Canada:

Misrepresentation In Square Footage Leads To Rescission Of Agreement Of Purchase And Sale


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A misrepresentation by the seller and real estate agent as to
the square footage of a residential property in Stouffville,
Ontario resulted in the rescission of the Agreement of Purchase and
Sale (“APS”) and the return of the
$50,000 deposit: Issa v. Wilson, 2020 ONCA 756 (CanLII).

The plaintiff, a 26 year old first time home buyer, wanted a
home large enough to live with his parents and three sisters. He
retained the defendant real estate agent to help him find a
suitable home. The same real estate agent acted for the seller of
the property.

The agent told the plaintiff that the home size was 2,100 square
feet, but this information came from the seller and a 12 year old
listing of the home. The MLS listing, based on the same
information, represented the size of the home to be 2,000-2,500
square feet.

However, the agent did not measure the home himself to confirm
the dimensions.

The buyer visited the property twice before making an offer to
purchase, and observed all the rooms while accompanied by family
members. During one visit the seller told the plaintiff that the
property was about 2,000 square feet.

The APS was signed and shortly before the scheduled completion
date, the buyer received an appraisal of the property in connection
with his mortgage application. The appraisal indicated that the
size of the home was only 1,450 square feet.

The buyer then decided not to complete the purchase of the home.
Litigation ensued with the buyer seeking the rescission of the APS
and the return of his $50,000 deposit, which was opposed by the
real estate agent and the seller.

In 2019, a trial occurred. Prior to trial, the agent admitted
that he was negligent in failing to verify the size of the home.
However, the defendants maintained that the plaintiff was not
entitled to rescission since the plaintiff had visually observed
the property and had entered into the binding APS before receiving
the appraisal.

The remedy of rescission may be obtained on the basis of
misrepresentation where a defendant makes a false statement that is
material and induces the plaintiff to enter into the contract:
Panzer v. Zeifman et al., 1978 CanLII 1658 (ON CA); Singh v.
Trump
, 2016 ONCA 747, at para.
156
.

In the circumstances, the trial judge found that the buyer was entitled to
rescission based on the misrepresentations of the square footage as
being 2,000 (or more) square feet. The misrepresentation was
“material” and notwithstanding that the buyer had
conducted inspections to see the property in person, his
observations did not override his expectation that the size of the
property was greater than 2,000 square feet. The trial judge found
that the buyer’s young age, inexperience with square footage,
and being a first time home buyer were all relevant factors to take
into account when considering the reasonableness of his belief.

In November 2020, the Ontario Court of Appeal dismissed the
defendants’ appeal from the trial decision. One of the
defendants’ arguments was based on the legal proposition that
where a purchaser inspects a property their reliance on a
misrepresentation as to the size of the property will be displaced.
The Court of Appeal did not accept that this was an absolute
proposition of law and stated that this would depend on the
particular facts and circumstances in a given case.

In the Court of Appeal’s view, there were several reasons
why the defendants’ misrepresentation concerning the size of
the home was material to the buyer’s decision to purchase:

  • The agent made explicit statements about square footage to the
    buyer and had formally admitted that he was negligent in making
    these statements. The seller also admitted that he told the buyer
    that the property was about 2,000 square feet.

  • The discrepancy between the negligently communicated size of
    the home (2,100 square feet and 2,000-2,500 square feet) and the
    actual size (1,450 square feet) was substantial (ranging from a 27%
    to 42% discrepancy).

  • The buyer’s reliance on the representations about the size
    of the home was supported by the fact that he remained ready to
    close the purchase until the moment he discovered, through the
    appraisal of the property related to his mortgage application, that
    its actual size was only 1,450 square feet. Upon learning this
    information, he immediately communicated that he was not prepared
    to complete the purchase.

  • Age and experience (or lack thereof) in home buying are, in
    appropriate cases, relevant contextual factors to be considered by
    the Court: Beer v. Townsgate I Limited (1997), 1997 CanLII 976 (ON CA).

As a result, the appeal was dismissed with costs to the buyer of
$10,000. The decision affirms that a misrepresentation as to the
size of the property may be grounds for rescission.

One issue that did not need to be addressed in the case but
could come up in similar circumstances is the decision that a buyer
must make when discovering a potential misrepresentation before
closing. When discovering a misrepresentation before closing a
buyer generally faces an election to either rescind or affirm the
APS. A party who affirms a contract after becoming aware of the
nature of the misrepresentation may lose the right to rescind on
the ground of the original misrepresentation. Accordingly, if the
buyer intends to rescind an APS on the basis of a misrepresentation
as to the size of the property it is important to raise the issue
immediately as any steps taken thereafter in furtherance of the
closing may be seen as affirming the APS. The buyer in this case
did so and thus was entitled to the return of the deposit.

The takeaway for sellers and listing agents is to take steps to
verify measurements before making any representations about square
footage to a potential buyer. The same issues could arise with
regard to any similar misrepresentations of fact about a property
listed for sale.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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