Legal Blog

Real Estate Misrep

The headline to the Toronto Star story started with: “A century of Canadian legal precedents dealing with listings describing homes for sale were reversed late last year by an Ontario Court of Appeal decision that is being seen as one of the year’s most significant real estate law rulings.” The case is Issa v. Wilson 2020 ONCA 756. Aside from the bad grammar (can you spot it?), the problem with the headline is that its main premise is not correct; further, we doubt that the decision is overly significant, much less the most significant. The article’s other problem was a lack of depth of analysis (485 words, probably all that the editor allowed).

What Happened

The purchaser retained a real estate agent to find him a suitable house in which he could live with his parents and three sisters. The agent showed many houses to the purchaser and all were larger than 2,000 square feet, the minimum size that the purchaser felt could accommodate his family. Finally, the agent showed the purchaser a house (the “House“), for which the agent was also the listing agent. The agent told him that the House was 2,100 square feet and, in doing so, the agent relied on information from the vendor and information contained in a previous listing for the House. The listing agreement that the agent drafted for the House noted that its size was between 2,000 square feet and 2,500 square feet. The agent did not conduct his own measurements and admitted that he was negligent in failing to measure or verify the size of the House.

The purchaser inspected the House twice before making his offer. He saw all of the rooms and was allowed to inspect the entire House. He knew that the House was smaller than the other houses he had seen, but relied on the agent’s representation regarding its size. On the second visit, the vendor told him that the House was approximately 2,000 square feet.

This run-of-the-mill real estate transaction was moving along in the ordinary course when suddenly, and without warning, the purchaser discovered something was amiss. The appraisal for his mortgage noted that the size of the House was only 1,450 square feet. He was not happy.

The purchaser decided that he would not close the transaction and requested the return of his deposit. The vendor refused to do so and the purchaser sued both the vendor and the agent.

It seems that the agent and the vendor entered into an agreement by which the agent supplied the legal defence and the vendor agreed that, if the purchaser were successful at trial, the vendor would abide by the decision of the trial judge regarding the rescission of the agreement and the return of the deposit. In effect, the parties agreed that the agent would carry the fight to the purchaser. Whether the agent would compensate the vendor for any loss is unknown.

Agreement of Purchase & Sale

We could not determine from either the trial decision or the Court of Appeal decision whether there was an “entire agreement” clause in the agreement of purchase and sale. However, from the statements made in the reasons for decision of each, we presume that the agreement was a standard agreement that contained such a clause.

By its nature, this clause states that there are no representations or warranties on which the purchaser relies other than those stated in the agreement. One might assume that that would end the matter in this case, but that assumption would be incorrect. The law does not allow one party to fool another into entering into an agreement and then allow the dishonest or negligent party to take advantage of an entire agreement clause. The entire agreement clause will not override a specific representation on a point of substance intended to induce the making of the agreement.

Inspection

The agent argued that if a purchaser inspects a property, the purchaser’s reliance on a misrepresentation as to the size of the property will be displaced. The Court of Appeal refused to accept this as an absolute proposition of law, noting that, in some cases, this proposition has been applied and, in others, because their facts made a strict application unfair in the circumstances, it has not. The court noted that the remedy of rescission of a contract may be obtained if a defendant makes a false statement that is material and induces the plaintiff to enter into the contract. In doing so, it referenced the authority of two Court of Appeal decisions, one in 1978 and one in 2016.

So much for the proposition that a century of law has been displaced.

The purchaser therefore had to demonstrate that the misrepresentations regarding the size of the property induced him to enter into the agreement – even given his inspections of the property.

Analysis

In concluding that the misrepresentations regarding the House’s size were material to the purchaser’s decision to purchase the House, the court noted the following:

• All parties agreed that the agent and the vendor made mis-statements regarding the size of the House. The difference in the actual size compared to the represented size ranged, depending upon which of the representations was used, from 27% to 42%. This was a significant discrepancy.
• The purchaser’s evidence that he relied on the representations regarding the House size was supported by the fact he was ready to close the purchase until the very moment he discovered, through the appraisal, that its actual size was so much less than he had been led to believe. In effect, the court was signalling that, had it believed the purchaser was trying to get out of the deal regardless of the House’s size and was using the size as a technical excuse, the court may not have favoured the purchaser.
• The purchaser was young (26 years) and this was his first foray into the purchase of a house. The square footage of the House was important to him and, given his inexperience, it was reasonable that he relied on the representations of the agent and the vendor and those contained in the listing agreement (which he saw), notwithstanding his inspections.

Outcome

The court upheld the trial judge’s decision to rescind the contract and ordered the return of the $50,000 deposit.

This case, like many cases, is not a significant legal decision. The case is based on settled law and, like the vast majority of cases, was ultimately decided on its facts. If the facts were different, the decision may well have been different.

Moral

You cannot judge a newspaper story by its headline and you cannot judge a case by its summary (including this one). You can assume that a summary is correct (relying in great part on your faith in the author’s ability to analyse a case and give a correct summary of its facts and findings), but you can only make a true determination about a case’s significance, or someone else’s analysis of it, unless you read the case yourself.

Image courtesy of Andrys.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.