Can a purchaser force the vendor to respect an accepted offer to purchase and proceed with the sale of the property?
The Quebec Court of Appeal recently confirmed a judgment of the Quebec Superior Court ordering that title to a property be conveyed to the purchaser despite the fact that the latter was one (1) year late in obtaining financing and did not tender the purchase price together with the lawsuit.
On or about August 29, 2002, the vendor agreed to sell a parking lot for $1.2M conditional upon the purchaser obtaining financing in the amount of $500,000 within thirty (30) days and completing the sale by January 2003.
According to the facts that were determined by the court, the parties did not intend for the delays to be mandatory and they implicitly consented from time to time to various extensions.
Finally, on November 18, 2003, the purchaser received a commitment from a financial institution for financing and informed the vendor. However, a few days prior, the vendor had already agreed to sell the same property to a different purchaser for $150,000 more, but did not inform the first purchaser until December 9.
On December 12, the vendor notified the purchaser that the default to obtain financing within the stipulated 30-day period rendered the offer to purchase null and void.
On December 23, the purchaser filed a lawsuit seeking a judgment to be considered as title to the parking lot because of the vendor’s refusal to voluntarily sign the deed of sale.
In order to succeed with such a claim, the courts have identified four (4) conditions that the purchaser must satisfy: (1) the existence of a legally binding offer to purchase; (2) a notice of default; (3) a draft deed of sale consistent with the terms and conditions of the offer to purchase, and (4) a legal tender and deposit of the entire purchase price. Historically, the failure to satisfy all four conditions risked the summary dismissal of the lawsuit.
The first condition regarding a legally binding offer to purchase was satisfied, taking into account the trial judge’s conclusion that the parties implicitly agreed to extend the delay for financing.
The second condition regarding the notice of default was deemed to be non essential because of the vendor’s manifest refusal to sign the draft deed of sale and because the service of the lawsuit itself was considered to be equivalent to a formal notice of default.
The third condition regarding the existence of a draft deed of sale consistent with the terms and conditions of the offer to purchase was initially found to be wanting by the trial judge but the latter agreed to allow the purchaser additional time in order to amend it. Consequently, it is no longer a fatal defect if the draft deed of sale is not filed at the
commencement of the lawsuit. This requirement will be satisfied if at the moment the judgment is rendered, the court is in possession of a draft deed of sale signed by the purchaser which is in conformity in substance with the accepted offer.
Often the most troublesome condition for the purchaser to satisfy is tendering and depositing the purchase price since the purchase of real estate is usually subject to mortgage financing. Purchasers usually need to borrow most of the purchase price and such financing generally requires security in the form of a hypothec which can only be obtained once judgment has been rendered in their favor. Consequently, the right to the judgment may become illusory if the purchaser must tender the full amount of the purchase price at the moment that the lawsuit is filed.
Historically, the courts have been very formalistic, if not impractical, and many purchasers have been deprived of their rights and many vendors have benefited from their abusive failure to respect a legally binding offer to purchase. It was only fairly recently that the Quebec Court of Appeal reversed this trend to alleviate this injustice.
As a result, the court now looks for a commitment and a capacity on the part of a purchaser to discharge its obligation to pay the purchase price. The court has recognized that this condition may be met without the necessity of depositing the entire amount of the purchase price at the commencement of the suit. The court recognized that as a matter of justice, purchasers in good faith should not be prevented by formalistic rules from exercising their valid legal recourses against vendors in bad faith that refuse, without valid grounds, to proceed with the sale. On the other hand, vendors in good faith should not have their property tied up by purchasers in bad faith that file frivolous claims and are in fact unwilling or unable to pay the purchase price.
In such circumstances, the court can draft the conclusions of the judgment to ensure that title to the property does not pass from vendor to purchaser as a result of the judgment until the purchaser has fully paid for it.
One option is for the court to suspend the judgment for a certain period of time, say thirty (30) days, in order to allow the purchaser a reasonable delay to obtain a mortgage loan and tender and deposit the purchase price. Another alternative is for the court to render an interlocutory judgment recognizing the rights of the purchaser and ordering the purchaser to deposit the purchase price at court within a fixed delay and that upon proof of the required deposit, final judgment would convey title to the property to purchaser.
