial transaction)

- (2): If alleged that a mortgage transaction was unconscionable, the BOP is on lender to prove it was not.

PART 5: Disclosure of the Cost of Consumer Credit- Requirements for disclosure from lender (bank) and mortgage brokers (person who helps find mortgage to meet your needs) of

the actual cost of credit in mortgage agreement - Sets out 5 different areas to consider- Disclosure Statement (S. 66-70)

o Lender must provide borrower with a written disclosure statement at least 2 business days before entering into it or before borrower makes payment.

o If information in disclosure statement is inconsistent with information in the credit agreement, then the borrow may rely on whatever information is more favourable to the borrower (S. 70)

- Rights and Obligations:o Creditor/bank must provide borrower with a registrable discharge of mortgage within 30 days after funds have been

paid out (S. 72) this shortens time in which fraud could occur from dormant mortgages registered on title that aren’t valid.

o Creditor cannot impose credit or charges on borrower that are unreasonable (S. 75)o Disclosure requirements for Fixed Credit: (S. 84-89)

Agreement must disclose and penalties, terms conditions (S. 84)- Relief: (S. 10)

o Court can reopen mortgage and construe the mortgage between lender and borrowero Reopen mortgage and taken an accounto Can change the terms of the transaction to relieve the borrower of any excess chargeso May order the lender to pay any excesso Set aside any part of the agreemento Suspend the obligations of the parties

Mortgage Brokers Act Part 2- Explicit disclosure requirements of mortgage broker to lender- S.17(1 & 2): Disclosure to lender and conflict of interest disclosure statement

o Mortgage broker must ensure the mortgage gives unsophisticated lender (not a bank, gov’t) disclosure of certain things.

o Mortgage broker must disclose to lender any interest they might have in the transaction - Mortgage: equity of redemption

o In the case of default, you are given an equitable amount of time in which you may redeem yourself and retain the property.

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Enforcement Of MortgagesAssignment/Assumption (note – not necessarily enforcement mechanism)

- Lender can transfer its interest in a mortgage to another party - Mortgage can be assigned (transferred from the mortgagee to another party or bought), or assumed by another mortgagor

- Statutory requirements for mortgage assignment – transfer must be in prescribed form (S. 209 LTA)- Transferee receives all the original rights, duties equities contained in the mortgage (S. 209 LTA)- Transferee cannot collect more than what exists in the mortgage between the original parties at the time – mortgage transfer is

subject to existing accounts at the time of transfer (S. 27 LTA)- Property Law Act: S. 20-24: Equity of redemption upon assignment of a mortgage

o S. 23(1): The original mortgagor (vendor) ceases to be liable under the personal covenant of the mortgage after an assumption 3 months after the term of the original mortgage has expired. After this, vendor has no more personal commitment to pay.

o S. 23 LTA: Vendor ceases to be liable 3 months after assignment of mortgage – so lender can demand repayment before 3 months is up (and then vendor can sue new purchaser for the amount)

- S. 36 Law Equity Act: o Notice must be given to debtor (mortgagor) that the mortgage is being assigned.

NOTE: Mortgages US v. Canada – financial collapse due to assignment and sub-prime mortgages in US- Ability to assign mortgages caused US financial collapse. Mortgages sold as packages as part of investment units, and by doing

this their actual value was lost/hidden, and they ended up being worth a lot less than the investment in them. Then, when people defaulted on their mortgages, they were treated as bundles in investments. People couldn’t make payments, foreclosures occurred and land prices went down

- No sub-prime mortgage in Canada. Here, banks require 25% down payment and then mortgagor can. If you can’t get a mortgage of up to 90%. Difference in capital must be insured by Canada Crown Corporation, and mortgagor pays a premium to pay that insurance – so high insurance, but can buy house if don’t have 25%.

- Conservative approach – Canada doesn’t give out mortgages where people are maxed out at 100%, but this has let them avoid collapse.

- Now: Softening of land values. Land values in Victoria never actually go down –retirement industry with people constantly coming in. BUT softening market has caused a number of development projects to stop and fall through. But no decreased land prices in Victoria – on fewer sales.

Novation:- Rare option for Borrower to argue that the parties amended the contract in some fashion, thereby resulting in a new contract

(ex. extension of time, increased rate, etc) with the effect or relieving the original borrower to pay- Courts less inclined to find that a variation of terms of the agreement between the lender and the new purchaser amount to

novation.

Priorities:- Interests in land must be registered, and such interests pass at the time of registration of the instrument (not the time of

execution) (S. 22 LTA)- Two or more registered interests/charges on the same property: Priority is given to the charge registered first in the LTO – date

and time of registration determines priority (S. 28 LTA)o Subject to contrary intention in the mortgage document itself – parties may agree otherwise as to what has priorityo Subject to priority agreement: Can order priorities through priority agreement registered on title – ex. agreed by all

parties that priority is given to a subsequently registered mortgage

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Foreclosure- Mortgagee’s equitable right to foreclosure - Primary remedy for mortgagees to realize payment of partial payment of the debt

by relying on the security.- After default, mortgagee can apply for decree of foreclosure that will direct the mortgagor to exercise his equitable right to

redeem within a reasonable time (usually 6 months) or be forever deprived of it and the land (S. 16 Law and Equity Act)o Order forces mortgagor to exercise or lose his right to redeem

- Order of foreclosure always subject to being re-opened if equity demands it. - Usually foreclosure proceedings are brought concurrently with other claims (accounting claims, etc)

Mortgage Funding Process- Purchaser will obtain a mortgage to obtain funding to purchase a property.- Purchaser generally signs contract for purchase and sale with a “pre-approval” for a mortgage obtained from the bank.- Problem: Purchaser signs contract for sale based on pre-approval for mortgage from bank, but pre-approval is not a true

commitment from bank to lend money. Must obtain written agreement from bank to lend funds based on certain terms to ensure you have funding.

Typical Mortgage Process1. Lender sends M instructions to lawyer: Review mortgage instructions

- 50% of new M’s are not with the 5 big banks – adds different and odd terms = more work for lawyers- Review instructions in detail – mortgagor must have insurance, pay utilities, etc.

2. Lawyer’s initial responsibilities: Must ensure:- Conduct land title search and review title (names on title and mortgage must be same)- Review M instructions for unusual conditions- Contact client to obtain all needed information- Order insurance binder

o Lender gets 1st insurance in insurance proceeds – bank is loss payeeo Ensure borrower is covered with bank as payee

- Ensure property taxes and utilities are fully paid – these are liens on property; must be removed- Order survey or title insurance, if required – Bank wants assurance that property value will be maintained and that there are

no encroachments o property. Can do this by:o (1) Survey: Surveyor will ensure there are no encroachments on property (expensive)o (2) Get title insurance: Insures bank or bank & borrower to correct problems; only good for that M (must be

renewed 3-5 yers) better to get a survey for the long termo (3) Western Law Societies Conveyancing Protocol – can avoid survey if lawyer certifies this is a typical transaction

and there is no need for survey.- If strata titled property, order Strata Property Act – Form B

o Tells of strata assessment, arrears, pending litigation on the strata etc.3. Document preparation – Form B, lender order to pay

- Form B Mortgage – snapshot of what M is- Purchaser must acknowledge mortgage terms (prescribed vs. standard terms)- Lender order to pay – authorizing lender deductions (e.g. CMHC premium) and funding to lawyer’s trust account- Other lender specific documents:

o identification verification forms – certify to bank that lawyer has seen ID of cliento statutory declarations – require borrower to sign confirming e.g. there are no other M’s, is primary residence, not

renting out a portiono preliminary report on title – these are the charges staying on title that rank in priority, all is fineo request for funds form – funds from bank to go into trust account

4. Meet with client – review signed commitment k, Form B, standard and prescribed M terms.- Review original commitment with M company (often already signed) – go over price, etc - Review statement of disclosure – Interest Act (how interest will be disclosed)

o Amortization, term and interest rate- Review Form B and acknowledgement of receipt of M terms – 1 page or paragraph, client signs to acknowledge standard M

terms- Review standard or prescribed M terms – Acknowledge receipt of SMT or other terms

o Security in lando Personal covenant or promise to pay – need to tell client that they are personally liable, not just land is implicatedo Acts of default – e.g. miss a payment, don’t pay property tax or maintain insurance, jeopardize the property with a

crystal meth labo Lender’s rights on default

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o Foreclosure process – if default & bank has given you time to remedy, bank will start action and give notice of redemption period; if don’t redeem, bank goes back to court to get order of sale or other order

o Lender’s rights to recover all costso Shortfall collected under personal covenantso Acceleration clause

- Execute all documents5. Send lender preliminary report on title, request for funds & draft documents, as required6. After conducting pre-search to ensure no change in status of title, register Form B in Land Title Office

- Pre-search to ensure no intervening changes- Register mortgage on title once received from bank

7. Request funding of M and upon receipt of proceeds; pay out in accordance with instructions and signed orders to pay- Pay out to vendor/other parties as agreed in transaction documents

8. Prepare and send to bank your solicitors final report on title- Lawyer says she has done all that is required by the bank instructions- Bank relies on - never sign a final report if there are problems because all problems should have been taken care of

9. Order title certificate and forward to lender and borrower

Conflict of Interest: - Lawyer acting for both purchaser (borrower) and mortgagee must follow Ch. 6 and Appendix 3

Chapter 6, Rule 10, and Appendix 3 of the Professional Conduct Handbook Ch 6 Rule 10:

- Lawyer may act for both purchaser and lender in a simple conveyance under certain circumstances. - Usual practice for purchaser’s lawyer to also act for mortgagee and complete all requirements for mortgage between bank and

purchaser.Appendix 3:

- Rule 2: Lawyer can act for both parties when:o 1) Remoteness: by virtue of the location having another lawyer is impractical, or o 2) if it is a “simple conveyance”, or o 3) the lawyer is acting for the other party only for the purpose of discharging encumbrances or to witness signatures

on documents. - Rule 3: Simple Conveyance:

o Look at complexity of interaction, amount of money involved, charges on title (liens, holdbacks)o Ex. Payment will be in cash, only a few encumbrances need to be discharged.

- Rule 5: Transaction with a commercial element to it is NOT a simple transactiono Can be simple transaction between businesses if no commercial element.

- Rule 6: If conflict of interest, must disclose in writing the nature of the conflict and get the permission of each party.o Must explain to the purchaser that you are in a conflict of interest

- Rule 7: Foreclosures – cannot act for both mortgagor and mortgageeo If lawyer acts for both sides in transaction, lawyer must not act for any foreclosure proceedings related to this

transactions for either the mortgagor or the mortgagee o Unless: the mortgagor is not made a party to the proceeding, or the lawyer acted for one of the parties only for the

purpose of discharging charges on title. NOTE: Inappropriate Mortgage Instructions from Bank:

- Bank may request lawyer do things that the lawyer (1) is not qualified to do or (2) cannot guarantee they will do- 1. Bank may require services outside lawyer’s legal expertise

o Ex ensuring that purchaser has obtained “adequate insurance”. o Lawyer not qualified to say what is adequate insurance, and must tell this to the bank.o Lawyer may tell bank if insurance meets certain parameters, but not whether it is “adequate”

- 2. Bank might impose commitments that lawyer cannot meet.o Ex. Mortgage insures credit card debt. Bank wants lawyer to ensure that all credits cards have $0 balance on day of

advance, but lawyer cannot make this commitment that purchaser will keep $0 balance in future. Can say that of X date there was $0 balance

o Must specify to bank what commitments they can make- 3. Banks cannot impose undertakings on the lawyers.

o Undertakings are professional agreements made between lawyers. Bank cannot impose an undertaking on you – they do not go between client and lawyer.

- Lawyer must review mortgage instructions with bank and specify parameters of their abilities and obligations.

Mortgage Fraud

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- Increasing problems with mortgage fraud- Mortgage fraud (Identity Fraud) Fraudster pretends to own a particular property and is advanced a mortgage from a lender or

sells the property to an innocent 3P. Once mortgage funds are received, fraudster disappears and never pays back loan.- Fraudster may have used forged or fake documents, had a name close enough to the registered owner so it appears legit, or

may have convinced the lawyer that ID isn’t necessary (ie my wallet was stolen)- Today, lack of relationship between parties increase the risk of identity fraud. Mortgage brokers are very competitive, and there

are many opportunities for someone to pass themselves off as someone else. - Factors contributing to the rise of mortgage fraud:

o Hot markets with many players where land value is rapidly rising leads to more pressure to close deals quickly and cheaply increases chance of fraud (e.g. people buy land without obtaining building inspections)

o No fact-to-face contact between borrower and lender o Electronic registration facilitates use of false identities to register documentso Lenders reducing barriers for approving loans and screening applicants

Mortgagee’s Protection against Fraud: Mortgagee not protected by registration in LTO (Gill v Bucholtz)- A registered mortgage given under a fraudulent instrument is not protected by indefeasible title. A mortgage granted by a

fraudulent owner is ineffective to pass any interest and is void regardless of whether it is registered – mortgagee does not acquire mortgage.

- Under the LTA, a charge holder cannot acquire an interest in land from someone who didn’t own that interest to give. Indefeasibility of title (protection) under S. 23(2) is limited to only the person named on title and does not apply to lesser charges.

3 principles of Land Title System:- 1. Indefeasible quality of title: Registered owner in fee simple has an “indefeasible right to the property” even if the property

was purchased from a fraudster (S. 23 LTA)o Indefeasible title goes to the BF purchaser for value without notice, even if purchased by a fraudster.o The person named on title is the registered owner, and is entitled to the estate in fee simple

- 2. S. 23(2)(i) giving a registered fee simple owner indefeasible title applies only to owners registered fee simple, and not to holders of registered charges.

o Holder of a registered charge is merely “deemed to be entitled” to the interest or charge = presumption of a valid charge that can be rebutted by proof of fraud (S. 26 LTA)

o Lesser interests such as mortgages are not protected by indefeasible title. o LTA does not validate grants of interest carried out by a fraudster who is a registered owner, not does it protect

every person relying on the register. - 3. Nemo Dat rule: You cannot validly give what you do not own applies to charges on title, even if holder of charge is bona

fide and has relied on the register – S. 25.1(1) LTAo Mortgagee will not acquire an interest in a mortgage if given by a fraudster, because the mortgage would not have

been given by someone with an interest to give. o Mortgages granted by a fraudster will be ineffective to pass any interest o S. 25(1): A person who purports to acquire land or an interest in land by registration of a void instrument does not

acquire an estate or interest in the land upon registration Void instrument includes a mortgage taken by a person who obtained title by fraud or forgery

o S. 25.1(2): Even if transfer instrument is void, if the transfer is for land in fee simple and you are a bona fide purchaser for value without notice, you do take the transfer and the interest does pass.

Gill v Bocholtz - Facts: Fraudster forged plaintiff registered owner’s signature on a transfer of the property to a purchaser working in concert with the fraudster.

Fraudulent purchaser then purported to grant a mortgage to two mortgagees. Mortgagees advanced funds, mortgage and forged transfer registered in LTO.

- Mortgagees had no knowledge of the fraudulent title and done due diligence by checking the registry to look at title and satisfying themselves that the fraudster was the true registered owner.

- Application by original owner (plf) to be restored as the owner of the land and to cancel the mortgages from the property.- Court found the plf to be the “true owner” of the property, and thus was entitled to the return of his title by the Chambers judge The

purchaser purchased property through fraudulent transaction that he had knowledge of and participated in the fraud, and thus the court is willing to return the property to the original owner.

- BUT chambers judge held that the mortgagees relied on the title as it stood when they accepted the mortgages, and that the mortgages were still valid charges on the property SO plaintiff was restored his property but his title remained encumbered by the 2 mortgages granted by the fraudsters.

