Torkin Manes

Winter 2013

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torkinmanes.com F O C U S O N R E A L E S TAT E L I T IG AT I O N Using the Courts to Obtain Certainty in Real Estate Transactions Scott Martin It is relatively common for issues to arise in real estate transactions after the agreement of purchase and sale has been signed but before the date scheduled for closing. If these issues cannot be resolved through negotiation, clients are faced with a decision as to whether they should complete the transaction. That decision should always be made with the benefit of legal advice, given the potential consequences of failing to complete a transaction. Unfortunately, it is a decision that is often difficult to make with a sufficient degree of certainty. On many occasions, the dispute is left to be resolved in time-consuming and expensive litigation after the deal was supposed to have closed, with substantial damages being awarded against the party who was in breach of the terms of the agreement. It may be possible to avoid the uncertainty regarding a vendor or purchaser's contractual obligations through a court application determined before the closing date. Ontario has long had legislation that provides a process to obtain a judicial determination of certain real estate title issues prior to closing. While this process does require litigation, it is a relatively quick and streamlined process that may answer the question as to whether a vendor or purchaser is contractually obligated to complete the transaction. As an example, consider a scenario where a purchaser enters into an agreement to purchase a new property to expand her business operations. After signing the agreement, the purchaser's real estate lawyer discovers that there is a municipal easement for utilities that covers a substantial portion of the property, making it virtually impossible to complete any construction. The vendor is unable to have the easement removed but takes the position that the purchaser must complete the transaction notwithstanding the existence of the easement. The purchaser does not wish to complete the purchase but is concerned that if she does not close, she will be faced with a lawsuit by the vendor for breaching the terms of the contract. If she does not close, a court could determine many years later that she was contractually obligated to complete the purchase and order her to pay damages to the vendor. However, if the purchaser brings a court application before closing, a court could determine this issue and avoid the purchaser's having to take the risk that she is making the wrong decision. If the court determines that the purchaser's objection to taking title subject to the easement is valid she will not have to complete the agreement and will have the certainty of knowing that she is protected from a future claim for damages. On the other hand, if the court determines that the purchaser does not have a valid objection to title, the purchaser can reluctantly complete the transaction. While this may not have been the desired outcome, it is often preferable to losing a long and expensive court action and having to pay damages for having decided not to complete the purchase. The use of litigation to obtain a determination of issues like this before closing can achieve the certainty needed for decisionmaking and reducing risk. Using this process is like an annual trip to the doctor—while you may not want to do it, it can often prevent a worse outcome at the end of the day. Scott Martin is a partner in Torkin Manes' Litigation Law Group with a focus on professional liability, real estate and banking litigation. He can be reached at 416 777 5411 or smartin@torkinmanes.com. Focus Facts The general rule in Ontario is that legal proceedings must be commenced within two years of the date on which the plaintiff discovers, or should have discovered through reasonable due diligence, the cause of action ("discovered" has a specific legal meaning). Many players in the real estate sector, however, including many lawyers, are not aware that the limitation period for the commencement of an action in respect of a personal guarantee contained in a mortgage is ten years, not the standard two years, a concept recently confirmed by the Ontario Court of Appeal. Contact any member of our Litigation Group for more information. If there is a topic you would like us to cover in a future issue of Focus please send an e-mail to Gregory Hersen at ghersen@torkinmanes.com. c l i e n t - f o c u s e d s o l u t i o n s® 7 7

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