Thursday, February 11, 2010
Thursday, January 14, 2010
CLAIM AGAINST LANDLORD FOR ALLOWING A SHOPPING CENTER TO DETERIORATE
The Landlord claims from the Tenant, the sum of $142,635 for arrears of rent. The Tenant in turn, counter sues in the amount of $4,000,000.00 claiming damages as a result of the alleged default of the Landlord to deploy reasonable efforts and resources to ensure the lease of contiguous commercial space in the shopping center, thereby allowing the center to deteriorate and reduce the volume of pedestrian traffic.
The Tenant also alleged that the Landlord purposely neglected to adequately maintain the shopping center so as to drive existing tenants out of the food court in order to lease the premises to a large surface tenant.
The evidence established that the Tenant’s revenues declined by 50% during the eight (8) year period between the signing of the lease and the filing of the legal suit. However, the evidence also established that, in addition to being adversely affected by the deterioration of the shopping center, the Tenant also litigated with its franchisor, who had allegedly adopted a strategic plan to terminate all franchises in order to operate all stores at the corporate level. So what was the direct cause of the Tenant’s damages?
The evidence established that the shopping center was in a lamentable state which surely had an adverse impact on the Tenant’s goodwill and on its right to peaceable enjoyment of the leased premises. The absence of substantial renovations over a number of years and the absence of adequate maintenance in the common areas together with the dilapidated appearance of vacant premises and the failure to respect the established business hours caused the Tenant to suffer a loss of enjoyment in the premises which justified a reduction in the rent. In the circumstances, the Court rejected the claim of the Landlord for recovery of the arrears of rent.
The Court concluded however that the reduction in the Tenant’s revenues was not the direct and sole result of the Landlord’s neglect of the shopping center since other factors, such as litigation with the franchisor and substantial competition in the area, all contributed to adversely affect the Tenant’s goodwill.
The Court noted that the Tenant never attempted to mitigate its damages by negotiating changes to the terms and conditions of the lease as did other commercial tenants. Moreover, the Tenant did not request a reduction in rent or other court order of a nature to lessen the negative impact upon its goodwill or request the cancellation of the lease at an opportune time. Instead, it chose to remain in possession of leased premises which were adversely impacted by the Landlord’s neglect. Consequently, the Court rejected the counter claim of the Tenant for damages, while ratifying the agreement between the parties to cancel the lease.
The party making the claim has the legal burden to prove its damages. When a multitude of factors are present, it may be rather difficult to prove the case to the satisfaction of the court and next to impossible to attribute the direct cause of the damages.
The principle of “mitigation of damages” requires a victim to take reasonable steps to minimize its damages. Based on this legal principle, the Court held that the Tenant should have requested a reduction in rent or cancellation of the lease earlier than it did. Had it done so, the amount of its loss may have been less. On the other hand, the Tenant had a right to remain in possession of and enjoy the premises until the end of the lease and the Landlord had a corresponding obligation to provide peaceable enjoyment. When the Landlord does not do so, is it reasonable to exculpate the Landlord for breaching its obligations and shift the onus to the Tenant, who was not in breach?
The Tenant also alleged that the Landlord purposely neglected to adequately maintain the shopping center so as to drive existing tenants out of the food court in order to lease the premises to a large surface tenant.
The evidence established that the Tenant’s revenues declined by 50% during the eight (8) year period between the signing of the lease and the filing of the legal suit. However, the evidence also established that, in addition to being adversely affected by the deterioration of the shopping center, the Tenant also litigated with its franchisor, who had allegedly adopted a strategic plan to terminate all franchises in order to operate all stores at the corporate level. So what was the direct cause of the Tenant’s damages?
The evidence established that the shopping center was in a lamentable state which surely had an adverse impact on the Tenant’s goodwill and on its right to peaceable enjoyment of the leased premises. The absence of substantial renovations over a number of years and the absence of adequate maintenance in the common areas together with the dilapidated appearance of vacant premises and the failure to respect the established business hours caused the Tenant to suffer a loss of enjoyment in the premises which justified a reduction in the rent. In the circumstances, the Court rejected the claim of the Landlord for recovery of the arrears of rent.
The Court concluded however that the reduction in the Tenant’s revenues was not the direct and sole result of the Landlord’s neglect of the shopping center since other factors, such as litigation with the franchisor and substantial competition in the area, all contributed to adversely affect the Tenant’s goodwill.
