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A recent decision of the Ontario Superior Court of Justice
affirmed that preliminary discussions between a buyer and seller
regarding the potential zoning or future uses of a property are
generally superseded by the written terms of the purchase
agreement.

In Christine Elliott v. Saverio
Montemarano

2020 ONSC 6852 (CanLII)
, the Plaintiff had entered into an
Agreement of Purchase and Sale (APS) in February 2017 to sell a
property in Whitby, Ontario to the Defendant for $5 million. The
Defendant intended to build a retirement home on the property,
which had a large historical home at the time of the
transaction. 

The lands were zoned “Development Zone, Institutional and
RSA Residential,” but there was a site specific by-law which
defined the term “Institutional” as permitting only a
church. The Defendant had a land use planner who made inquiries of
the municipality before and after the Defendant executed the APS.
The municipality advised that the Defendant would require a by-law
amendment to permit a senior’s residence and that a
pre-consultation meeting would be required for the proposed land
use.

A number of extensions were granted, but the Plaintiff
eventually tendered and the Defendant failed to close. In response
to the Plaintiff’s claim for damages, the Defendant alleged
that the Plaintiff had withheld critical information regarding the
zoning by-law restrictions, had misrepresented what could be done
with the property, and failed to provide a further extension to
allow him to address the by-law restrictions.

The Defendant alleged that he had a long-term friendship with
the Plaintiff and that he had relied on her representations as well
as those of her late husband regarding the development potential
for the land. While the Defendant was aware that there was approval
for a church to be built he claimed that he didn’t understand
that the by-law permitted only a church.

In November 2020, Madam Justice Papageorgiou of the Ontario
Superior Court of Justice granted summary judgment to the
Plaintiff.

With regard to the allegation that the Plaintiff had failed to
disclose the zoning by-law, Justice Papageorgiou 
noted
 that a municipal by-law is a matter of public
record and there was no evidence from the Defendant’s land
use planner indicating that the by-law was somehow hidden or
difficult to find.

In dismissing the Defendant’s allegations of what he had
been told by the Plaintiff and her late husband, Justice
Papageorgiou found that any such pre-contractual representations
were negated by the specific written terms in the APS, namely:

  • an Entire Agreement Clause (providing that there are no
    representations, collateral agreements or conditions in addition to
    the written terms of the APS);

  • a Future Use Clause (providing that there was no representation
    or warranty about the future intended use of the property aside
    from what was provided in the APS); and

  • an As-Is-Whereas Clause, which provided that the parties agreed
    that the property was being sold on an “as is whereas”
    basis and that no warranties would be given on closing.

 All of those terms in the APS meant that there were no
representations or warranties of any kind being made by the
Plaintiff with regard to future uses of the property.

In addition, the Defendant’s own conduct demonstrated that
he was not relying on the Plaintiff’s representations (or
omissions) about the property, since he had engaged a land use
planner and relied on the planner to make all the necessary
investigations with the municipality. In Justice
Papageorgiou’s 
words
, “The [D]efendant cannot hold the [P]laintiff
responsible for his and his own planner’s failure to properly
investigate the Property.”

Lastly, the Plaintiff was not obligated to provide any further
extensions to the Defendant, notwithstanding a term in the APS
which provided that the parties agreed that the closing date may be
adjusted, as mutually agreed between the parties. The wording of
the APS was clear and unambiguous and any extensions were to be
mutually agreed. Justice Papageorgiou found that the Plaintiff had
acted reasonably in granting some initial extensions and in
refusing any further requests.

As a result, the Defendant was liable to the Plaintiff for
failing to complete the purchase of the property. After the
transaction failed to close in October 2017, the Plaintiff sold the
property to another buyer for $4,300,000. The Plaintiff was
entitled damages of just over $1 million, based on the lower sale
price, the real estate commission of $242,950 (as the aborted sale
was a private transaction without commission), carrying costs, and
interest on a bridge financing loan which was necessary because the
Plaintiff had intended to use the proceeds to finance her purchase
of a new home.

The decision demonstrates that a buyer should attempt to conduct
sufficient due diligence to ensure that their future intended use
of a property will be permitted before entering into an APS. As the
written terms of an APS will generally supersede any prior
communications between a buyer and seller, a buyer should ensure
that the APS expressly confirms any representations or warranties
that are intended to legally bind the seller.

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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