Appeal:- Issue: Does the defendant’s mortgage continue to encumber the plantiff’s title as valid charges after the property has been returned to the true

owner?- Held: Mortgage must be cancelled as encumbrances against the plaintiff’s title.

o Here: the mortgages did not acquire any estate or interest in the property on registration of their instruments because, having been granted by a person who had no interest to give, these instruments were void both at CL under the “nemo dat” principle, and

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under S. 25.1(1). The mortgage was taken by a person who obtained title by fraud.o S. 23(2)(i) giving a registered owner, even a fraudster, an “indefeasible right to deal with the property” applies only to owners

registered fee simple, and not to registered charges.

BC Law Society has enacted mechanisms to protect mortgagees against fraud: - Mortgage Fraud by Lawyer during mortgage discharge:

o Wirwick: Lawyer found guilty of mortgage fraud - this caused Law Society to change its rules Lawyer would discharge mortgages, and then fraudulently register an additional mortgage on an innocent

third party bona fide purchaser’s title. Lawyer would then not pay the mortgage, keep funds from the transaction. Lawyer disbarred from Law Society.

552 claims made against Law Society as a result totally $2 million. Claims paid directly out of find. o Now: Rule 388 and 389: A lawyer must provide a discharge within 30 days of discharging (paying out) the vendor’s

mortgage. Lawyer then has additional 30 days to register the discharge, and must send a confirmation to the vendor’s lawyer notifying the discharge.

If notice not given on time, lawyer must report to the director if by 60 days the lawyer has not received a registrable discharge Prevents mortgage fraud by lawyer.

PRE-CLOSING AND CLOSING PROBLEMS

General rule for pre-closing breach of a real estate contract: if a fundamental term is breached, the innocent party has the choice of treating the breach of contract as:

- (a) Repudiation of contract: grounds to end the contract and to claim damages, or o Note: Breach of contract that is not a breach of fundamental terms may not warrant repudiation, just damages.

- (b) as a breach of warranty, in which case the innocent party has a right to claim damages but must perform his or her promises because they are not discharged by the guilty party's breach.

Paul Perell: Refusing to Close a Real Estate Transaction- Four common reasons why a purchaser refuses to close real estate transaction:

o 1. Non-satisfaction of a condition precedent that the purchaser will not waive and that cannot be unilaterally waived by the vendor;

o 2. Vendor has breached a fundamental promise (i.e condition) in the contract of sale;o 3. Vendor cannot convey good title - cannot perform his promise to convey the quality of title prescribed by the

agreement of purchase and sale; ando 4. Vendor has made a false representation and the other elements of a claim for the equitable remedy of rescission

are satisfied.- Four grounds linked to 4 different kinds of statements in the contract: - 1. Condition precedents in contracts

o Must be satisfied before some or all of the promises in the k are enforceable. To waive a true CP, all parties to the k must agree to forgo its satisfaction unless the right of waiver is expressly reserved to one party. Some true CP’s can’t be waived at all (ex. CP to obtain subdivision approval b/c this is necessary for subdivision).

o Purchaser can recover deposit and refuse to close if not satisfied by a CP – ex to test soil, to obtain satisfactory financing, b/c vendor is unable to satisfy a condition

- 2. Promises & Warranties in the contract o Ks for purchase and sale have 2 types of promises: Conditions and warrantieso P can rely on failure to fulfill promise as grounds to refuse to close – ex. P could refuse to close when condo

constructed with fewer windows than promised, with blocked access to a corridor that clients were supposed to have access to, garage only fits 1 car when he was promised a 2 car garage.

- 3. Vendor’s promise/ability to convey good title- 4. Representations that are made in the agreement or property disclosure statement.

o Equity provides the remedy of rescission for misrepresentations. o Requirements: (a) a false statement; (b) materiality, which is to say that the false statement must be of a type that

would influence a contracting party's decision to enter into the contract; (c) the false and material statement must have induced the party to enter into the transaction; and (d) the innocent party must object before the closing of the transaction, unless the representation is fraudulent.

- Risk in refusing to close – if P fails to justify a refusal to close, the P will have breached the k, have forfeited the deposit, and be liable to pay damages as compensation for the vendor’s losses. Exposure to liability can be substantial.

Title

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- Purchaser is relying on objective and subjective factors to put a value on the property, and is entitled to “get what he bargained for” in paying this value.

Vendor’s Obligations:(1) Make clear Title

- Statutory obligations: Clause 9 SFK – Vendor must provide title free and clear of all encumbrances- Vendor has promised in the contract of purchase and sale (clause 9) to convey good title free from encumbrances and

deficiencies, except for those that the purchaser agreed to accept under the agreement of purchase and sale (Norfolk)- Good title: One that is free from encumbrances and deficiencies save those that the P has agreed to accept under the

provision of the agreement of purchase and sale. Good title means “marketable title”- Marketable title: title that can, at all times and under the circumstances, be forced upon an unwilling purchaser. Title not so

filled with defects, clouds, or the reasonable threat of litigation to mar peaceful possession. o If title is to be forced on a purchaser, then the title must be clear. Court will not force an unwilling purchaser to buy

an unmarketable title. o Vendor has responsibility to ensure marketable title.

- Some title defects would justify purchaser to refuse to complete the sale, some would not justify refusal to complete but the court will grant remedies, some do not justify any remedies.

- Charges that may unacceptably cloud title because they create uncertainty that a purchaser should not be required to take (financial uncertainty, potential interest in land):

o Financial encumbrances (unexpected mortgages), o Certificates of pending litigationo Caveats on title – restrictive covenant, encroachment on other property, easements that effect a large percentage

of the propertyo Lienso Entries under family law legislation (FRA – spouse registers potential interest in property) o Tax sale noticeso Unpaid maintenance fees (under Strata Property Act)o Rights of first refusalo Vendor’s title must be good but not perfect. Defect must be material enough to ground a refusal to close.

- Vendor’s title must be good but not perfect. Defect must be material enough to ground a refusal to close. (2) Clear Encumbrances:

- Lawyer for vendor is obliged to clear encumbrances or charges on title before the closing date. - A variety of encumbrances will also remain on title (ex. reservations to the Crown, etc)

Clause 9 and 11 SFK- Clause 9: Title: Vendor must provide title free and clear of all encumbrances except:

o 1) Subsisting conditions, provisos, restrictions, exceptions and reservations, including royalties, contained in the original grant or contained in any other grant or disposition from the Crown,

o 2) Registered or pending restrictive covenants and rights-of-way in favour of utilities and public authorities, Normal existing encumbrances such as statutory rights of way that do not affect marketability of title Rights of ways and restrictive covenants that are necessary or used for the operation of a public utility

fall exemption in the SKF provision for clear and free title.. Ex. Route for repair or emergency personnel to access railway line (Chen v Hsu)

3) Any existing tenancies set out in Clause 5 - Clause 11: All documents required to give effect to the contract must be delivered in registrable form and will be lodged for

registration in the LTO by 4 pm on or before completion date. o Parties agree to do all in their power to give documents in registrable form and to bring to LTO.

Encumbrances: - A lien or claim on property.

1) Land Title Act S. 23: A variety of encumbrances will remain on title and take priority over you indefeasible title, and title is still valid despite these encumbrances.

- Crown mineral rights, petroleum rights, water- Federal/provincial/municipal taxes- Lease for term not exceeding 3 years- Highways and public easements- Expropriations- Registered charges- Incorrect boundaries and fraud- Registration of a document does not impose its enforceability.

2) S. 50 Land Act: Reservations to the Crown

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- Reserves to the Crown title to minerals, coal, petroleum, gas, water- Title owner own the land, but Crown owns many things on the land- Crown would have to enter into agreements with title owner to access these things

Land Title Act S. 185-186: Transfer must be in Approved Form- In order for a transfer to affect title, the form must be approved by the director.- S. 185: Transfer must be in form approved by Director: Form A is freehold transfer.- S. 186: Transfer of freehold estate is deemed to incorporate the specific wording and effect as the words contained in Part 1

of the Land Transfer Form Act, Land Title Act S 20, 23-29: Registration and its effects:

- S. 20: Registration required for any instrument or interest in land to have effect, except against the person making it.o Can be enforceable against a vendor if not registered, but not against a 3P.

- S. 27: Must be give notices of encumbrances on title.- S 29: Effect of notice of unregistered interests:

o A person contracting to take a transfer or charge on land is not affected by notice of an unregistered interest affecting the land.

o Even if purchaser has notice of encumbrance, if not registered, can be ignored.- S. 26: Registered instrument not necessarily valid or enforceable. Registered owner “deemed” to home interest, but may be

rebutted.

Property Law Act: S. 1-7, S. 37: - S. 1-7: Sets out obligations to complete transfer: Vendor must provide the purchaser with the registrable transfer

instruments, and the purchaser must prepare the transfer .o Vendor or purchaser with interest in land can apply to the Supreme Court to settle a claim relating to the contract

(such as compensation), except for questions affecting the existence or validity of the contract. (S. 3)o If purchase price is payable at a future time (most) vendor must deliver to purchaser an registrable transfer

instrument of a form that can be registered in LTO under the purchaser’s name. (S. 4, 5)- S. 37: Court may award damages to purchaser or suffers a loss because vendor cannot perform due to a defect in title.

What Constitutes Title Default: When has vendor provided good title, and when can purchaser bring action for default:- Title need not be perfect but most be good title (free from all encumbrances and deficiencies)- Some title defects justify allowing a purchaser to refuse to complete the agreement, and some do not (Chen v Hsu)- Test for whether an encumbrance is a minor or material defect on title is whether the vendor can convey substantially what is

required by the k. (Chen v Hsu)o If the defect is a minor impediment that will not interfere with the purchaser’s use and enjoyment of the property, it

will not warrant repudiation (Price v. Malais)o If encumbrance significantly affects the use, enjoyment and value of the property, then it is material, and vendor is

unable to convey substantially what is required by the k (Chen v Hsu)o Onerous encumbrance (such as requiring written approval to build on property) is a material defect on title (Chen v

Hsu)o If defect impacts purchaser’s ability to resell the property or the value of the property, it is material.

- Test based on the objective materiality of a title defect, but also the subjective concerns of the purchaser in that case (i.e. their plans for the property, their intended use)

- What constitutes a “defect on title” that warrants repudiation depends on the purcahser’s intended use of the property and their ability to enjoy the property (Price v Malais)

o An easement that the purchaser was not made aware of in the contract and that is very restrictive and can affect the purcahser’s ability to enjoy the property entitles the purchaser to repudiate the contract (Price v Malais)

- Vendor does not have clear title when he has neither paid the mortgagee the amount due nor applied to register the discharge (Norfolk v Aikens)

o Title is clear of an encumbrance when the Registrar has endorsed the register with a note of cancellation – mortgage discharge must be registered for title to be clear.

o Must be clear evidence that an encumbrance on title will be discharged by completion date for vendor’s title to be free and clear. Statement that an encumbrance is “releaseable”, without an undertaking to discharge the encumbrance, is not clear evidence that it will be discharged. (Chen v Hsu)

o A vendor has until close of business of the Land Title Officer of the closing date to clear his title of any encumbrances. If in the morning title has encumbrances and P is unable to pay, but V can remove encumbrances that day, vendor will not be in default (Seguss v Fawcus)

- To bring an action for Specific Performance, plaintiff must have been ready, willing and able to perform at the original date for completion and will be at the date of order.

o Plf need not have been continuously ready since the original date.

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o A plaintiff who is in essential default at the material time bc he cannot make payment cannot succeed in an action for specific performance.

- If neither party is ready, willing, and able to complete according to the terms of the contract (on agreed upon date), time ceases to be of the essence (Norfolk v. Aikens)

- When both parties have let time go by, and one of the parties wishes to reinstate time as of the essence, that party can serve notice on the other party fixing a new date for closing.

o This date must be reasonable, and stating that time is of the essence of the new date. o Then, if other party does not close by this date, other party has defaulted on the ko If the giver of the notice is unable to complete at the expiration date of his notice, he would also be in default.

V and P’s obligations to be R/W/A to tender – legal responsibilities to prepare documents- If one party requires assistance from other party to close (i.e vendor needs purchase money to discharge mortgage), this must

be agreed to in advance by the parties and stated in the contract (Norfolk v Aiken)o Vendor at risk if he hands over the transfer without the money and a mortgage is registered from the purchaser to a

new mortgagee. o If vendor has not agreed to hand over transfer in exchange for a promise to pay which is founded on a mortgage to

be place by the purchaser, vendor is not obliged to do so. - When the vendors obligation is to clear title and this fulfillment depends on the purchase funds, this must be stated in the

contract or understood between parties (Seguss v Fawcus)o Vendor must show he is ready, willing and able to complete upon obtaining the funds on closing date. o Vendor need not actually have cleared title by closing date if depends on funds – BUT only if this is stated in ko If k does NOT state that vendor’s obligation depends on purchaser’s funds, title must be clear on closing date.

- Vendor’s obligation to deliver title free and clear of all financial encumbrances and purchaser’s obligation is to pay the purchase price are mutually dependent obligations (they depend on each other occurring) (Seguss v Fawcus)

- Neither party actually has to perform their obligation unless the other side shows its ability or willingness to perform their part of the bargain – i.e. vendor needn’t discharge mortgage unless purchaser shows they can pay the purchase price

o Thus parties must show that they are ABLE to perform their obligations on the day of closing, but do not actually have to have performed their obligations by closing because of this mutual dependence.

- If party is unable to perform (defaults), the other party is not obligated to perform. - Which party prepares the transfer: (Shaw Industries)

o Where the contract does not provide for the purchaser to bear the cost of the transfer, the common law rule applies and it is the obligation of the vendor to prepare the transfer.

o Where the cost of conveyance is to be borne by the purchaser, it is for the purchaser to prepare the transfer, and it is for the vendor to be ready to execute it.

This does not apply when title is not registered in the vendor’s name. When the vendor does not have title, the vendor must prepare the documents.

- Clause 14 SKF: If the seller has existing financial charges to be cleared from title, the Seller, while still required to clear such charges, may wait to pay and discharge mortgage until immediately after receipt of the Purchaser price

o Seller must clear encumbrances, but if mortgage discharge depends on purchaser’s payment, seller may wait until immediately after receipt of purchase price.

Norfolk v. Aikens (BCCA 1989) Title Default- Facts: Interim agreement to buy def’s property subject to p obtaining satisfactory financing. Vendor to deliver title free clear of all financial

encumbrances. Completion scheduled for April. - Vendor notifies purchasers of a lis pending on the land (action for interest in land), and advised them the transaction would likely not complete. - V then revoked offer to provided financing by way of 2nd mortgage to plf, demands that plaintiff tender to prove that he is able to close and

sends transfer documents to purchaser to be returned in time for completion date. - Plf’s lawyer did not present the documents for registration and did not deliver the mortgage or pay the money required to complete. Wrote

letter to def on May 4 stating that they have arranged a first mortgage with Royal Trust; that they plan to file a claim for SP (BUT note – they had not yet obtained mortgage and so did not have funds).

- Plaintiff commenced action for SP.- Held: Purcahser had no right to claim specific performance because he did not have the ability to perform on completion date or the date of

order, also unable to complete within the time fixed by notice – not r/w/a to complete because he did not have financing by these dates.o Plf not ready, willing and able to complete (not ready to tender) on April 29. o On completion date, neither party able to complete: Vendor did not have clear title because he had not registered the discharge of

the mortgage, and purchaser was not ready, willing and able to tender because he had not received financing from the Bank. o Time no longer of the essence.o When purchaser gave notice to vendor to fix a new closing date, pllf was still to able to tender because still had not obtained

financing – plaintiff I in essential default. Seguss v. Fawcus (BCCA 1993)

- Facts: SFK for purchaser and sale. Nothing in agreement indicated that the vendors required the purchase moneys in order to clear title- Vendor’s solicitor notified the purchaser's solicitor that he would attend at the land title office at 9:00 a.m. the day of closing with an executed

discharge of all financial encumbrances and a conveyance to the purchaser. (showing is is r/w/a to tender). Purchaser's solicitor did not

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attend, but made a computer search of the vendors' title which showed the encumbrance still registered and sent letter to vendor accepting alleged breach of contract.