The Court noted that the Tenant never attempted to mitigate its damages by negotiating changes to the terms and conditions of the lease as did other commercial tenants. Moreover, the Tenant did not request a reduction in rent or other court order of a nature to lessen the negative impact upon its goodwill or request the cancellation of the lease at an opportune time. Instead, it chose to remain in possession of leased premises which were adversely impacted by the Landlord’s neglect. Consequently, the Court rejected the counter claim of the Tenant for damages, while ratifying the agreement between the parties to cancel the lease.
The party making the claim has the legal burden to prove its damages. When a multitude of factors are present, it may be rather difficult to prove the case to the satisfaction of the court and next to impossible to attribute the direct cause of the damages.
The principle of “mitigation of damages” requires a victim to take reasonable steps to minimize its damages. Based on this legal principle, the Court held that the Tenant should have requested a reduction in rent or cancellation of the lease earlier than it did. Had it done so, the amount of its loss may have been less. On the other hand, the Tenant had a right to remain in possession of and enjoy the premises until the end of the lease and the Landlord had a corresponding obligation to provide peaceable enjoyment. When the Landlord does not do so, is it reasonable to exculpate the Landlord for breaching its obligations and shift the onus to the Tenant, who was not in breach?
Wednesday, September 2, 2009
In an action by a buyer of an immovable property for latent defects, what is
the extent of the legal obligation of the buyer to give notice to the vendor?
On August 25, 2005, R sold a residential property to B. The sale was preceded
by an inspection, which was generally favorable.
A few weeks after taking possession of the property, the buyer noticed the
presence of water infiltration in the basement. An inspection by a plumber who
was called to inspect the pipes revealed no irregularities.
In November 2005, the buyer hired Pro-solage to repair three (3) cracks in the
foundation that had been identified by the inspector. Pro-solage also discovered
that the wall near the patio was not waterproofed and was in the process of
eroding. The estimate to repair this problem was $14,300.
On December 21, 2005, the buyer informed the vendor by telephone of the
issues that had arisen since the transfer of possession.
On January 9, 2006, the buyer gave formal written notice of the hidden defects of
the property.
On January 18, a heavy rain resulted in water infiltration in the basement. The
same day, the buyer hired an engineer to determine the cause.
In his report, the engineer attributed the cause of the water infiltration to the
absence of a waterproof membrane between the wall and the patio.
On February 10, 2006, a second engineer was hired by the buyer to provide a
second opinion. In his report, the second engineer concluded that the water did
not come from the exterior but rather from an overflow of the hot water reservoir.
He estimated that the corrective work would cost $3,500.
On May 12, 2006, the buyer hired a foundation specialist to obtain an estimate
for corrective work, including excavation, structural work, demolition, and
reconstruction of foundation for the part of the wall next to the patio.
On July 27, 2006, a formal demand letter was sent to the vendor, the buyer
declaring that she would proceed with the corrective work on July 31, 2006.
However, the vendor was on vacation until August 12, 2006 and upon her return,
most of the work had already been completed.
The vendor never had the opportunity to verify the nature of the defect nor the
extent of the work required to correct it. The vendor did not have the opportunity
to verify the feasibility of having the work done at a lesser cost.
Although the law is clear regarding the obligation of the buyer to give notice of
the existence of a hidden defect, the extent of the notice will vary depending on
the circumstances.
The purpose of the notice is to protect the rights of the vendor, who is no longer
in possession of the property and to prevent abuse on the part of a buyer in bad
faith.
To be valid, the notice must:
i) be given within a reasonable delay;
ii) be sufficiently precise to permit the vendor to identify the nature
of the defect and the corrective measures required to remedy it;
iii) permit the vendor to establish that the defect existed prior to the
sale, and
iv) allow the vendor to remedy the situation himself.
However, these principles are not absolute and are subject to exceptions, such
as matters of urgency, repudiation by the vendor of any responsibility or upon
evidence that the objectives of a formal notice have been met in other ways.
In the case at bar, the Court held that the notice did not allow the vendors to
identify the nature of the defect, whether or not it existed prior to the sale, and the
corrective measures necessary to remedy it at the least cost. The notice given by
the buyer did not respect the vendor’s legal rights. Although the notice of January
9, 2006 was given within a reasonable delay, the vendor did not have an
opportunity to evaluate the nature and the extent of the hidden defect nor to
assess the appropriate corrective measures and their cost.
