A recent decision in Ritchie et al. v. Castlepoint Greybrook Sterling Inc., 2020 ONSC 3840, dismissed a class action lawsuit seeking damages on behalf of purchasers under purchase agreements to a canceled development on the basis of an exclusion clause in the agreement. The plaintiffs (purchasers) alleged that the vendor (defendant) terminated the purchase-sale agreement because financing could not be obtained, claiming that the vendor failed to meet its contractual obligation to take commercially reasonable measures to secure the financing. This case highlights the complexities that can arise in real estate and commercial transactions, emphasizing the importance of consulting with a Commercial Litigation Lawyer in Peel Region or engaging real estate litigation lawyers in the GTA to ensure your interests are protected.
Most new build agreements include terms and conditions in the agreement that limit the recovery on termination of a purchase-sale agreement to typically deposits plus interest. Clauses excluding damages and costs, including loss of bargain and loss of profit, are common terms in such agreements. Understanding these terms and how they might be enforced requires expertise that commercial litigation in Peel Region provides, ensuring that all legal avenues are explored.
Justice Perell applied the test for exclusion clauses. First, the court must determine whether the exclusion clause applies to the circumstances of the case. Second, if it does apply, the court must consider whether there was any unconscionability. Lastly, the Court can consider whether to not enforce the otherwise valid exclusion because of some overriding public policy consideration. These legal principles are often complex, and engaging a Litigation Lawyer in Peel, Canada can be invaluable in navigating such issues.
The plaintiffs’ main argument was that interpreting the exclusion clause to encompass breaches of the purchase agreement is inconsistent with the contractual obligation to use commercially reasonable efforts to obtain financing and complete construction under the Tarion addendum, which obligations cannot be contracted out of.
However, Justice Perell agreed with the vendor’s position that the exclusion clause applies even where there has been a breach of the obligation to take commercially reasonable efforts. He found that other than mandating the return of deposits plus interest, the Tarion Addendum expressly allows parties to enter other termination agreements and does not preclude a developer from limiting its liability to exclude damages. In cases where private financing issues arise, consulting private financing lawyers in Toronto can provide the necessary guidance and strategic advice to handle such financial complexities.
As a result, this has prompted the introduction by Tarion, for projects going to market after January 1, 2020, of the requirement that agreements of purchase and sale include an information sheet at the front of the purchase agreement that outlines some of the key potential risks of buying a residential pre-construction new build. These may include potential early termination conditions, such as reaching a minimum sales threshold for the project to proceed, the developer securing necessary financing for construction and completion of the project, and obtaining the required approvals from the municipality.
These changes highlight the critical importance of thorough legal review and due diligence. By working with real estate litigation lawyers in GTA and professionals like Commercial Litigation Lawyers in Peel Region, purchasers can better understand their rights and obligations, protecting themselves from unforeseen risks.
Call Kesarwani Law Office today and let us review your agreement of purchase and sale. We conduct diligent reviews with your best interest in mind, to ensure you understand what to expect with your agreement.