- Vendors promptly arranged loan, cleared mortgage and registered a discharge of the financial encumbrance. – so vendor’s had clear title. Notified purchaser that they remained r/w/a and would wait at LTO until 3:00pm.

- Purchase failed to appear, vendor sued for damages. - Issue: was the purchaser in default of the contract by not paying the balance on the closing date- Held: Purchaser was in defaut of the contract by failing to pay the balance on the closing date.

o Vendor had until closing of the LTO on the date of closing to remove any encumbrances from title. Purchaser not entitled to “stop the clock” at 9am on the closing date to preclude the vendors from taking steps to clear title before the actual closing.

- Vendors not in default on closing date, and purchaser in default throughout.Chen v Hsu: What constitutes title default:

- Facts: Plf entered k to sell his property. SFK required title to be free and clear of all encumbrances. - Restrictive covenant registered against the property in favour of the RTC which required approval from CPR to build on the property.- Vendor required to convey clear title. On closing date, vendor requests discharge of covenant from CPR, CPR writes back that the covenant was

“releasable” and that they would prepare the release documents. Vendor’s lawyer gave undertaking to file the discharge upon receipt. - Purchaser refused to complete because the vendor had defaulted by failing to provide clear title.

Held: Vendor did not have clear title at time of closing, so purchaser not required to complete conveyance. - No clear evidence showed that the restrictive covenant would be removed, and so title could not be considered free and clear.

o Letter from CPR did not contain an undertaking to remove the covenant and the Vendor’s lawyer was unable to provide such a covenant (because not 100% sure he could do it).

o Statement that the encumbrance is “releasable” not an undertaking, not clear evidence the restrictive covenant will be removed. - Restrictive covenant constitutes a material defect on title, so vendor could not still convey substantially what was required by the k.

o Restrictive covenant required approval by CPR to build on the property. This is neither minor nor insubstantial. - Doesn’t meet utility exception – not necessary to operation of CPR as a public utility.

Condition of Property- Two types of promises about the condition of the property:

o Conditions: fundamental or essential promises – go to root of the contract Breach of CP is a fundamental breach, and innocent party may treat breach as (1) grounds to end the k

and claim damages, or (2) as a breach of warranty, o Warranties: minor promises incidental to the purpose of the k, form part of the contract.

Breach of warranty: Innocent party has the remedy of damages, but is not discharged from performing his own obligations under the k. Must bring action for SP to ensure performance.

- Clause 8 SKF: “Viewed”: The property and all included items will be in substantially the same condition at the possession date as when viewed by the buyer.

- Clause 7 SFK: Buildings and fixtures are included in contract of purchase and sale.

Size as a condition of property: (Paul Perell: Size Matters)- Size of the property may constitute a defect on title and justify purchaser’s repudiation of the contract if the discrepancy

between the actual size and p’s belief in size of the property is a fundamental and material deficiency.- Purchaser’s belief about the size of a property is determined by:

o 1. description in the contract,o 2. the perception of the size of the property

- General Rule: discrepancies in size will not allow you to repudiate the contract- Exception: Size must be a material deficiency that is a genuine title defect for size to constitute a defect on title and thus justify

a purchaser’s refusal to close- What is material will depend on the circumstances of each case, including:

o 1. Purchaser’s intended purposes and plans for the property, and o 2. Whether the property was priced as a unit or based on a measurement (i.e. $500,000 for entire property, or

$10,000 per hectare) Land described by “more or less” (ex. more or less 2 acres) informs you that the lot size is not precise –

purchaser must do due diligence to determine size, likely k cannot be repudiated. Block sales: A misstatement about the size or dimension of a property is not actionable when the property

is sold in block or by its apparent size, unless the discrepancy is so large as to give rise to the presumption of fraud or gross mistake.

- Test for whether title defect is material (whether size discrepancy is material) is objective based on contract, also subjective based on purchaser’s concerns

o Consider: the effect of the defect on the property, the purchaser’s intended plans for the property, whether the purchaser had ever expressed these plans, the actual size obtained, the words in the contract.

- If purchaser viewed the property, it is unlikely that the court will allow you to repudiate the contract based on size discrepancy (Paul Perell)

o Purchaser cannot complain as to what they were anticipating if the purchaser viewed the property and saw the property boundaries. (Kuhirtt v. Lamb)

If you purchase a property based on the size and the size was confirmed with the licensee through

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representations that force you into the contract, then the court will find this as sufficient grounds for repudiation of the contract.

- If not an error in substantialibus, court may refuse to repudiate the contract, but may grant the purchaser abatement on the purchase price if he contracted for 60 acres but only received 50.

Conditions vs. Warranties- Condition: Fundamental term of the contract of purchase and sale that if breached, allows the other party to sue for damages or

specific performance, or to repudiate the contract. o Fundamental term going to the price, the property description or the state of the property.o Breach of a condition allows a party to repudiate the contract

- Warranty: Term of the contract that is a lesser promise that asserts facts about the quality of the property, but does not go to the root of the contract.

o Collateral undertaking that forms part of the contact, express or implied, given during the course of dealings which leads to the bargain, and thus should enter into the bargain as part of it (Roberts v Montex)

o Breach of warranty gives rise to damages, not rescission or repudiationo Ex. Purchaser bought a home because it had the perfect door. Door replaced before conveyance. This is a warranty

or representation – does not go to the root of the contract (still contracting for what you’d though), but goes to the quality of the house – so will be entitled to claim damages.

Warranties:- When is a statement considered an enduring warranty of the contract:

o When the vendor knows the truth of a statement and the purchaser does not, this statement is an enduring warranty. Purchaser relies on the vendor for the truth of the statement.

o Assertion by the vendor of a fact of which the buyer is ignorant is a criterion of value in determining whether a warranty was intended (Fraser-Reid v. Droumtsekas)

o Affirmation of the fact at the time of sale is a warranty if evidence shows this was intended (Fraser-Reid)o NOT a warranty if the vendor merely states an opinion or judgment upon a matter for which he has no special

knowledge, or which the buyer would be expected to have his own opinion – this is a mere representation (Robetrs v Montex)

- Clause 18 does not bar a claim that an oral statement was a warranty – but must prove that the purchaser relied on the statement in order to be seen as a warranty of the contract.

o Defendant will be liable for breach of contract based on breach of warranty despite the escape clause where the clause is not drawn to the plaintiff’s attention (Roberts v Montex)

- Implied warrantyo Warranty of fitness: warranty that the home is fit for habitation, constructed in a workmanlike manner, and is free

from material defects CL: Implied warranty of fitness ONLY in respect of houses not complete at the time of entering into the

agreement of purchase and sale (Fraser-Reid v. Droumtsekas) Home Owners Protection Act now protects owners for workmanship and faulty construction (fitness)

- Express warrantyo Statement written into contract of purchase and sale about quality of property that induces purchaser to enter into

contracto Warranty of fitness: Must be an express clause in the contract that the property would be free from defects or

infractions for the purchaser to sue for warranty of fitness. If so, this is a promise by the vendor that he will disclose these things to the purchaser before closing, and

a failure to do so is a breach of the contract (Fraser-Reid)o Oral statements that add or supplement the written contract can be relied on as a warranty if the purchaser relied

on a vendor’s statement . Parol evidence rule makes it difficult for purchaser to rely on evidence of a warranty coming outside of the

contract. If the written contract excludes oral statements as warranties, purchaser cannot rely on an oral warranty.

o Other written documents: 1. Property disclosure statement produces express warranties if it induces the purchaser to enter into the

contract – even if not incorporated into contract. Present tense: Vendor only must say what he knows at the current time (i.e. is the home

infested right now) Past tense for some questions: Has the home been a grow-up in the last 10 years.

2. Sales brochure that is completely separate from the contract of purchase and sale relied on the by the purchaser (induced him into the contract) and produced by the vendor is warranty (Roberts v. Montex)

Defendant is liable in contract despite the fact that there was an escape clause in the deed because the clause had not been drawn to the plaintiff's attention

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Misrepresentations- Negligent or Fraudulent Misrepresentation: False statement induced the party to enter into the contract

o Generally include statements about the quality of the property that are not fundamental promises (not conditions), and usually lead to purchaser’s entitlement to damages.

- Property Disclosure Statement: Includes terms that could amount to misrepresentations if false. - Equity provides remedy of rescission (undoing of the contract as if it had never occurred) for misrepresentation of material

statement where a false statement induced a party to enter the contract BEFORE completion of the contact.- 4 things must be satisfied to attain rescission due to a misrepresentation:

o 1) Must be a false statemento 2) False statement must be material in that it had an influence in the purchaser’s decision o enter the contract,o 3) Statements must have induced party to enter into contracto 4) Innocent party must object before transaction closes unless the representation is fraudulent or Error in

Substantialibus (EIS)- Equity provides the remedy of rescission for misrepresentations even after completion for:

o 1. Fraudulent misrepresentationso 2. Error in substantialibus (a fundamental error in the substance of the property such that the character and the

identity different than what the purchaser had anticipated buying)o 3. Negligent Misrepresentation leading to error in substantialibus

- Innocent misrepresentations do not give rise to the remedy of rescission (unless you can argue EIS). Yes claim to damages.

Negligent Misrepresentation: Suing in Contract and Tort- Misrepresentation:

o Untrue statement of a material fact that if allowed to go forward, leads to an incorrect belief about the state of the property or the transaction itself.

o Must be material to the contract o Can be an overt untrue statement, or a failure to clarify a fact or correct a statement such that a misrepresentation

occurs- False statement made carelessly and without reasonable grounds to believe in its truth, but the representor honestly

believed the statement to be true (Roberts v Montex)- Rescission only available before the contract is completed on a claim for negligent misrepresentation- Elements of the tort of negligent misrepresentation (Hedley Byrne and Co): (Aldred v Cokbeck)- (1) Must be a duty of care based on a "special relationship" between the representor and the representee;

o Relationship between vendor and purchaser is such a special relationship o Vendor has knowledge about the property that the purchaser does not, so vendor owes DOC.

- (2) Representation in question must be untrue, inaccurate, or misleading (breach of DOC); o Need not be explicit representation, if untrue representation was intended to be conveyed (Aldred)

- (3) Representor must have acted negligently in making said misrepresentation (SOC); o SOC for representor’s behaviour is that of a reasonable person

Representor’s subjective belief in the truth of his representations is irrelevant – this is an objective test of reasonable person.

o Representor must have exercised the required degree of reasonable care When the vendor has knowledge of certain dangers but does nothing to remedy them – this is a breach of

the vendor’s SOC (Aldred) Not reasonable for a vendor to rely on a contractor who says that property is of good quality if there are

reasons to be suspicious of the contractor’s work, but vendor does nothing to ensure the property did in fact conform with requirements (ex. if cost was very low, contractor finished very quickly) (Aldred)

- (4) Plaintiff must have relied, in a reasonable manner, on the negligent misrepresentation; and o Plf’s reliance must have been reasonable – relied on statement to enter contract (wouldn’t have entered otherwise)o If plaintiff receives direct assurance that a representation is true, this is reasonable

- (5) Loss: Plaintiff’s reliance must have been detrimental to the plaintiff in the sense that damages resulted.- Defendant can be liable for negligent misrepresentation (tort) and for breach of contract (breach of warranty) when the case

involves a pre-contractual negligent misrepresentation which induced the plaintiff to enter the contract (Roberts v Montex)o Plaintiff can receive damages for both.

- Remedy: o Pre-closing: remedy can be rescission or damageso Post-closing: Remedy is damages only unless an EIS is proved to result from the negligent misrepresentation.

Fraudulent Misrepresentation

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Test: To establish that a k was entered into on the basis of a fraudulent misrepresentation, plf must establish that: (Curtin) - 1. There was a false representation by the defendant made to the plf- 2. Representation in fact must be false- 3. Defendant knew that the representation was false or made recklessly (must be intentionally misleading/intent to

deceive)o Misrepresentation was made knowingly, or without belief in their truth, or recklessly, careless, whether they be true

or false (Redican)o Not fraud if the vendor honestly believed that his representation was true. Even if the representation was made

carelessly without reasonable grounds to believe in its truth, it is not fraud if it is honestly believed to be true (it is a negligent misrepresentation) (Roberts v Montex)

- 4. Purchaser was induced to enter into the contract by the false representation- 5. Purchaser suuffered harm as a result.- Active concealment of a patent defect is fraud

o Ex. Active concealment of cracked foundation is a material representation that the foundation is in sound condition fraudulent misrepresentation if the purchaser relies on this to enter the contract (Gronau).

- Misrepresentation must be material and induce the purchaser to purchase (Allen v McCutcheon). - Purchaser is under no legal duty to investigate the truthfulness of what they were told in order to establish fraudulent

misrepresentation (Allen v McCutcheon)

Error in Substantialiabus- Fundamental error in the substance of the property such that the character and identity of the property are different than

what the purchaser had anticipated buying – must be more than an minor error.o Plf has obtained something very different that what he bargained for (Cherirs Estate)

- Must be a mutual fundamental mistake as to the very quality of the subject matter (Hyrsky v Smith)o No meeting of the minds on a fundamental element of the contract

- If a mistake as to the quantity of the subject matter was so substantial that it changed the quality of the subject matter, this error may be an EIS that gives rise to rescission (Hyrsky v Smith)

o Where the contract contains words of qualification such as “more or less” accompanying the description of land, a discrepancy between quantity of land conveyed and quantity of land described in deed may NOT give rise to rescission (Hyrsky)

- Rescission of the contract is an available remedy for EIS, even when fraud is not present (Cherris Estate)- Caveat emptor does not apply: Even if the purchaser should have searched title but did not, equity requires rescission in the

case of EIS. - Characteristic of the property that renders the home uninhabitable constitutes an EIS. Contract is different than what the

purchaser’s had bargained for if home is not fit for habitation (Cherris – too hot to live in).

Property Disclosure Statement- Vendor’s representation about the property – contains terms that could amount to misrepresentations in false.- Court will look at the PDS to determine whether the vendor’s representations lead to an EIS.- PDS does not call upon a vendor to warrant a certain state of affairs. It requires the vendor to say no more than he is or is

not aware of the problem (Curtin)- Vendors do not need to guarantee that what they are aware of is the true state of the property, and are not required to do

due diligence to support their statement. (Curtin)o PDS merely asks the vendor to say whether they are aware of a problem.

- Vendor’s response must be honest, but no due diligence is required to ensure correctness. - PDS used to bring to light disclosure of any latent defects in the property – could be fraudulent misrepresentation if vendor

fails to disclose latent defects - False statement in PDS could amount to:

o 1) Negligent misrep: statement is false and vendor’s did not meet standard of care to verify truth of statement Vendor would argue they need not do due diligence to support statement (Curtain) BUT can be negligent if they meet the test

o 2) Fraudulent misrepresentation: If vendors actively conceal the truth of something on PDF, knowingly liedo 3) Breach of warranty: PDS is incorporated into k, so statements are warrantieso 4) EIS:If the breach of warranty/misrep amounts to a fundamental difference in what P was contracting for.