In such circumstances, the Court has discretion to either reject the buyer’s claim
for latent defects altogether, or to reduce it, which is what the Court chose to do
in the present case.
Béique –vs- Rodier EYB 2009-157651
(April 20, 2009 (Lalonde, J.S.C.)
the extent of the legal obligation of the buyer to give notice to the vendor?
On August 25, 2005, R sold a residential property to B. The sale was preceded
by an inspection, which was generally favorable.
A few weeks after taking possession of the property, the buyer noticed the
presence of water infiltration in the basement. An inspection by a plumber who
was called to inspect the pipes revealed no irregularities.
In November 2005, the buyer hired Pro-solage to repair three (3) cracks in the
foundation that had been identified by the inspector. Pro-solage also discovered
that the wall near the patio was not waterproofed and was in the process of
eroding. The estimate to repair this problem was $14,300.
On December 21, 2005, the buyer informed the vendor by telephone of the
issues that had arisen since the transfer of possession.
On January 9, 2006, the buyer gave formal written notice of the hidden defects of
the property.
On January 18, a heavy rain resulted in water infiltration in the basement. The
same day, the buyer hired an engineer to determine the cause.
In his report, the engineer attributed the cause of the water infiltration to the
absence of a waterproof membrane between the wall and the patio.
On February 10, 2006, a second engineer was hired by the buyer to provide a
second opinion. In his report, the second engineer concluded that the water did
not come from the exterior but rather from an overflow of the hot water reservoir.
He estimated that the corrective work would cost $3,500.
On May 12, 2006, the buyer hired a foundation specialist to obtain an estimate
for corrective work, including excavation, structural work, demolition, and
reconstruction of foundation for the part of the wall next to the patio.
On July 27, 2006, a formal demand letter was sent to the vendor, the buyer
declaring that she would proceed with the corrective work on July 31, 2006.
However, the vendor was on vacation until August 12, 2006 and upon her return,
most of the work had already been completed.
The vendor never had the opportunity to verify the nature of the defect nor the
extent of the work required to correct it. The vendor did not have the opportunity
to verify the feasibility of having the work done at a lesser cost.
Although the law is clear regarding the obligation of the buyer to give notice of
the existence of a hidden defect, the extent of the notice will vary depending on
the circumstances.
The purpose of the notice is to protect the rights of the vendor, who is no longer
in possession of the property and to prevent abuse on the part of a buyer in bad
faith.
To be valid, the notice must:
i) be given within a reasonable delay;
ii) be sufficiently precise to permit the vendor to identify the nature
of the defect and the corrective measures required to remedy it;
iii) permit the vendor to establish that the defect existed prior to the
sale, and
iv) allow the vendor to remedy the situation himself.
However, these principles are not absolute and are subject to exceptions, such
as matters of urgency, repudiation by the vendor of any responsibility or upon
evidence that the objectives of a formal notice have been met in other ways.
In the case at bar, the Court held that the notice did not allow the vendors to
identify the nature of the defect, whether or not it existed prior to the sale, and the
corrective measures necessary to remedy it at the least cost. The notice given by
the buyer did not respect the vendor’s legal rights. Although the notice of January
9, 2006 was given within a reasonable delay, the vendor did not have an
opportunity to evaluate the nature and the extent of the hidden defect nor to
assess the appropriate corrective measures and their cost.
In such circumstances, the Court has discretion to either reject the buyer’s claim
for latent defects altogether, or to reduce it, which is what the Court chose to do
in the present case.
Béique –vs- Rodier EYB 2009-157651
(April 20, 2009 (Lalonde, J.S.C.)
Thursday, June 25, 2009
IS AN OFFER TO LEASE THAT IS CONDITIONAL UPON THE SIGNING OF A FORMAL LEASE, A LEGALLY BINDING CONTRACT?
The parties signed an offer to lease which provided, inter alia, that they would sign a
formal lease within ten (10) days containing all of the clauses found in the offer.
Upon receipt of the accepted offer, the landlord entered into negotiations with the
existing tenants for the purpose of relocating them in order to accommodate the new
tenant. The landlord thereupon retained the services of a general contractor to proceed
urgently with the leasehold improvements to the premises.
