Generally, for an agreement for the purchase and sale of the property to be valid, the mutually agreed-upon terms must include the parties’ identities, the property description, and the purchase price. To be enforceable under the Statute of Frauds, such a contract must also be in writing. However, courts have accepted informal expressions as evidence of a written contract. The law also recognizes the doctrine of part performance as an exception to the Statute of Frauds’ written requirement regarding real estate agreements.

In a recent case before the Ontario Superior Court of Justice, the Court was asked to determine whether an unwritten agreement between the parties to purchase and sell land was enforceable.

A verbal agreement for the sale of a lot

In the matter of 2730453 Ont. Inc. v. 2380673 Ont. Inc., the plaintiff, 2730453 Ont. Inc., was a disappointed purchaser in a real estate transaction where it verbally agreed to purchase land from the defendant, 2380673 Ont. Inc.

The plaintiff was a project-specific company incorporated to buy the land in dispute. The plaintiff corporation had a single director and president. The defendant corporation owned the 32-acre lot in dispute and was owned by a principal and sole shareholder. The plaintiff corporation’s director owned another company that held land immediately east of the land in dispute.

In 2015, the defendant listed the land for sale on MLS at a price of $4.16 million. The owner did not receive any acceptable offers, and once the MLS listing expired, a sale sign was placed on the property.

Plaintiff expresses interest in property

The plaintiff’s director sought to purchase the property as it bordered land he already owned and could be used to create an industrial development. The plaintiff’s realtor communicated with the defendant’s listing agent regarding the potential transaction. At the defendant’s request, the parties signed no agreement of purchase and sale. Regardless, the transaction moved forward, and the plaintiff completed the closing documents and tendered the purchase price.

However, the defendant refused to close on the transaction, and the plaintiff subsequently brought an action for breach of contract against the defendant.

Defendant argues legislative requirements are not satisfied therefore transaction cannot close

The defendant justified its conduct by relying on section 4 of the Statute of Frauds, arguing that any oral agreement between the parties was unenforceable due to the legislation requiring an agreement to purchase land in writing and be signed by the party to be charged.

On the other hand, the plaintiff argued that the Act did not prevent the oral agreement from being enforced. Instead, it claimed sufficient written evidence between the parties to satisfy the written requirement. Further, it argued that the doctrine of part performance applied to the situation.

What is the doctrine of part performance?

The doctrine of part performance may save an agreement if it can be established that:

  1. The acts of part performance were connected to the land; and
  2. The conduct itself indicated there had been dealing with the land.

In this case, the Court found several acts of part performance by the plaintiff had been “unequivocally referable to the land in dispute,” including:

a. Obtaining an environmental assessment of the property;

b. Obtaining survey and title searches on the property;

c. Conducting other due diligence related to the property;

d. Negotiating and preparing the commission agreement among the purchaser and the brokers;

e. Retaining legal counsel to close the agreement;

f. Drafting, revising, and negotiating the written agreement of purchase and sale for the property;

g. Delivering the documents required on closing;

h. Obtaining, delivering, and tendering the certified cheque for the full amount of the purchase price.”

Further, the Court found that the defendant had completed acts of part performance in connection with the land, such as:

a. Retaining legal counsel to close the agreement for the purchase and sale of the property;

b. Negotiating over the status of the easement on the property;

c. Reviewing and revising the draft agreement of purchase and sale, including providing a revised version of Schedule A to that agreement to the purchaser and obtaining the consent of the purchaser to the revisions;

d. Providing draft copies of the vendor’s closing certificate and statutory declaration and the owner executing those documents;

e. Negotiating over the method by which the purchaser would deliver the agreed upon purchase price on closing.”

Plaintiff seeks specific performance remedy

With both requirements for part performance satisfied, the Court then considered what remedy would be appropriate in the circumstances. The plaintiff asked the Court to grant specific performance of the contract, which would require the defendant to close the transaction. However, the defendant sought damages instead.

To determine what remedy to grant, the Court considered the nature of the property in dispute, whether damages would be an adequate remedy and the parties’ behaviour concerning the equitable nature of such remedy.

Property found to be unique to purchaser

In its analysis, the Court noted that the remedy of specific performance would only be granted if the purchaser could prove that the property was “unique” and no other substitutes would be readily available. In this instance, the land was beside a piece of property already owned by the purchaser, and the plaintiff had specific plans to develop the lot into a single development. Therefore, the property was found to be unique to the plaintiff.

Concerning the issue of whether damages would be an adequate remedy, the Court referenced a prior decision from the Supreme Court of Canada, whereby it held that specific performance for property transactions purely for investment property should not be awarded. However, the plaintiff sought to develop the property for commercial and developmental purposes. Therefore, the Court found that damages would not be an adequate remedy for the plaintiff.

Moreover, upon consideration of the parties’ behaviour toward equitable relief, the plaintiff came to the Court with “clean hands and brought the proceeding promptly,” thereby justifying an equitable remedy.

On this basis, the Court awarded specific performance, requiring the defendant to close the transaction. The Court noted that the purchaser had established that the land was more than monetary value.

This decision reminds the parties involved in litigation that the doctrine of equity focuses on the parties’ intention. Further, part performance by one party can be equally compelling evidence in a dispute. Concerning real estate disputes, part performance may be relied upon as evidence of the existence of such an agreement.

Contact the Lawyers at Campbell Litigation in Kitchener-Waterloo for Comprehensive Advice on Real Estate and Contract Disputes

Deciding whether to purchase or sell property is often a significant decision in many people’s lives. Beyond financial considerations, there is a chance that the transaction will not close or another unanticipated issue will arise, causing unwanted stress and financial loss. However, working with an experienced real estate lawyer can minimize these risks. The trusted real estate litigation lawyers at Campbell Litigation in Kitchener-Waterloo regularly advise clients on their rights and options about real estate transactions. We also represent clients if a dispute over property arises. To schedule a consultation with one of our lawyers, contact us online or by phone at 519-886-1204.