Patent & Latent Defects- Defects in quality may be patent or latent (Gronau v Schlamp)

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- Patent defects: Defects that are readily discoverable upon ordinary examination or investigation (ex. cracks in walls, water stains, broken windows)

o Caveat emptor: Purchaser must make inspections and inquiries into what he is proposing to buy, and cannot later complain if he discovers defects which he would have been aware had he taken ordinary steps to ascertain the physical condition of the property.

o : o Vendor is under no duty to call attention to patent defects which can be readily observed by the plaintiff if he pays

ordinary attention during inspection.o Cannot obtain recession of the contract for patent defects: Vendor’s error in the particulars or description of a

patent defect is not a ground to rescind the contract. o Pre-closing, purchaser MAY be entitled to abatement on the purchase price, but no other damages.o Unless: If the vendor actively concealed the patent defect, caveat emptor no longer applies and purchaser is

entitled to rescind the contract and/or receive compensation. Any active concealment of patent defects, or any conduct calculated to mislead the purchaser with

regard to a defect known by the vendor is fraud, and the contract is voidable he has been deceived by this. - Latent defects: Defects not readily apparent to the purchaser during ordinary inspection of the property he proposes to buy (ex.

faulty heating system, electrical wiring that is a fire hazard, cracked or improper foundation, underground storage tank, misrepresentation of the size of an easement (Allen v McCutheon)).

o Vendor must disclose all known latent defects to the purchaser – this is one of the purposes of the PDS o If vendor fails to disclose a latent defect, a purchaser can ask for rescission of the contract and/or compensation for

damages resulting from the failure to disclose. o Caveat emptor does not apply if vendor actively conceals latent defects – this is fraud (Allen v McCutcheo)o Rescission pre/post k: likely to be EIS.

Purchase Price- Tendering the purchase price is a fundamental part of the purchaser being ready, willing and able to complete the contract.- Failure to tender purchase price on closing date indicates that the purchaser is not ready, willing and able to complete – this

results in default. (Norfolk v Aikens)

Time is of the Essence- If time is of the essence for a contract, the failure of a party to perform on time will constitute a breach of contract, allowing

the other party to pursue his remedies immediately unless it would be unjust or inequitable to do so (Salama Enterprises).o Party can either treat the contract as at an end and claim damages, or keep the contract alive by claiming specific

performance- Clause 12 Standard form contract: “Time will be of the essence hereof”- Time may be of the essence for when an offer must be accepted, conditions, deposits, closing.- If the time for performance is to be extended, the extension agreement must reassert that time will remain of the essence

for the new completion date. What it Means

- If neither party is ready, willing, and able to complete according to the terms of the contract (on agreed upon date), time ceases to be of the essence (Norfolk v. Aikens)

o Contract not repudiated: A party in essential default cannot complain that another party is in essential default and treat the other party as having repudiated the contract until that party has met their own obligation (Shaw Industries)

- Waiver: o Party may waive strict compliance with time limits by words or conduct, and then time will no longer be of the

essence, for the new completion date. The other party will have a “reasonable” amount of time to perform (Whittal v Kour) – 1969 CA

o Once the original completion date has passed and no new completion date has been agreed on, or neither party has unilaterally reinstated ToE by giving notice to the other party that if a new date is not met the party will treat the agreement at an end, the original ToE provision is waived (above) (Ambassador Industries)

- Upon Waiver: Once original completion date has passed, parties will have “reasonable time” to complete the sale. o Unless a new completion date has been agreed on, or a party has unilaterally given notice to establish a new

completion date that must be met or else the party will treat the contract as at an end, ToE from the original contract is waived, and parties are entitled to a “reasonable time” to convey documents/to respond. (Ambassador Industries)

- Notice : Then, where one of the parties wishes to reinstate time as of the essence, that party must serve notice on the other party setting a new date for closing and making time of the essence as of the new date (Shaw Industries)

o Not sufficient to state that all other terms and conditions remain the same to rely on the time is of the essence clause. Party must give explicit notice that time is of the essence, and that if the party does not complete on the time contract will be treated as at an end. (Ambassador Industries)

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o Setting a new completion date between vendor and purchaser is not notice that ToE: P must bring ToE to the attention of the vendor by stating that if the new date not met, they would treat agreement at an end (Ambassador Industries)

o A letter stating that the party wishes to complete the contract does not constitute notice sufficient to reinstate that time is of the essence if it does not specify a new completion date (Shaw Industries)

- Notice must be reasonable, giving the other party a reasonable time to complete. - Then, if other party does not close by this date, other party has defaulted on the contact.- If the giver of the notice is unable to complete at the expiration date of his notice, he would also be in default and will not be

entitled to specific performance.

Equitable element to time is of the essence – effect of extension depends on context- Law and Equity Act S. 31:

o Court has equitable jurisdiction as to whether time was of the essence or to enforce it even if it is specifically stated in the contract.

- Effect of an extension on a contract with a ToE clause will be determined by the context of the case (Salama)- 1) If there are circumstances that would make it inequitable or unjust to enforce the clause, the court can refuse to rely on

the provision even though the contract specifically states so (Salama Enterprises)o A) If actions of parties indicate that they are not strictly adhering to ToE, would be unjust to uphold clause unless

one part has given specific notice that ToE has been reinstated (Shaw Industries)o B) If parties are doing their best and are able to complete, courts are unwilling to rely on time is of the essence as

long as the parties are doing everything they can to complete the transaction and the events were out of their control (Salama)

If documents not delivered on time through no fault of the vendor, and delivery is only 1 day late – unjust to uphold clause (Ambassador Industries)

But if documents not delivered on time through a party’s own fault (sent too late), this party will be in default for failing to meet time is of the essence (Shaw Industries)

o C) When both parties have jointly agreed to fulfill a CP and are both required to take steps to fulfill a CP, equity can prevent the vendor from requiring completion on the due date while his own obligation remained outstanding (Salama)

It would be unjust for vendor to be able to enforce a ToE clause when his own behaviour (refusal to grant extension) has made it impossible for the purchaser to fulfill the CP on time. (Salama)

o D) Party cannot rely on ToE if he himself is not ready, willing and able to complete (Salama) Party must have fulfilled all his obligations under the contract to assert ToE

- 2) If no circumstances would make it unjust to uphold ToE, the extension of time simply results in the substitution of a later date for the date in the contract, and ToE still applies with the later date – even if ToE has not be specifically re-stated.

o A) When amendment agreement incorporates terms and conditions of the original k and the plf is at all times ready, willing and able to complete the k and does nothing to prevent the vendor from completing the k, plf has a right to insist that time is of the essence, and to claim damages if vendor fails to meet this time. (Sorenson)

o B) When one party is ready, willing and able to complete, and the other party is not, court will likely allow the party assert their legal right that time is of the essence and claim damages (Sorenson)

o C) Extension of contract will NOT constitute waiver of ToE, even if ToE is not specifically re-stated, if it would not be unjust to uphold it (Sorenson)

- SO: Grey area as to whether ToE must be explicitly re-asserted when a contract is extended or whether it is incorporated into the new agreement when all terms and conditions remain the same.

o Prudent to always expressly re-assert ToE to ensure that your client’s legal rights remain after an extension.

ToE Cases:Shaw Industries Ltd. v. Greenland Enterprises Ltd. (BCCA 1991): Must give notice to reinstate ToE

- Contract for purchase and sale provided that ToE. Neither party seemed concerned about meeting the closing date, casual approach, not timely in giving documents.

- On the closing date, the purchaser had sufficient funds to pay the purchaser price and sent transfer documents and a letter to vendor. Vendor not ready, willing and able to complete because he had not cleared title (had not discharged the mortgage).

- Vendor’s solicitor did not receive the documents from the purchaser until after closing and refused to complete the contract. Purchaser sued for specific performance.

Held: Both parties breached the contract because neither was ready, willing and able to tender at closing, but purchaser’s claim for specific performance constitutes an affirmation of the contract Vendor cannot rely on ToE.

- Both parties in default: Vendor not ready, willing, able to compete on closing date; Purchaser had not prepared the documents on time to ensure that they were delivered by closing date. Agreement required completion in the LTO, and neither party made any attempt to communicate with the other party to do so.

- Since both parties breached, time ceased to be of the essence. Purchaser’s letter to the vendor does not constitute notice because it did not fix a new completion date.

- Purchaser made it clear it was ready and willing when it made a claim for specific performance

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- HELD: Contract still valid because neither party could have repudiated. Purchaser affirmed the contract by suing for specific performance, and was ready,willing and able to complete when he did so. claim for SP granted.

Salama Enterprises v. Grewal (BCCA 1992): Cannot rely on ToE if unable to complete and unjust to do so.- Contract to purchase property with SFK. Subdivision of vendor’s land required. Purchaser needed to acquire other properties to obtain access.- Vendor and purchaser jointly agreed to obtain subdivision = obligation of both parties. - Closing for first property delayed, purchaser granted extension. Further extension denied and purchaser sued for specific performance.- Issue: Can vendor enforce ToE clause?- Held: Vendor had not taken steps to obtain subdivision, and so it would be impossible for purchaser to have fulfilled CP by the original time

unjust to enforce ToE clause for CP when the vendor’s refusal to grant extension has made it impossible to complete the CP. Vendor himself not ready, willing, able to complete.

Ambassador Industries v. Kastens (BCSC 2001): No ToE if waived and never re-asserted, and unjust to uphold ToE.- Contract of purchase and sale with ToE clause. Contract contingent of vendor’s ability to move into condo, and contract stated that if vendor’s

unable to do so, closing would be extended with proper notice to purchasers. Condo completion delayed, parties agreed to extend completion but not date set. Then vendor advised purchasers of new completion date. Contract stated that “all other terms and conditions remain the same.”

- Vendor’s solicitor executed documents to effect transfer for new completion date, but courier failed to deliver documents until the following day. Purchaser refused to complete relying on ToE.

- Held: ToE was waived when the vendors gave notice that their condo would not be competed by the original closing date. When the new completion date was set, neither party gave notice that time was of the essence. Thus the law implied that parties had a “reasonable time” to complete. Cannot rely on ToE

o Agreement that “all other terms would remain the same” is not sufficient to reinstate that time is of the essence. o Vendors did complete within a reasonable time, contract upheld.

Sorensen v. Carriage Lane Fine Homes Ltd. (1998 BCSC): Yes ToE if p R/W/A – P can rely on legal rights- Contract of purchase and sale for townhouse with ToE clause. - Vendor required city approval to convert townhouse into strata. Delay in approval, vendor unable to clear building liens registered on title (so

no free and clear title). - Purchaser agreed to extension, moved in early. Vendor requested further extensions to remove liens, purchaser refused and claimed

damages, relying on ToE and that the vendor was unable to complete on time. - Vendor argues it is unjust to rely on ToE, and that the purchaser had waived ToE by extending the contract and had failed to re-assert ToE

with explicit notice. - Held: Time is of the Essence clause upheld – amended agreement incorporated all terms and conditions, including the ToE clause. ToE clause

NOT waived Yes ToE upheld.o Purchaser was ready, willing and able to complete at all relevant times, and did nothing to prevent the vendor from completing.o Time was still of the essence, the vendor failed to meet his obligations, and the purchaser is entitled to repudiate the contract and

have the deposit returned. o Judge orders return of deposit plus fixtures and upgrades. No award for moving expenses, inspection (would be incurred anyways)

THE COLLAPSING DEAL:

Anticipatory Breach/Repudiation- Repudiation: Behaviour by one party that amounts to the rejection of their obligations under the contract. - If one party to a purchase agreement, before the completion date, clearly indicates by conduct or through written or verbal

communication an intention not to complete (intention to repudiate), the other party is entitled to treat them as being in default and pursue remedies immediately.

- An action can be brought BEFORE closing in anticipation of the breach – need not wait until closing date to enforce remedies (Roy v Kloepfer)

- Court can rely on its equitable jurisdiction to make an order- Notice must be given to the other side that you are treating them as being in default and as to what the action will be

(accepting or not accepting the breach). o If no notice is given, the innocent party must carry on as if the contract is valid.

Ability to Tender- Evidence that a party is ready, willing and able to perform his obligations under the contract on the closing date and at the

time of conveyance. Tendering documents = showing ability to complete conveyance on time.o Vendor’s ability to tender: Able to show clear title at time of conveyance with necessary signed documents. o Purchaser’s ability to tender: Able to show he can make payment upon conveyance/has funds

- To sue successfully for specific performance, the plaintiff must tender or show that they were ready, willing and able to complete the transaction at the appropriate time as set out in the contract. (Norfolk v Aikens).

o Norfolk v Aikens: Purchaser gave notice that he was treating the defendant as being in default, but was unable to rely on this because he himself was not ready, willing and able to complete.

o Plaintiff cannot rely on specific performance when he has not fulfilled his obligations under the contract.

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- Tendering is providing evidence that the party tendering was, in fact, ready, willing and able to complete – evidence that if the contract had been fulfilled, the party could have fulfilled their side of the transaction.

Remedies for Failure to Complete: Election: Affirm or Disaffirm Contract- If one party is in breach, the other party must elect to affirm or disaffirm the contract – this affects remedies

o Disaffirm contract: Accept breach, retain deposit and/or sue for damageso Affirm contract: Reject breach, pursue specific performances or damages in lieu of SP

- Choice is generally irrevocable and certain remedies are no longer available after the election has been made.o The innocent party may drop a claim for specific performance at any time and pursue damages – good option to

claim SP because it preserves option for damages. o Party may attempt to “reserve the right to pursue all remedies” after giving notice to the other party that they are

treated a contract as breached. - Election should be communicated to the other party before the innocent party commences legal proceedings, particularly in

the case of anticipatory breach. - If the innocent party elects to affirm the contract and pursue specific performance, he must remain ready, willing and able to

complete at any moment in time until judgment. o This encumbers the plaintiff’s assets and his ability to be flexible in the market as he must remain able to tender

throughout litigation.

- When faced with a breach of contract for sale of land: aggrieved party can (1) treat the contract at an end by suing for damages (accept the breach), or (2) keep the contract alive by suing for specific performance (affirm the contract). (Semelhago).

- 3 claims upon a breach:o (1) Damages in addition to SP (out of pocket expenses resulting from breach)o (2) Damages in lieu of SPo (3) Common law damages

- (2) and (3) distinct in aw, but courts now treat them as the same remedy. 1) Retain or Return the Deposit

- Vendor claims deposito Purchaser repudiates the agreement, the vendor may accept the repudiation, treat the agreement as being at an

end, and retain the deposit.o General rule: deposit by the purchaser becomes the property of the vendor in the event the purchaser fails to

complete the transaction (Winley Investments Inc)o Whether deposit limits the amount recoverable by the vendor depends on the construction of te contract. (i.e “as

liquidated damages” clause) Thus, lawyers usually include a clause in the purchase contract that expressly preserves the right of the

vendor to retain the deposit and claim additional damages. o If the vendor affirms the contract and chooses the remedy of specific performance, the deposit is not forfeited to

the vendor (vendor cannot retain it) - Purchaser claims deposit

o Vendor repudiates, the purchaser may demand the return of the deposit, and, failing payment, may sue for its return

o Purchaser is clearly disaffirming by demanding the deposit the contract and cannot sue for specific performance (purchaser’s remedy may be confined to the return of the deposit)

2) Specific Performance- Must be elected before trial, when plaintiff is faced with a breach of a sale of land contact. - Requirements: (1) Plf must be ready, willing, and able to perform, at all times (2) property must be unique.- Claim for SP revives the contract so that the breaching party can avoid defaulting by performing the obligations under the

contract any time before trial breaching party’s period for performance is extended (Semelhago). o Breaching party would likely have to pay damages for costs incurred by plaintiff due to breach, but can avoid going

to trial by performing contract. - Courts prefer to award damages – could will first ask whether damages are appropriate (Tropiano)- SP granted in cases where damages would provide inadequate compensation for the aggrieved party. No presumption that SP is

automatically available for breaches of ks for sale of land – no presumption of uniqueness (Semelhago)o SP will not be granted absent evidence that the property is unique to the extent that a substitute would not be

readily available (Semihago)- To determine whether SP is the appropriate remedy, court should consider: (Serebrennikov)

o 1. Is there evidence that the land is especially suitable for the purchaser? Ex. Custom features of the home, location makes it suitable.

o 2. Is there evidence that a “substitute” is not “readily available”? (uniqueness test)

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Test for uniqueness based on objective factors and on the plf’s subjective considerations Onus on plf to prove that property is unique – prove he had looked for substitute, none available. Plf not required to demonstrate a complete lack of comparable properties to prove that there is no

substitute readily available – need not be an exhaustive search. Substitute property will be appropriate even if not identical to the original property (same features, same,

general location). Minor differences do not entitle plaintiff to SP. The fact that the purchaser found a new home objective indicates that an acceptable substitute was

available, and thus the original property was not unique (Serebrennikov). o 3. Are damages “comparatively inadequate to do justice”?