The landlord submitted a draft lease which contained some clauses that did not appear in
the accepted offer, including:
• Movable hypothec;
• Non-publication of Lease;
• Prohibition by tenant to sell its business without the consent of the landlord;
• Requirement for a personal guarantee of the tenant’s alter ego.
Upon receipt of the draft lease, the tenant notified the landlord that because the draft lease
was not consistent with the written offer and because a proper lease had not been signed
within the stipulated ten (10) day delay, the tenant considered the offer to be null and
void for all legal purposes.
After receipt of the notice of cancellation, the landlord’s attorneys responded that to the
extent that any clauses in the draft lease were inconsistent with the accepted offer, the
landlord agreed to have them deleted. Nevertheless, the tenant maintained its position that
the offer was null and void.
The tenant argued that the acceptance of the offer did not result in a binding agreement
but merely a promise to enter into a contract subject to certain conditions. The Court did
not agree and condemned the tenant to pay damages.
The Court concluded that the offer contained all of the essential elements of a lease,
which required no formality to be legally binding. The leased premises were clearly
described as well as the intended use. The amount of the rent and additional rent was
specified. The occupation date and term of the lease were also clearly indicated. The
annex to the offer detailed the leasehold improvements that the landlord had undertaken
to complete.
Although the offer specified that a lease had to be signed within ten (10) days, it was not
automatically cancelled if the delay was not respected.
The Court also held that although the tenant’s unhappiness over the contents of the draft
lease was not unjustified, the latter had a legal obligation to notify the landlord of its
objections and reiterate its preparedness to sign a lease in conformity with the terms and
conditions of the accepted offer. Furthermore, there was nothing exceptional or abusive
about the objectionable clauses contained in the draft lease. The tenant, in acting as it did,
was in breach of the offer as well as its legal obligation to act in good faith.
The landlord satisfied its obligation to minimize its damages by finding a tenant for half
of the space in question. The tenant was ordered to pay the landlord, inter alia, the sum of
$33,000 for damages equivalent to the lost rent, and $1,000 for inconvenience and trouble
resulting from the default.
(2424-8643 Québec inc. c. Sam Lévy & Associés inc. 2008 QCCS 2789)
formal lease within ten (10) days containing all of the clauses found in the offer.
Upon receipt of the accepted offer, the landlord entered into negotiations with the
existing tenants for the purpose of relocating them in order to accommodate the new
tenant. The landlord thereupon retained the services of a general contractor to proceed
urgently with the leasehold improvements to the premises.
The landlord submitted a draft lease which contained some clauses that did not appear in
the accepted offer, including:
• Movable hypothec;
• Non-publication of Lease;
• Prohibition by tenant to sell its business without the consent of the landlord;
• Requirement for a personal guarantee of the tenant’s alter ego.
Upon receipt of the draft lease, the tenant notified the landlord that because the draft lease
was not consistent with the written offer and because a proper lease had not been signed
within the stipulated ten (10) day delay, the tenant considered the offer to be null and
void for all legal purposes.
After receipt of the notice of cancellation, the landlord’s attorneys responded that to the
extent that any clauses in the draft lease were inconsistent with the accepted offer, the
landlord agreed to have them deleted. Nevertheless, the tenant maintained its position that
the offer was null and void.
The tenant argued that the acceptance of the offer did not result in a binding agreement
but merely a promise to enter into a contract subject to certain conditions. The Court did
not agree and condemned the tenant to pay damages.
The Court concluded that the offer contained all of the essential elements of a lease,
which required no formality to be legally binding. The leased premises were clearly
described as well as the intended use. The amount of the rent and additional rent was
specified. The occupation date and term of the lease were also clearly indicated. The
annex to the offer detailed the leasehold improvements that the landlord had undertaken
to complete.
Although the offer specified that a lease had to be signed within ten (10) days, it was not
automatically cancelled if the delay was not respected.
The Court also held that although the tenant’s unhappiness over the contents of the draft
lease was not unjustified, the latter had a legal obligation to notify the landlord of its
objections and reiterate its preparedness to sign a lease in conformity with the terms and
conditions of the accepted offer. Furthermore, there was nothing exceptional or abusive
about the objectionable clauses contained in the draft lease. The tenant, in acting as it did,
was in breach of the offer as well as its legal obligation to act in good faith.