Onus is on plf to demonstrate that damages are not a suitable remedy- Plf must be in a position to perform its end of the bargain (ready, willing and able to tender) at all times from the time of

breach until the time of trial to claim SP.o If the defendant performs his obligations before trial and the plf is unable to perform, the plf will have breached the

contract and the defendant can sue.- At any time before the start of trial, an aggrieved party can drop its claim for SP and ask for damages in lieu of SP.- SP is an equitable remedy based on the fact that real estate is unique. Must be that damages cannot put the plaintiff back in

the position they would have been in had the contract been completed.o Before: Presumption for SP for all sale of land ks, Today: Must show how damages are inadequate remedy for

purchaser. o Claim for SP will generally only succeed on residential property – difficult to prove uniqueness in commercial

context (J. LePresti).- Court may award for the land only and not for the unbuilt home if the land is alone is sufficiently unique to entitle the plaintiff to

SP (Tropiano)o Difficult to prove uniqueness on unbuilt property – does not have unique characteristics

Vendor’s claim to specific performance:- Vendor unlikely to succeed in a claim for SP, especially in a rising market. Damages seen as appropriate when the vendor can

mitigate his losses by putting the property back on the market and selling to new purchaser.o More difficult for vendor to justify a claim for SP, must be extraordinary case (Semehlago)o Substitute seen as readily available if vendor can find a new purchaser.

- Difficult for the vendor to craft a uniqueness argument for selling his land. Could be:o Contract was unique in that it involved a trade of lands, or different methods of financing, and no other purchaser

could provide thiso Vendor had made renovations/additions to the property specifically for that purchaser, and now it would be ujsut

for the purchaser to renege the contract. But purcahser would argue that damages could compensate for this.

o Property is unique and the vendour would be unable to find another purchaser (no other purchaser “readily available”).

o Same of land depends on the vendor’s ability to purchase a subsequent property – so THIS sale is necessary. - Vendor not entitled to SP if interim agreement has an “as liquidated damages” clause.

o The parties have turned their mind to the issue before entering the contract. - When suing for SP, vendor must be ready, willing and able to perform at all times (see process, below)

Purchaser’s claim to specific performance:- More likely for purchaser to obtain SP than vendor – more likely to succeed in uniqueness claim.- SP can never be awarded if property has been sold to third party bona fide purchaser for value without notice.- Court more willing to award SP when it is evident the purchaser is not trying to take advantage of a rising real estate market

(Semelhago)- Process:

o Upon vendor’s breach, purchaser will elect to affirm the contract. o 1. Purchaser must show he is ready, willing and able to tender.o 2. Purchaser must prove that the property is unique in that a substitute is not readily available (Semihalgo)o Purchaser will sue for specific performance with damages and/or an abatement on the purchase price. o Register a lien (certificate of pending litigation) on title to put all potential purchasers on notice that there is

pending litigation. Certificate is an encumbrance on title, and vendor cannot sell the property (no good title).o Purchaser must remain ready, willing and able to complete at all times.o If defendant performs, claim for specific performance will be settled before trial.o But defendant will likely have to pay damages due to the delay.

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2.1) Specific Performance + Abatement on the Purchase Price: - Abatement:

o Purchaser can obtain a claim for SP with anabatement on the purchase price when there is a defect.o Abatement is either the diminution in value of the property caused by the defect, or the cost of curing the defect. o Court has discretion to award abatements, and will not do so if it cases hardship to the vendor o Damages for faulty construction: If cost to repair faulty construction is out of proportion with the benefit obtained

(more than the resulting increase in value to the property), the plaintiff will not be awarded an abatement as part of damages to make these repairs. (Serebrennikov)

o Potential windfall to plaintiff in awarding abatement – no guarantee that money will be used to carry out renovations, so will not be awarded (Serebrennikov).

o Ex. discovered that property has leaky pipes – abatement awarded to replace pipes.o Ex. Vendor has agreed to make renovations before closing. If vendor doesn’t, court may order an abatement to

compensate for the cost of renovations.

3) Damages- Preferable where:

o 1. Vendor re-sells the property and has mitigated his damageso 2. Vendor doubts the purchaser will complete the transaction as ordered by the courto 3. Vendor wants to retain the property while seeking compensation for a change in value.o Otherwise, SP is preferable (but hard to prove)

- S. 24 Law and Equity Act: Relief against Penalties and Forfeitures:o “Court may relieve against all penalties and forfeiture and in granting relief may impose any terms as to costs,

expenses, damages, compensation and all other matters that thet court thinks fit.”o Court’s equitable jurisdiction to grant remedies – Courts have broad latitude to differ from the usual rule, and broad

power to make orders that are fair in the circumstance- S. 37 Property Law Act: Statement that purchaser may obtain damages due to title defect.

o Purchaser may recover damages for loss of bargain from the vendor who cannot complete due to a defect in title. Damages in addition to specific performance:

- Compensation for out of pocket expenses incurred by the plaintiff for which he has received no benefit.- These are equitable damages, discretionary in nature and recoverable in only limited circumstances where it would be just to

compensate the plaintiff –necessary to put the plaintiff in the position had the contract been performed.- The breaching party’s conduct must be the direct cause of the plaintiff’s loss. - Examples: moving expenses, rent, carrying fees and charges to maintain the property between the breach and trial, etc.

o Carrying charges and interest deduction: Deduction from award avoids potential windfall that would fall to the purchaser in a rising market (LoPresti)

When SP is granted to a purchaser in an inflated market, which clearly would result in a windfall to the purchaser, courts should use their discretion to minimize the gain through deduction from the award the carrying charges of the property and any interest on the purchase money that the purchaser receives.

Damages in lieu of Specific Performance- Equitable remedy awarded in two circumstances:

o 1) Plaintiff would otherwise be entitled to specific performance (unique property, plaintiff is ready, willing and able to tender), but is unable to perform the contract for reasons that are beyond his control.

o 2) Claim for SP, but the court believes that an award of damages would be more appropriate in the circumstances. - A party who is entitled to specific performance is entitled to elect damages in lieu thereof (Semelhago). - When the item for purchase under the k is unique and so plf could elect SP or damages, and chooses damages, damages can

be assessed as of the day of trial. o Damages must be an actual substitute for SP: Date of assessment must be the date that will place the innocent

party in the same position as if specific performance had been awarded (Semelhago). o Date of judgment is the date that SP would be awarded – so can assess damages from this date.

- Damages from date of trial does not result in a windfall to the purchaser if the property was unique (Semelhago)o Risking market: Courts should use their discretion to minimize the potential windfall through deduction from the

award the carrying charges of the property and any interest on the purchase money that the purchaser receives. Common Law Damages

- Damages flow from the contract itself, also out of pocket expenses incurred by plaintiff as a result of the breach.- For a breach of contract of sale of land, the plaintiff is entitled to recover all of his losses which are reasonably contemplated by

the parties as liable to result from the breach (Hargreaves v Brar)- General rule is to assess damages from the date of the breach (date of closing): difference between the contract price and

the market value of the property at the date of completion (Mavretic)

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o Rationale: Purpose of damages is to put the plaintiff in the same position he would have been had the contract been performed.

o Damages assessed at the date of breach (i.e. compensation for the value stated in the contract) puts plaintiff in the same position as if the contract had been fulfilled.

- Assessment of damages at the date of breach not an absolute rule – court can fix such order as it sees appropriate if to follow the rule would give rise to injustice. (Semelhago)

o Exception to CL approach for unusual circumstances that would render an assessment at the date of breach inappropriate (Mavretic)

o Assessment of damages would then usually be from the date of trial Must be circumstances that make assessment at the date of breach inappropriate (Mavretic) Court may consider the value of the land when the contract was made, at the time of breach, and at the

time of trial.o Value may fluctuate in risking/falling market – court has discretion to assess as of the date it sees fit and need not

adhere to rigid dates. No real difference between equitable and common law damages, and thus the rigid rules of

common law need not be applied. Court may assess damages in the amount and from the date they see fit. (Andsell)

Rising market: Time where value and interest rates were wildly fluctuating, and assessment at the date of breach would lead to inequitable results – property worth more at time of trial (Andsell)

If fairness requires the wronged purchaser reap the advantage of a rising market in order to send a message to the vendor that they cannot get out of a contract to take advantage of a rising market, court may consider awarding damages at the date of trial (Semelhalgo).

BUT: Fact that the value of the property is higher at trial does not render the assessment of damages assessed at the date of breach inappropriate, and does not justify deviation from the standard rule. (Mavretic).

Usually must be a reason – such as the property is unique, damages in lieu of SP Falling Market: Court does not want to allow a purchaser to get out of a contract to avoid paying more on

a falling market – but must prove that assessment at date of breach is unfair.- Potential windfall to award damages at date of trial: If market is rising, the purchaser will be awarded an amount that is

greater than the amount in the contract (he gets the inflated cost of the house), will avoid paying the costs of carrying the house from the date of breach to the date of trial, and will incur interest of cost of home (Rimes).

o Thus in general, damages assessed at date of breacho But if property is unique and damages must be a true substitute for SP – date of trial is appropriate.

- Damages are compensatory: Innocent party must be placed in the same position as if obligations under the contract had been fulfilled (Ricktor v Simpson)

- Qualification: Innocent party is obliged to mitigate his loss, and is not entitled to recover a loss which could have been avoided through taking reasonable steps (Mavretic).

o Vendor must re-list the property, purchaser must attempt to find another party

Tropiano v Stone Valley Estates, 1991, Ontario- Contact for sale for a lot with a house to be built on the lot. Vendor failed to build house, plaintiff sued for Specific Performance of the lot with

the home.- Held: Plaintiff granted SP for the land itself, but not for the building of the home.

o The lot was unique – ravine, unique propertieso Unbuilt home was not unique (because did not exist at time of breach), so damages adequate

Semelhago v Paramadevan 1996 – damages in lieu of specific performance – rising market- Plaintiff agreed to purchase home under construction from the defendant vendor-builder for $205,000. Prior to closing date, vendor breached

and reneged contract, and transferred title to his wife. - Plf remained in old house. 4 years between breach and trial. Rising market, and value of home increased from $190,000 at the time of breach

to $300,000 by the date of trial. - Purchaser sued for SP, later elected to take damages in lieu of SP. - Held: Property was unique, so SP would be appropriate (so ok to get damages in lieu of SP)

o Damages must be assessed at the date of trial to constitute a true substitute for SP. o Awarded $120,000 – purchaser entitled to damages in the amount of the difference between the purchase price in the contract to

and the value of the property at the time of trial.- NOTE: Court recognized potential windfall of assessing damages from date of trial

o Court began award at $120,000 for difference between k price and the value of the new home at trial, then deducted the cost the plf would have had to expend to carry the property forward to the trial date (i.e. the cost he would bear by owning the house for 4 years, and deducted the interest earned on the money the plf would have used toward the purchase had he bought the house

The Evolution of Specific Performance, A discussion o f SP and Equitable Damages before and afer Semelhago v Paramadevan 2002 (Joseph LoPresti:)- Rising market and SP: Purchaser ends up getting more money than what would put him in the same position had the contract completed – he

gets inflated cost of house, but b/c of the time between breach and trial he would have made interest on the money that he would have used

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to pay for the house, and he would avoid paying the carrying costs of owning the property for the time between breach and trial- Deducting carrying costs and interest from a damage in lieu of SP will avoid the windfall that an aggrieved purchaser would otherwise receive in

a rising real estate market- Result of Semelhago is that it is more difficult for vendor to justify a claim for SP – vendor’s expectation is to receive money, so determination of

the uniqueness of the land should be irrelevant, yet most cases have ignored this – couts have restricted availability of SP for aggrieved vendor to all but a few extraordinary cases.

Mavretic v Bowman 1993- Contract to sell home for $237,000. Purchasers did not complete due to falling market, and vendor sued for SP.- Vendor plfs did not relist the property, but continued to live there as their residence. - At trial more than one year later, the plaintiffs elected to claim damages and abandoned SP claim. Value of home had increased by $22,000. - TJ assessed damages from date of completion: difference between the contract price and price at date of breach. - Defendants appeal, saying no damages should be awarded because the value has gone up and damages should be assessed at the date of

trial.- Held: No circumstances making assessment at date of breach inappropriate. Just b/c market rose and price of property was greater at date

of trial doesn’t mean damages should be assessed from date of trial.- Mitigation was of no relevancy here. There was no evidence to support a finding that the plaintiffs would have reduced their loss had they

relisted and sold the property within a reasonable time

Serebrennikov v Sawyer’s Landing Investments – 2010 – is SP appropriate remedy- Plf entered into k to purchase home in a residential subdivision. Agreement to certain customizations. Construction not completed by

completion date, required customizations not performed.- Plf purchased a different home on same block – smaller, no custom features, higher purchaser price. - Plf commenced proceeding for SP of the contract with an abatement of the purchase price to add the agreed to customizations, and damages

for fees and taxes for condo they lived in the interim.- Held: SP not appropriate. No evidence that damages are inappropriate. - Test for whether SP is appropriate:

o (1) Home especially suitable to the purchaser - new home in a desirable area with custom features. o (2) BUT there are other homes in the same subdivision that are also new with same features for same price – yes there is a readily

available substitute property. By purchasing new home, objectively showed that a substitute was available.

o (3) Plf has led no evidence to suggest that damages are not an appropriate remedy – no SP- Abatement: application for abatement of 30% of the purchase price dismissed.

o Plf is asking for an abatement is based on expert’s report regarding the cost necessary to complete the house in line with plf’s expectation of what he had intended to purchase (i.e. costs of new windows, ensuite bathtub, rear patio).

o Abatement would involve expenditures out of proportion with the benefit. Cost to replace items (windows, bathtub) outweighs any reduction in value arising from the items as they presently exist = not reasonable to award damages for this.

- Plf’s application for SP dismissed, without prejudice with plf’s right to pursue other damages.

4) Vendor’s/Purchaser’s Lien- Once the contract of purchase and sale is signed and the purchaser has put a deposit down, both parties have an equitable

lien against he property. - Equitable lien is a right, enforceable at equity, to have a demand satisfied for the property without possessing the property.

Lien is outside the contract.- Purchaser has an equitable lien to the extent of the deposit – lien to be repaid deposit before closing.- Vendor has a lien to the extent of the unpaid purchase price – lien to secure the unpaid balance of the purchase price.- Parties should register the lien as a security interest for the value of the land, and put notice on title to put everybody else on

notice that there is a lien/interest in the property.

5) Rescission- Equitable remedy: Attempt to return the party to his original position before the contract was formed. - “Unmaking” of the contract – right of a party to be no longer bound by the contract, and be returned to his original position.

o Vs. damages: put parties in the position they would have been in had the contract completed. - Available pre-closing for negligent misrepresentation, fraud (fraudulent misrepresentation), and EIS.- Available post-closing only in the case of fraud (including fraudulent misrepresentations) or EIS, and in some cases, negligent

misrepresentation (breach of warranty) that LEADS to an EIS.- Innocent misrepresentations do not give rise to the remedy of rescission unless the purchaser can prove fraud or EIS (Cherris

Estate)

POST-CLOSING REMEDIES

Damages Post-Closing- Pre-Closing: Party must elect whether to affirm or disaffirm the contract, this closes off certain remedies.- Post-Closing: No election (contract has already completed). - Default rule is to award damages – rescission will only be available if damages are inappropriate in the circumstances.

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- Same principles that apply to Specific Performance pre-closing apply to rescission post-closing (although no SP post-closing)- Claim for rescission: if property is unique, if an award for damages will not remedy the situation (because the breach amounts

to an EIS that goes to a fundamental element of the contract), if there was fraud.- Same general principles apply to post-closing for assessment of damages - assess at the date of breach (date of closing) unless

this is inappropriate

Rescission post-closing: - Must be fraud or an EIS.- Principle: Save in the exceptional cases, caveat emptor applies. If the purchaser wishes to protect himself in respect from the

absence of title, a defect in title or in the quantity or quality of the land, he must do so by covenants (express warranties) in the contract (Redican)

o Once a conveyance has been executed, if the purchaser is evicted by a title that the covenants in the cis a ontract to not cover, he cannot recover the purchase money – no rescission for negligent misrepresentations if not protected by express warranties in the contract

o Same principle applies for an executed conveyance where purchase money was not paid if the conveyance had been executed on the faith of the buyer’s promise to pay, or where the money was secured by a mortgage (and there was an implied promise to pay)

Cheque sent but payment stopped – yes implied promise to pay (Redican)- Rule does not apply where there is error in substantialibus (ex, it turns out that the vendee has purchased his own property)

or where the transaction has been brought about by the fraud of the vendor (Redican)o After completion, purchaser may rely on error in substantialibus or fraud to obtain rescission

- Misrepresentation which is not fraudulent nor gives rise to error in substantialibus only gives rise to contractual condition or a warranty after completion (Redican)

o MAY be entitled to rescission for a breach of an express warranty in contract – debatable (below)- Delay in claim does not preclude rescission if there is delay was reasonable – such as that the defects did not come to light

immediately upon closing, or if the purchasers tried to fix the problems before making a claim for rescission (Allen v McCutcheon).

Patent and latent defects:- Patent defects: Vendor’s failure to disclose a defect that would be readily discoverable by ordinary inspection is not a ground

to rescind the contract UNLESS the vendor actively concealed the patent defect (this is fraud) (Gronau v Schlamp)o Active concealment by vendor of a patent defect or any conduct calculated to mislead the purchaser with regard to

a defect known by the vendor is fraud, and the k is voidable by the purchaser if he has been deceived by this.- Latent Defects: Purchaser can obtain rescission of the contract if a vendor fails to disclose a latent defect. (Gronau v Schlmp)

o Caveat emptor does not apply if the vendor actively concealed latent defects (Ie purchaser need not investigate existence of a latent defect because he could not have known about it)– this is fraud, and caveat emptor does not apply in the case of fraud (Allen v McCutcheon)

o False statement or a material representation made by vendor intended to induce the purchaser to purchase constitutes active concealment of a latent defect = fraud (Allen v McCutcheon)

Merger: No presumption of merger of warranties in the contract – can still obtain remedies- Before: Caveat emptor (buyer beware) prevailed:

o Once transaction had closed, all the terms of the contract were merged into and superseded by the title, unless otherwise provided in the contract of purchase and sale. No representations as to the quality of the property remained.

o Unless there was an express statement in the contract that the warranty was to endure past closing, purchasers had no recourse for defects discovered after closing.

o Exception – fraud or EIS, purchaser could rescind the contract. - Now, no presumption of merger - must be evidence of intention to merge (Fraser-Reid)

o Warranty does not “merge” on closing. Delivery and acceptance of a conveyance is often merely part performance of all the obligations of a vendor under a contract (Fraser-Reid).

o Provisions in the contract will be available after closing for the purchaser to rely on for a reasonable amount of time unless provided otherwise in the contract.

- Contract terms will only be merged in the conveyance where the parties intended the terms to be no longer available after closing.

o In the absence of evidence of a common intention that the conveyance would be taken as satisfaction of a warranty in the contract, there is no presumption that the purchaser intended to surrender or abandon the rights he acquired in the contract for purchase and sale (Fraser-Reid)

o Must be intention that the vendor would no longer be responsible for any defects in the property on transfer. - Purchaser’s rights to not terminate at the date of closing. Purchaser can still rely on warranties in the contract as being

true, and the vendor is still responsible to uphold these warranties.

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Breach of Warranty Remedies- Breach of warranty usually gives rise to damages, but not rescission or repudiation.

o Breach of an express warranty in the contract gives rise to damages. o Generally cannot obtain rescission of the contract absent fraud or EIS. o No presumption of merger: Warranty in the contract can be relied on by the purchaser after closing for a

reasonable amount of time after closing unless provided otherwise in the contract of purchase and sale (Fraser-Reid most case law that has granted rescission has based the decision on the v. Droumtsekas)

o If the vendor fails in his legal duty to uphold the warranty, this is a breach of the contract.- Rescission for Breach of Warranties Post-Closing?

o Generally post-closing, principle is caveat emptor unless there is an express warranty in the document such as the Property Disclosure Statement, the “as viewed” clause, or another clause that shifts the risk to the vendor and provides recourse to the purchaser.

o If warranty leads to EIS, or if the vendor engaged in fraud – yes rescission. o Warranty being expressed in k is evidence that this is a fundamental term of the warranty amounts to EIS, thus

rescission can be obtained.o Jurispurdence suggests rescission can be obtained if there was a contractual warranty in the contract, but this is

debatable, and not a standard rule (as is fraud or EIS). Grey area as to whether rescission can be obtained post-closing for a breach of an express contractual

warranty. Redican: Yes rescission for breach of express warranty BUT warranty amounting to an EIS, or the vendor having had engaged in fraud.

- SKF Clause 18: Representations and Warranties (escape clause)o Entire Agreement Clause: “there are no representations, warranties, guarantees, promises or agreements other

than those set out in the contract and the representations contained in the Property Disclosure Statement if incorporated into and forming part of the Contract, all of which will survive the completion of the sale.”

Clause 18 expressly does away with merger Anything other than what is written in the contract or incorporated in through the PDS must be proved to

have induced the purchaser to enter the contract in order to be seen as a warranty of the contract. o Must be drawn to the plaintiff’s attention for Clause 18 to protect the defendant from liability for a breach of

warranty (Roberts v Montex)o If purchaser can prove he relied on the warranty, clause 18 does not bar a claim for breach of warranty.

- Home Owner Protection Acto Requirement that every new home in BC must have third party home buyer insurance that provides protection for

defects in material and labour for 2 years, building envelope defects (such as water penetration) for 5 years and structural defects for 10 years.

o Implied warranty to the consumer that a new home will be have insurance coverage for the specified time for defects.

Obligation for Mitigation (Hargreaves v Brar)- A party who has suffered from a breach must take reasonable steps to avoid losses flowing from the breach. (Boud Corp NV v

Brook)o Plaintiff is entitled to recover all losses which are reasonably contemplated by the parties as liable to result from the

breach, but mitigation required.- Vendor must re-list property, purchaser must attempt to find a new home- Onus is on the defendant to prove the other party did not mitigate losses.

o Plf has the burden to prove that he suffered damage and the quantum of damages. Once proved, the burden of proof moves to the defendant if he alleges that the plf could have and should have mitigated his loss.

- Defence of failure to mitigate: Defendant must prove that:o 1) After the defendant’s breach of contract, the plf failed to do some act that he reasonably could have done –

failed to take reasonable steps to mitigate losso 2) That if the plaintiff had done that act, the loss cause by the defendant’s breach would have been avoided or

reduced. - Rising market: Mitigation will not be difficult for a wronged vendor in a rising market – easy to find a new purchaser to sell

property at a higher value. Purchaser will likely be unable to find a property for the same value.- Falling market: Vendor may not be able to re-sell his property at the same value (Hargreaves)- Mitigation may not be possible if the sale of vendor’s home depends on his ability to purchase a new home – this is a reason to

justify vendor selling the home at a lower value (Mavretic). - After a breach, a vendor is justified for selling property at a lower value if it is a declining real estate market, funds are needed

to purchase a new home and she is unable to get interim financing: this is reasonable attempts to mitigate losses.

Fraser-Reid et al v Droumtsekas et al - 1979 – Mergers/Warranties

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- Plf purchases completed new house from the defendant-builder – provision that the vendor must disclose to purchaser all outstanding infractions in respect the property, and all orders requiring work on the premises to fulfill municipal laws.

o A municipal by-law required weeping tiles to be installed around the houseo Defendant neglectd to install the tiles but the plaintiffs were unaware of this as of the date of completion.

- After completion of sale, plf’s basement leaked due to lack of drain tiles. Plfs sued for breach of an implied warranty of fitness for habitation and an express warranty derived from the clause in the contract.

- Held: No implied warranty of fitness because home was completed upon entering the contract. Warranty for fitness for completed homes must be express.

- YES breach of express warranty:o Assertion of a fact to which the buyer is ignorant: Purchaser was ignorant about municipal by-laws and whether they had been

adhered to.o Provision was an undertaking by the vendor to disclose to the purchaser all outstanding infractions and all orders requiring work

to be done on the premises. It is an assurance of compliance with a statutory duty. It is an affirmation of fact and not merely an opinion.

o Warranty was not "merged" on closing: No evidence that parties intended to extinguish the vendor’s responsibility for the improper workmanship upon conveyance.

- Order: Vendor must pay damages to install the weeping tiles.

Roberts v. Montex Development Corp. BCSC 1979- Plaintiff bought a suite in a condo sold through the defendant realty company.- Plaintiff made specific inquiries as to the sound-proofing at the time of purchaser. - Sales brochure described the sound-proofing as "maximum", and a salesman assured the plaintiff the building was well sound-proofed.

o Broshure not a part of the contact of purchase and saleo Clause 18: “It is understood and agreed that there are no other representation, warranties, guarantees, promises or agreements

other than those contained in this agreement.”- Sound-proofing was inadequate, plaintiff sued Montex for fraudulent or negligent misrepresentation (breach of warranty).

Held: plaintiff entitled to damages for both breach of contract and tort. - No fraud: Vendor honestly believed the soundproofing description to be true - brochure was a warranty in law rather than a mere representation, and the defendant Montex was liable in contract despite the fact that

there was an escape clause in the deed because the clause had not been drawn to the plaintiff's attentiono Vendor assumed to assert facts in the brochure, not merely state an opinion on a matter it had no special knowledgeo Brochure induced purchaser into the contracto Vendor knew of the condition and the purchaser didn’t Vendor is liable for breach of contract b/c of breach of warranty

- In the alternative, vendor was liable for damages for negligent misrepresentation as the escape clause, having been found to be ineffective to exclude liability in contract, was equally ineffective to exclude liability in tort

- defendant realty company was also liable for negligent misrepresentation.o Liable in tort despite the contract, b/c this case involves a pre-contractual negligent misrep which induced the plf to enter the

interim agreement = def liable.- Damages for breach of contract was the cost of repairs necessary to make the suite conform to the promised standard - Damages in tort was the difference between what the plaintiff paid and the actual value, here assessed at $7,500.

Cherris Estate v. Bosa Development Corp. (BCCA 2001) – EIS/innocent misrepresentation- Plaintiff purchased penthouse unit from defendants. Solar heat created by windows and skylights made the home extremely hot. - Plaintiff sued for rescission of the contract – home was uninhabitable due to heat – this is EIS.- Held: Rescission awarded along with restitution damages to plaintiff.

o Plaintiff would suffer greater prejudice by continuing to be saddled with unlivable penthouse and debt accruing therefrom.o Fraud not required to obtain rescission of there is an error is substantialibus.

Curtin v. Blewett (BCSC 1999): Property Disclosure Statement - In disclosure statement which formed part of contract of sale with purchasers, vendors stated that they were not aware of any infestation

of property by insects- Vendors had experienced problem with termite infestation 2 years earlier and had retained pest control company

o Pest control company provided a 10-year warranty, and on two return visits to property found no evidence of termiteso Vendors thought the termite problem to have been resolved treatment by pest control company

- Purchasers noticed termites in home shortly after taking possession- Purchasers brought action seeking rescission of contract based on fraudulent misrepresentation (becaue they knew the infestation problem

persisted) or damages based on breach of warranty (warranty that there were no infestation problems)- Held: Action dismissed.

o No fraudulent misrepresentation: No evidence that the statement was false – no evidence of termine infestation at the time the PDS was filled.

o No breach of warranty: Under PDS, vendor’s disclosure does not call upon the vendor to warrant a certain state of affairs. Wording of PDS in present tense – referred only to current infestation problems, not past.

Redican v Nesbitt - 1923 – Rescission post-closing- Purchasers buying a lease on a cottage, It was clear that the interaction of the parties wasn’t legally crisp at all and there was no time is of the

essence - Terms of the offer were unclear – the completion date passed and the purchaser did not inspect the cottage until after the lease was

executed and assigned

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- On inspection, purchasers were disappointed - agents of the vendors had made misrepresentations to them on fundamental aspects of the purchase of the interest in property

o No electricity, not as many bedrooms as represented.- Purchaser’s stopped payment of the cheque at the bank and notified the vendor of this.- Vendor issued a writ to enforce the contract- Here: Misrepresentation relates to the physical state of the property, and it imposes a significant legal burden (such as a right of way).

o Caveat emptor applies – P’s must have protected themselves in the contract through express covenants in order to receive rescission.

- New trial must be granted – Rescission is not available for innocent misrepresentation – new trial ordered to determine whether the statements was negligent, fraudulent, or innocent misrepresentation.

- Note: Cheque was accepted by conditional payment, there was an implied promise to pay, and the subsequent repudiation of the promise doesn’t not take away the effect of the executed transfer.

Hyrsky v Smih - 1969 – Error in Substantialibus (EIS)- Plaintiffs purchased land from defendant without searching the title - told vendor that they were purchasing the property as investment but

did not tell the vendor that they were subdividing it- Four years later it was learned that a substantial area was owned by a third party- Plaintiff brought an action for rescission - land was unsuitable his purchaser’s purpose of subdivision into 17 building lots

Held: plaintiffs should succeed in rescission based on EIS- No fraud found so court turns to other two grounds - question was whether there had been an "error in substantialibus" or breach of an

express condition or warranty in the deed- For EIS: Mistake as to the quantity must be so substantial it change the quality of the property

o Here: Impact on half the property is fundamental to the quality of the contract. No words of qualification (more or less), considerable disparity between quantity of land actually conveyed and quantity described by the vendor in the deed (almost ½ of the land). Vendor knew purchaser wanted to use the land for investment purposes yes EIS

- Even though the purchaser should have searched title but didn’t, equity requires rescission where there is an EIS- Remedy: For EIS, rescission is appropriate remedy. Not awarded costs – this is penalty for not searching title.

Allen v McCutcheon - 1979 – Fraudulent Misrepresentation – latent defects- Vendors sold a leasehold interest land to the purchasers- Vendors represented to the purchasers that an easement (an electric power and transition right of way) which extended over the leasehold

was 5 feet wide, when in fact its width was 25 feet. - Numerous defects existed in a building that made it structurally unsound; Other defects: electrical wiring system was defective and a fire

hazard, septic tank and septic field were defective vendors knew about these defects and failed to disclose them- Purchasers took possession, defects became apparent. Unable to remedy defects; brought an action for rescission

Held: Purchasers granted rescission of contract- Defects were latent: not readily observable and not seen by the purchasers prior to purchase. - Here: Vendor actively concealed latent defects- Vedors made fraudulent representation when they failed to disclose that the house had no proper foundation, the easement size, the

electrical wiring was defective and a fire hazard, the septic tank was defective. o Misrepresentations were material and induced the purchasers to purchase – purchaser would not have entered the contract had

they known the true state of the property (had they known the size of the easement) - Delay of the purchasers in repudiating the sale was not unreasonable in the circumstances

o purchasers had tried to remedy the defects before they became aware of their serious nature- Rescission, Equity demanded that the purchasers pay to the vendors an occupation rent for the time that they were in possession.