The landlord satisfied its obligation to minimize its damages by finding a tenant for half
of the space in question. The tenant was ordered to pay the landlord, inter alia, the sum of
$33,000 for damages equivalent to the lost rent, and $1,000 for inconvenience and trouble
resulting from the default.
(2424-8643 Québec inc. c. Sam Lévy & Associés inc. 2008 QCCS 2789)
Friday, May 15, 2009
BLUE AVENUE CLOTHING INC.
When a related party pays the rent on behalf of the tenant, does that related party tacitly become legally responsible in its own right as a tenant?
This issue was recently dealt with in the case of 162702 Canada Inc. vs. Blue Avenue Clothing Inc. and Forecasts Brands Inc., 2009 QCCQ 2695.
The results in any particular case will turn on the particular facts. In Blue Avenue Clothing, the Judge dismissed the action against the related party who made the rent taking into account the following circumstances:
1.
Although Forecast had some stock on the premises, it did not have any employees or carry on any activities there.
2.
There was no evidence of any express agreement in the nature of the sublease or assignment between the tenant and Forecast.
3.
The tenant continued to occupy the premises at all relevant times and maintained a substantial inventory there.
4.
Only the tenant is mentioned in the invoice.
5.
The Civil Code of Quebec specifically provides for the possibility of payment being made by someone other than the debtor.
6.
The factual elements are equally consistent with the tacit creation of a tenant’s obligation, as well as the advance of funds by Forecast to the tenant, who was facing liquidity problems. Since the burden of proof is on the landlord, Forecast prevailed.
7.
The landlord argued that the relationship between the parties was one of assignment or sublease and that the acceptance of the rent by the landlord from Forecast was equivalent to the consent to the assignment or sublease. The Trial Judge held that the continued occupancy by the tenant and the ambiguity of the discussions regarding the nature of the relationship between the tenant and Forecast lessened the probability of the existence of a sublease or an assignment of the tenant’s interest in the lease to Forecast.
From the landlord’s perspective, the payment of rent by someone other than the tenant should constitute a red flag of impending future trouble.
In such circumstances, good credit management (and problem prevention) would mitigate in favor of the landlord investigating the financial viability of the tenant and, if found wanting, to obtain further security to guarantee the tenant’s obligations pursuant to the lease, including but not necessarily limiting to, formally adding the related party as a tenant or guarantor.
This issue was recently dealt with in the case of 162702 Canada Inc. vs. Blue Avenue Clothing Inc. and Forecasts Brands Inc., 2009 QCCQ 2695.
The results in any particular case will turn on the particular facts. In Blue Avenue Clothing, the Judge dismissed the action against the related party who made the rent taking into account the following circumstances:
1.
Although Forecast had some stock on the premises, it did not have any employees or carry on any activities there.
2.
There was no evidence of any express agreement in the nature of the sublease or assignment between the tenant and Forecast.
3.
The tenant continued to occupy the premises at all relevant times and maintained a substantial inventory there.
4.
Only the tenant is mentioned in the invoice.
5.
The Civil Code of Quebec specifically provides for the possibility of payment being made by someone other than the debtor.
6.
The factual elements are equally consistent with the tacit creation of a tenant’s obligation, as well as the advance of funds by Forecast to the tenant, who was facing liquidity problems. Since the burden of proof is on the landlord, Forecast prevailed.
7.
The landlord argued that the relationship between the parties was one of assignment or sublease and that the acceptance of the rent by the landlord from Forecast was equivalent to the consent to the assignment or sublease. The Trial Judge held that the continued occupancy by the tenant and the ambiguity of the discussions regarding the nature of the relationship between the tenant and Forecast lessened the probability of the existence of a sublease or an assignment of the tenant’s interest in the lease to Forecast.
From the landlord’s perspective, the payment of rent by someone other than the tenant should constitute a red flag of impending future trouble.
In such circumstances, good credit management (and problem prevention) would mitigate in favor of the landlord investigating the financial viability of the tenant and, if found wanting, to obtain further security to guarantee the tenant’s obligations pursuant to the lease, including but not necessarily limiting to, formally adding the related party as a tenant or guarantor.
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