Hargreaves v Brar – 2010 - Mitigation- Contract for purchase and sale of vendor’s home. Purchaser requested an extension because he was relying on the sale of his home to finance

the new purchase, and the sale of his old him was delayed. Vendor refused to grant extension for closing.- Purchaser failed to compete on the closing date, and vendor re-listed her home and sold the home to another purchaser for $169,000 less

than the first contract (and below the appraised value of the home)o BUT declining, she needed financing to purchase a new home.

- Vendor sued the purchaser for damages for the difference between the price under the contract and the price she received for her home - $169,000.

- TJ held that the vendor did not act reasonably in accepting the low offer and for failing to pursue available options and take reasonable steps (such as continuing to list her property and seeking interim financing, pursuing the first offer by allowing an extension and increasing the deposit)

- Held: Trial judge erred by reversing the onus of the defendant to prove that the loss caused by the breach could have been avoided if the plf had taken the steps suggested.

o TJ overlooked facts – she DID seek interim financing, and couldn’t afford it. The market was falling, so appraisal may have changed price of house. Def never showed they would be able to complete at an extended date.

- HELD: Vendor was entitled to accept a sure offer with a definite closing date in a failing real estate market that allowed to her complete the purchase as per the contract.

- Purchaser did not prove that had the vendor not taken the steps to complete the k, she would have still suffered the loss vendor is entitled to damages, the deposit with interest, and court order interest. Vendor awarded double costs of the trial.

Aldred v Colbeck – 2010 – Negligent Misrepresentation:- When vendor bought property, hired contractor to deal with underground oil tank. Re-sold property 2 years later. - Pplf purchasers inquired about building inspection. Vendors said building inspection had been done 2 years prior and work had been done by

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contractor to conform with recommendations, so no additional inspection is required.- Plfs unaware of underground oil tank that had been dealt with by previous owners - Plf tried to re-sell property; discovered that tank had not been removed and that ground around tank was contaminated and required

remediation. - Plfs bring action for cost of remediation of soil contamination based on negligent misrepresentation and by virtue of the Environmental

Management Act Held: Yes negligent misrepresentation, yes liable under EMA

- 1. Special relationship between vendor and purchaser- 2. Vendor represented that oil tank had been removed and that property conformed with reet’s - misleading

o Representation that the building inspection had been dune and that the property conformed with req’ts. o Vendor never told P that the tank was removed, but they said the tank had been decommissioned, and intended to convey that

the tank did not threaten the property – this is incorrect- 3. Yes – standard of care is objective test. Did not meet the required degree of reasonable care:

o Vendor knew the dangers of oil tanks, did not attempt to locate it or do any testing at the time of purchase. o Retaining a contractor to decommission the tank is not to meet the required standard of care,o Not reasonable for vendors to have relied on the contractor’s representation regarding the work done given the small amount of

time it took and the low price charge should have been suspicious that work was not properly done. - 4. Purchaser relied on representation

o Purchasers directly asked about oil tank and were told assured that the tank had been properly dealt with. Without this assurance, they would not have entered into k = yes reliance, yes reasonable

- 5. Yes suffered damages- Environmental Management Act claim:

o Original vendors solely responsible for remediation of property.o Site contaminated when acquired by original vendors, and they knew about this and failed to take all reasonable inquiries into the

previous ownership or use of the site to minimize liability. Purchaser did not know about the contamination and had no reason to suspect it.

- Damages: Purchaser entitled to recover damages sustained as a result of the negligent misrep made by vendors. o No diminution in value of the property associated with the contamination, so measure of damages is not the difference between

the amount paid and the decreased value resulting from contamination. o No damages for delay in selling her property or for having incurred debt financing cost related to purchasing a new home , no

general damages for disappointment or anxiety suffered due to negligent misrepresentation (no evidence of stress outside norm). o Entitled to damages equal to the reasonable cost of the services by the contractor to remove and replace the contaminated soil.

NOTE: Contaminated Site Regimes Environmental Management Act claim: Prior owner of a contaminated site is prima facie liable for the costs of remediating a contaminated site.

- S. 46: An owner of property who is aware that at the time they became owner the site was contaminated, and they had knowledge or reason to have knowledge of this contamination and had made all appropriate inquiries into the previous ownership and uses of the property in order to minimize potential liability, the owner will NOT be liable.

- Strict liability: If owner knew or should have known about a contaminated site on the property and did nothing to fix it, the owner is liable for the costs of remediation.

- Exception: If owner had taken steps to minimize liability by making the appropriate inquiries, OR if owner had no knowledge or reason to suspect the existence of the contamination, then the owner will not be liable.

Gronau v. Schlamp Investments Ltd. (ManQB 1974) – Patent/latent defects, negligent misrepresentation- Purchaser wanted to purchase apartment as an investment. Received particulars of building but told the building could not be inspected until

after an offer was made.- Purchaser and agent inspected the common areas, halls, basement and outside of the building (as much as possible without entering the

apartments). Based on information from the agent and his own observation, plf made an offer. - Shown two suits in excellent condition. Deal was closed.- Purchaser then discovered a serious crack running from basement to the roof (cracked foundation).

o Engineer report indicated that the vendor had sought advice from the engineer indicating that the apartment required significant structural repairs

o Vendor had concealed the structural defects and decided to sell the property instead- Plf sought rescission of the contract – arguing that the vendor concealed the structural defects - Held: Plf entitled to rescission of the contract. Vendor actively concealed a patent defect. This is fraud, and so caveat emptor does not apply.

o Vendor knew crack was a significant defect that would be expensive to repair and actively concealed it.o Concealment of the crack was a material representation that there were no defects with the foundation fraudulent

misrepresentation,o Also EIS: purchaser received something completely different than what they bargained for o YES can rescind contract.

CLOSING/COMPLETION: CONVEYANCE AND REGISTRATION

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Opportunities for Problems: Lawyer’s Undertakings- Standard Undertakings: Lawyers agree order that closing will occur.

o Purchaser’s lawyer completes documents and sends them to vendor’s lawyer with a letter stating the order that the closing procedure will occur.

o Vendor’s lawyer agrees to procedure, sends back completed documents. o Pre-closing search ensures there are no intervening charges on title that would make it unfit to transfer to new

purchaser.o File transfer documents, register mortgage in LTO.o Post-closing title search performed. o Proceeds paid out – mortgage discharged (if vendor had mortgage on title). o Report to client, and send statement of title.

- Without legal undertakings, some of these steps could not occur: Because of standard undertakings this is possible, but there is opportunity for risk if there is a problem with undertakings – so clients must consent.

o Property is transferred to new purchaser before vendor’s original mortgage is discharged from title – prima facie new purchaser is taking old mortgage.

This is necessary for vendor to receive funds from sale before he can pay off the mortgage.o New mortgage registered on title before vendor’s mortgage is discharged – so there is one day where two

mortgages are registered on title. This is necessary for purchaser to obtain funds to pay vendor, and this must be done before vendor can

discharge mortgage. o Vendor transfers property in exchange for purchaser’s promise to pay which is founded on the mortgage to be

placed by the purchaser (Norfolk v Aiken)- Court in Norflolk explicitly acknowledges that closing procedures put the purchaser at risk, and that although lawyer’s

undertakings are the standard practice, lawyers are exposing their clients to risk that would not otherwise be allowed absent consent.

o SKF acknowledges risk to purchaser by requiring that client consent to the risk involved in lawyer’s undertakings through the signing of the contract of purchase and sale.

o Otherwise, arrangements involved in lawyer’s undertakings would be unauthorized. - If one party requires assistance from other party to close (i.e vendor needs purchase money to discharge mortgage), this must

be agreed to in advance by the parties they are putting themselves at risk (Norfolk v Aiken)o Vendor is at risk if he hands over the transfer without the money and a mortgage is registered from the purchaser to

a new mortgagee. o If vendor has not agreed to Vendor never agreed to hand over transfer in exchange for a promise to pay which is

founded on a mortgage to be place by the purchaser, vendor is not obliged to do so. - Clause 14 SKF allows vendor to postpone discharge of the mortgage until immediately after receiving purchaser price.

Undertakings Generally:- Definition: Personal promise to do something made by a lawyer or notary that enable complex transactions to occur. If a

lawyer gives an undertaking, the lawyer MUST fulfill it – Duty to client to fulfill undertaking.o Promises based on status as a lawyer and self-governing profession. Law society imposes a very rigorous regime of

oversight and Professional Responsibility that allows lawyers to give undertakings to facilitate transactions where it would be very onerous to require lawyers’ to ensure that each step in the process is complete before the next step is begun.

o Sanctity of undertakings are a cornerstone of the legal profession – lawyers can be held liable for professional negligence or for damages flowing from a breach of an undertaking.

- Must be in writing and expressed in unambiguous terms.- Lawyers in a special position to provide undertakings to close as agreed to in the contract of purchase and sale

o Closing procedure is usually based on mutual promises between lawyers to provide and receive documents and funds in exchange for transferring the property and paying funds.

o if lawyer gives an undertaking, the lawyer must fulfill it by closing the contract as agreed to in the contract of purchase and sale.

- Give undertakings: Can only be given and signed by lawyers or notarieso Staff’s representations may be found to have been made on lawyer’s behalf, and lawyer can then be bound by the

undertaking.- Release undertakings: Only the party to whom the undertaking is given that may release an undertaking.

o Lawyer’s client cannot waive his lawyer from an undertaking – it is the other party- Authority and scope to use undertakings:

o A lawyer must never undertake to do anything beyond his or her absolute control at the time the undertaking is given

o Must have consent of the client - Authority must be given by the lawyer’s client to make an undertaking (Norfolk v Aikens)

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Undertakings made between lawyers, but clients must consent to the undertaking by signing the contract of purchase and sale.

o Purchaser’s authority: Purchaser’s lawyer must carry out the contract on the face of the terms set out in the retainer.

o Vendor’s authority: When first retained by the vendor, the vendor’s lawyer must determine how the deal will close and how the financial information will be retained.

- Not necessary to use the word “undertaking” to have made on – undertaking can be imputed to you, so be carefulPurpose of Undertakings:

a) To simplify matters of process by providing an administrative mechanism by with money is exchanged, documents exchanged, transactions occur.

o Undertakings can expedite and simplify otherwise cumbersome transactions, and allow a lawyer to manage and reduce the client’s legal risk.

o Allows lawyers to provide certainty and predictability in transactionso Limits client’s risk or addresses the client’s risk in the transaction

b) To agree on how to return parties to original position if the transaction fails by providing a method to deal with problems if the transaction does not complete.

Professional Responsibility- Rule 1(A) of Chapter 13 of the Professional Conduct Handbook requires lawyers to report other lawyers to the law society

who have breached an undertaking where the change in the undertaking wasn’t consented to or the undertaking wasn’t waived.

- Undertakings contrary to your client’s interest may still be enforced if it has been agreed between lawyers and consented to by your client (McCarthy Tetrault v Lawson Lundell).

- Chapter 11 Rule 7-11 of the Professional Conduct Handbook sets out parameters for undertakings:o Lawyer must not give an undertaking that cannot be fulfilledo Lawyer must fulfill every undertaking made,o Lawyer must scrupulously honor any trust conditions once accepted (i.e. dealing with your trust account)o Lawyer cannot deal with money in the trust account unless he has been given instructions from his client to deal

with money in a certain way.o Undertakings must be in writing, very clear, must be unambiguous in its termso Lawyer must not impose on other lawyers impossible, impractical or unfair conditionso If a lawyer receives a proposed undertaking in writing, and the lawyer does not wish or cannot accept, the lawyer

must return the proposal to the lawyer clearly stating that he will not be bound by that particular undertaking.- Ability to fulfill undertakings:

o Must be made in the best interest of the cliento Client must have consented to this type of undertaking for mechanics of closingo Lawyer must be personally able to fulfill it, not in reliance of 3Ps

Lawyer does not ensure that a transaction goes through, but is managing client’s legal risk.Standard Form Contract of Purchase and Sale:

- Clause 13 and 14 of SFK: Provides for closing in the basis of the Canadian Bar Association (BC Branch) Real Property Section standard undertakings. (Norfolk v Aiken)

o CBA Standard Undertakings sets the general mechanics of transfer and closing explicitly in writing that the lawyers can agree on – these are the generally accepted undertakings.

- Client must consent to the closing procedure based on CBA undertakings by signing the contact- Lawyer may deviate from SKF (CBA allows this) if this is in best interest of your client

o Lawyer’s duty to his client takes precedent over the convenience of the SFK. o NOTE: If the contract of purchaser and sale is not in the standard form, you would want to close more formally by

all showing up at the land title office and closing formally- The contract of purchase and sale should set out in detail:

o description of the documentation that must be tendered at closing, o the place and time of closing, o the method of payment of the purchase price, o the mechanics of registering the conveyancing documents at the land title office, including purchaser’s financing,

and o the method by which the vendor will clear title.

Implied Undertakings- Undertaking can be implied or inferred depending on the context of the correspondence- Lawyers have implied undertakings imposed on them: by taking a particular action, they have “undertaking” to do something- Professional Conduct Handbook Chapter 11, Rules 8 and 8.1 (implied undertakings)

o 1) Rule 8 - Trust cheques: Handbook deems that an undertaking has been given when a lawyer acting for a purchaser accepts the purchase money in trust and receives a registrable conveyance from the vendor in favour of

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the purchaser. If lawyer withdraws funds by cheque, he undertakes that the cheque will be paid out. On writing the

cheque the lawyer certifies that there are sufficient funds in the bank account to make good on the cheque and that the lawyer is authorized to write the cheque to obtain these funds.

Deemed undertaking except in the most unusual circumstances Trust account: Lawyer’s special bank account where he holds his client’s money in trust when acting for

the purchaser. Purchaser gives his lawyer the down payment for property, and this is put I the trust account and held on the trustee’s behalf. Lawyer undertakes to manage this money in a particular way.

o 2) Rule 8.1 - Real estate transactions: Lawyer is deemed to have undertaken to pay the purchase money to the vendor on completion of registration

By accepting the purchase money into the trust account and receiving the registrabe conveyance, the lawyer is deemed to have undertaken to pay out this money upon completion to the transferor.

- Risk management: BC Law Society Rules: When accepting and paying out funds from trust by wire transfer, cheque, bank draft or direct deposit, lawyers should adhere to BC Law Society Rules: (below)

Effect of Breach of Undertaking- The person to whom the undertaken was given may take legal action against a lawyer to breaches an undertaking.- Liable for professional negligence, liable to pay damages for any losses flowing from the breach. - Law Society may take disciplinary action against the lawyer for breach of undertaking as part of their oversight of professional

conduct.Guidelines for Giving Undertakings

- 1) Never give an undertaking to do something beyond your absolute control at the time the undertaking is given - Don’t make an undertaking that is contingent on a third party and that you do not have direct control over.

o Ex. Do not undertake to pay off your client’s credit card – only to ensure the balance will be $0 by a specified date.o Ex. Do not undertake to obtain a registrable discharge – only that you will ask for one

- 2) Try not to give undertakings – Take demand management approach and avoid them; avoid “I will undertake to” unless it is in writing and is used as an irrevocable, binding promise

- 3) Get irrevocable client instructions – before giving undertaking, get irrevocable instructions from clients (that he can’t revoke)

- 4) Do not give open-ended undertakings – stake specific dates and times- 5) Do not impose conditions after undertakings are settled – cannot modify undertaking without permission of party to whom

it has been give- 6) Confirm oral undertakings in writing. - 7) Take care with undertakings imposed by others. - 8) Give self-determining undertakings – i.e. undertaking itself contemplates what happens if the deal falls through/something

goes wrong- 9) Draft undertakings precisely – include all steps- 10) Do not impose undertakings that modify or conflict with the contract.

Risk Management- Law Society provides from time to time advice to lawyers to limit their risk in real estate transactions.

o Ex. mortgage fraud report (above). - Recent advice focuses on the benefits of e-filing or the Electronic Filing System (EFS), keeping copies of picture identification

of clients, and taking care with mortgage instructions from institutional lenders.- Law Society of BC Insurance Issues: Risk Management, Curbing Risk in Real Estate Practice – April 2006

1) Electronic Filing – Electronic Filing System- EFS allows lawyers and their staff to complete online electronic land title forms that are printed for client execution and then

filed electronically once the lawyer has applied his digital signatures.- Lawyer then files the documents in the Land Title Office through BC OnLine, and fees are deducted from the user’s BC OnLine

deposit account and property transfer tax (if applicable) will be collected from a bank account via an electronic funds transfer. - Lawyers obtain an electronic signature from Juricert, a company owned by the Law Society - If a lawyer does not pay his or her fees on time, Juricert registration is suspended. - Part 10.1 of the Land Title Act deals with/enables the EFS- Benefits of EFS: reduced risk of lost or late documents since documents can be emailed for execution, faster service and

reduced costs (note: system does crash from time to time)o Allows greater flexibility and avoids problems of courier being late to deliver registration documents.

2) Picture Identification – Keep Copies- Law Society recommends that lawyers keep photocopies or electronic copies of picture identification from all clients for

whom they act in a real estate transaction. - Many lawyers meet clients for the first time through real estate transactions and have no prior relationship with them

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Keeping records of picture identification is important for preventing value and identity frauds - Even if fraud occurs, keeping photo id helps prove that you met your obligations to the lender.

3) Mortgage Discharges from Institutional Lenders- Lawyer should never undertake to discharge a mortgage or clear the title of encumbrances upon receipt of the purchase

price from the purchaser’s lawyer (although some lenders will ask for this undertaking). o Do not undertake to provide a registrable discharge from the mortgagee (bank)

- A lawyer cannot fulfill a client’s obligation to deliver clear title or use the lender’s power to discharge the mortgage ONLY the lender (bank) can provide a registrable discharge, lawyer must not make undertakings that he cannot personally perform

- A lawyer can fulfill her obligations to his client by o (1) Lawyer may undertaking to ask the bank for a registrable discharge and undertake to submit it for filing only

after paying the lender a specified amount owed to them; or o (2) having the vendor’s lawyer provide the purchaser’s lawyer with an undertaking to deliver to the lender the

specified amount to payout the mortgage and to receive and register a mortgage discharge- Mortgage instructions: Must carefully consider any new provisions given to lawyers by lenders before accepting them – Do

not accept undertakings that:o Ask you to take steps that are not part of your usual practiceo Require you to provide services in areas outside your legal expertise

Ex obtain “adequate” property insurance – you risk giving wrong advice and your professional liability insurance will not cover you

o Require you to notify the lender of facts or circumstances of which you have no knowledge – clarity to lender that you will only give advise on information you have in your possession

o Impose an obligation you cannot meet – ex obtain “valid” identification of a person o Ask you to accept liability for your own actions or the actions of others – may end up faicing a claim that your

insurance won’t cover you foro Impose an undertaking on you – undertakings must be between lawyers, not lawyers and clients, so cannot accept

undertaking form lender. - When asked to accept instructions: Read each provision carefully, identify instructions you are unable or unwilling to comply

with, as well as any ambiguities, raise these issues with the lender and explain your position that the particular service can’t be provided, confirm the revised instructions in writing.

- Law Society Report: Fraud – Step to avoid Mortgage Fraud through undertakingso Lawyer must not accept bank documents from clients. Lawyers must insist on obtaining statements directly from the

mortgagee (bank) to avoid fraudulent transactions. o Lawyer must not give undertakings on matters that are beyond their control.

Red Flag Issues: Practice Management/Ethics – Continuing Legal Education Society BC, RealEstate 2010 Update1. Client Identification Rules:

- Law Society of BC Rules 3-91 to 3-102 requires lawyers to follow certain identification and verification procedures when a lawyer is retained by a client to provide legal services.

- If an exemption doesn’t apply to a client, rules require lawyers to make reasonable efforts to obtain and record the applicable client identification information when a lawyer is retained by a client to provide legal services.

- If an exemption doesn’t apply to a client, and lawyer is providing legal services in respect of a financial transaction, lawyer must identify the client and make reasonable steps to verify the identity using what the lawyer reasonably considers to be reliable, independent source documents of info.

- Lawyer must:o Client Identification: Make reasonable efforts to obtain and record client’s full name, business and home address,

occupationo Verification: Make reasonable steps to verify the identity of the client using reliable, independent source documents

or information.o Identifying directors, shareholders and owners: Obtain and record name and occupation and address of all

directors of organizationo Timing of verification: Lawyer must verify identify at the time that the lawyer provides legal services in respect to

financial transaction. o 3-100: Record keeping and retention: Lawyer must obtain and retain a copy of every document used to verify the

identityo 3-102: Criminal activity: If lawyer knows or ought to know he would be assisting a client in fraud or other illegal

conduct, lawyer must withdraw from representing the client. - Types of clients:

o Client identification rules distinguish individuals and organizations (Financial institutions, public authorities, reporting issuers)

2. Fraud from the Law Firm’s Perspective

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- Law Society and Professional Conduct Handbook Rules – Ch 4, Rule 6: Reinforces lawyer’s duty to be on guard against becoming a tool or dupe of an unscrupulous client

o Rule 6: Dishonesty, crime, or fraud: Lawyer must not engage in any activity that he knows or ought to know assist or encourages any dishonesty, crime, or fraud, including a fraudulent conveyance, preference or settlement.

o Footnote: Lawyer has duty to be on guard against becoming a tool or dupe on an unscrupulous client and may have a duty to make inquiries. For example, a lawyer should make inquiries of a client who:

(a) seeks the use of the lawyer’s trust account without requiring any substantial legal services from the lawyer in connection with the trust matters, or

(b) promises unrealistic returns on their investment to third parties who have placed money in trust with the lawyer

o 3-102: Criminal activity: If lawyer knows or ought to know he would be assisting a client in fraud or other illegal conduct, lawyer must withdraw from representing the client.

- Law society recently issued an email alert to the profession on value fraud schemes o BC Law Society insurance Issues: Risk Management: Real Estate Fraud: A prevention Primer

- Value fraud scheme: Inflating a property price for a larger loan: fraudster agrees to purchase real property and the flips it to a fraudulent complicit purchaser at an artificially inflated price. Then new purchaser deceives a mortgage lender as to the true value of the property when obtaining a mortgage loan.

- Tips from Law Society to lawyers about fighting value fraud:o Review common characteristics of value fraud with other staffo Consider asking for cancelled charges and not just current charges (this will show rapid turnover of mortagees)o Be cautious of flips – if seller under k is not the same as registered owner on title, ask Qs to ensure transaction is

legitimateo Copy picture ID of buyer/borrower to protect yourself form negligence claims. o Inform a lender client that a transaction is a flip, ask for further instructionso Consider obtaining lender’s consent to accept mortgage security signed pursuant to a power of attorney o Insist on the evidence you need to put you at easeo Consider the payee – if a large % of the mortgage are to be paid to the borrower directly, make further inquiries. o Consider doing historical searches if suspicions are raised to see if the property has been flipped at higher prices or

mortgaged repeatedly- Identity Verification (above) very important to prevent fraud:

o Identify verification guidelines by Law Society that must be followedo Homewood Mortgage v Lee:

Homeowner with no mortgage on property learns that there is a mortgage registered on title. Mortgage had been taken by fraudster. Homeowner seeking declaration that mortgage is fraud and thus unenforceable, and should be discharged.

Mortgage had been registered without fraudster providing identification to authorize mortgage – obtained without ID, or signature, and there was no evidence that the mortgage broker had made any effort to determine the identity of the supposed mortgagor.

Mortgage broker had relied on a person seeking mortgage for their unencumbered property without asking for identification, and did not do due diligence to verify that the person was the true owner.

- Tips from Law Society to fight identity fraud:o Get picture id of clientso Keep a copy of the ID on fileo Advise lender if you have concerns and obtain instructionso Watch for urgency – fraudster wanting to complete the fraud before he is discoveredo Considered meeting separately with the registered owner to satisfy yourself as to the person’s capacityo Provide only the assurances to the lender that you can – don’t go beyond the officer certificaions (ex can’t warrant

that a person’s signature is in fact that person on the instrument)o Take steps to protect against corporate identity fraud by obtaining your own updated corporate search, securing

picture ID for those signing on behalf of corporation3. Direct Deposits

- When accepting and paying out funds from trust by wire transfer, cheque, bank draft or direct deposit, lawyers should adhere to BC Law Society Rules:

- 3-55: Trust Account Balance: Lawyer must maintain sufficient funds on deposit in separate trust account to meet his obligation to funds held for client

- 3-56: No payment should be made from funds unless there are sufficient funds held by the credit of the client on whose behalf the funds are to be paid.

- 3-55: Trust shortage – lawyer must immediately pay enough funds in account if trust shortage.

NOTE: Local Government Enforcement of Criminal Matters

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- Recent increase in attention paid by local government to health and safety aspects of homes that have been formerly used for drugs.

- 1) Property Disclosure Statement: Clause 2P: Vendors declare whether or not they knew if the home had been used as a marijuana grow-op: “are you aware illegal drugs have ever been made here”

o Vendors must ensure they know what their house has been used for in the pasto If vendors lie, this is fraudulent or negligent misrepresentation

- 2) Local governments have included additional requirements for homes that have formerly been used as grow-ops:o Must be declared “habitable” – vendor must rehabilitate home o Must be professionally inspected by a specialist and cleaned, may have to be completely dry-walled o Cost to rehabilitate formed grow-up home generally $50,000-$100,000

- 3) Illegal substance issues with home: Local government will hire a consultant to inspect home and deal with any health or safety issues, and will bill the landowner for costs. If landowner fails to pay costs by the end of the month, cost added to taxes.

o Ex. Crystal meth – dangerous chemicals, home must be rehabilitated- 4) Owners of rental properties must monitor their rental properties and know the activity occurring in the home, can incur

significant liabilities for failing to do so.

Carnegie Foundation – applying law to the real world- Carnegie foundation report for lawyers: Primary finding that there is not a great connection between legal connection and

“lawyering” in America.- Application of the law (practical part of school) – thinking of law in specific fact patters, developing ability to make judgments- Rather than taking law and applying it to a legal fact pattern by spitting out legal precedents of all the possible things that

could happen, we must be able to funnel out courses of action. - Use judgment as a professional lawyer to decide what to do – solve problem from a PRACTICAL perspective to get to result

that client wants, rather than legal perspective of applying caseso But this is difficult – lawyer’s not covered for this

Standard Form Structure – Contract of Purchase and Sale – Clauses- Sent to V by Buyer as an offer (via REA)- Seller info: Beware of non-residents (get assurances from CRA that all tax liabilities have been satisfied, or purchaser could be

oblig to pay outstanding balance)- Description of the property

o Ensure this is accurate (implications for other statues)- Deposit (2)

o Not legally required to make the K binding (mutual promises to buy/sell make K binding) o Held in accordance w/Part III, s.28 of RESA (held as stakeholder for RE transaction, not on behalf of one of the

parties; written agmt of both parties req’d to release deposit upon breach)o Deposit is considered a guarantee of performance by the buyero Delivered in trust to REA or lawyer (usually selling REA)o V can terminate K if buyer fails to pay the deposit

- Terms and Conditions – Conditions Precedent (3)o K fails if CP’s aren’t meto Ex: buyer arranging financing, buyer selling his own property in timeo “Conditions are for the sole benefit of the buyer”: means buyer can waive the conditiono s. 54 of the Real Property Act – party can waive condition if the condition is for the sole benefit of the party

- Dates: o Completion date (4): when transaction goes through (date on which tsf gets filed at LTO and $ paid)o Possession date (5): when buyer can move in; usually same as completion dateo Time is of the Essence (12) – V has certain remedies if purchaser doesn’t perform

- Price / Financing:o Adjustments (6): any payment V has made that will benefit buyer in the year, like taxes, strata, heating oilo Tender (10): method of payment (cert cq, bank draft, cash, Lawyer’s/Notary’s trust cq)

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o Buyer’s financing : sets out conds for purchaser to pay V (13)o Buyer pays for conveyance and has his lawyer draw it up

- Included Items and Excluded Features (7)o Generally expected that fixtures go with the property, but different cultures have different rules!

- Viewed (8)o Buyer entitled to property in substantially the same condition on the possession date as on specified date of viewing

(recourse is civil remedy)- Clearing title (14): seller’s obligation to clear charges on title (ie mortgages) Norfolk- Risk (16): upon signing K, buyer is equitable owner of property, so risk shifts to buyer – insurance issues- Representations and warranties: (18)

o Purchaser is only entitled to rely on reps and warrs made in this K, not casual comments made by REA, neighbour, etc.

- Agency Disclosure (20): who the REB’s are working for- Acceptance Irrevocable (21)

o Legal significance of the K- Offer: (23)

o Indicates how long offer is open to acceptance (prohibited from shopping offer to other buyers)- Acceptance (24)

o Seller agrees to sell the property and instructs commission to be paid**Buyer Financing (13) and Clearing Title (14) are relatively new clauses in response to Norfolk, K terms for what was historically convention

- Buyer may add add’l conds (e.g subject to selling existing home, dual agency conds)- Norfolk: stands for proposition that V was in breach b/c hadn’t cleared title on closing date; purchaser wanted out of the deal

and argued V didn’t complete b/c title was cleared on closing date

Addendum 1:1. Provincial and Property Tsf Tax: Buyer is liable for balance of property tax2. Appliance warranty – seller doesn’t warrant cond of appliances3. Deposits4. Survey certificate: V req’d to provide cert if have one - sets out property boundaries, location of buildings w/in it and any

easements, etc. 5. Fireplace, fireplace inserts and wood stoves: buyer must satisfy wrt compliance w/by-laws6. Property inspections:7. Oil in tank: belongs to buyer w/o compensation8. Unauthorized accommodation: buyer bears risk of illegal suite9. Mtg Referral Fee: buyers brokerage may receive a fee or other consideration from a lender who provies financing to the buyer10. GST: unless new, residential housing usually exempt from GST11. Property Disclosure: compels Vs to provide disclosure about cond of home (municipal, walls, leaky probs, etc.)12. Dwelling size and room measurements: clause to protect REA13. Title to property: buyer must satisfy himself re: legal effect of the charges which will remain on title after completion date

ADDENDUM II:Sets out 4 std conds precedent to completing the deal

1. Buyer financing: gives purchaser fixed amt of time to get mtg financing on terms satisfactory to buyer2. Property inspection: buyer hires a property inspector; std form report completed by inspector (puts buyer on notice re:

deficiencies, problems); fine print usually exonerates inspector from any liability3. State of property title: give buyer the opportunity to review and approve the state of title4. Fire/property insurance: gives buyer opportunity to confirm s/he will be able to get insurance for the property- These conditions are for the sole benefit of the buyer - Purchaser can waive these conditions rather than fulfil them

ADDENDUM II:- 72 hours notice required to remove the conditions, if the vendor wants to consider other offers.

Property Disclosure Statement (Residential)Certain fundamental things where you are not allowed to answer “I do not know” or “Does not apply” material informationF) There may be alterations that require inspection.

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