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#Real #Estate #Litigation: Breach of Agreement, Damage, Loss

Law Offices of Nizam Hashmi > Uncategorized  > #Real #Estate #Litigation: Breach of Agreement, Damage, Loss

#Real #Estate #Litigation: Breach of Agreement, Damage, Loss

*Pordell v. Crowther Estate 2020 ONSC 1635

The plaintiff agreed to purchase from the defendant a residential property with a closing date of June 22. The agreement contained a standard insurance clause providing that the risk remain with the seller until completion and that in the event of “substantial damage”, the buyer had the option of terminating the agreement or taking insurance proceeds and completing the purchase. The agreement allowed for four visits by the purchaser prior to closing. The plaintiff had exercised one visit before discovering a fire on April 27, by which time the property had been vacant for several months such that the defendant’s insurer did not cover the repairs. The defendant arranged for repairs and it was only on June 1, the day after repairs were completed, that the plaintiff was given another opportunity to visit the property. The plaintiff expressed concerns about a smell of smoke and the quality of the repairs, and his agent asked the defendant’s agent for a report about the fire. By mid-June, with no report having been received, the plaintiff’s solicitor wrote to the defendant’s solicitor to try to get a response and mentioned terminating the agreement and obtaining a return of the deposit. The defendant’s solicitor replied that there was “no substantial damage” and that there had been “complete repairs”. The plaintiff’s solicitor disagreed. The transaction did not close on June 22. The plaintiff retained new counsel who contacted defendant’s counsel with an urgent request for documents on the repairs so that the plaintiff could make an informed decision. The specific requests were not addressed. The defendant relisted the property in July, with the listing containing considerably more information about the fire than had been provided to the plaintiff. The plaintiff commenced an action for the return of his deposit. The defendant counterclaimed for damages representing the difference in price between what the plaintiff offered and what the house sold for months later.

Held, the action should be allowed; the counterclaim should be dismissed.

The defendant breached the agreement of purchase and sale. The defendant claimed that the plaintiff’s declaration of an intention not to close was an anticipatory breach, but that concept did not apply because neither party had treated the contract as being at an end. The defendant, by failing to provide the plaintiff the opportunity to inspect the damage before repairs were made, especially when it was known that the plaintiff was concerned and wished to get access to the house, undermined the plaintiff’s legitimate contractual interests and rights under the insurance clause. Furthermore, the limited and belated disclosure made in mid-June was incomplete and somewhat misleading such that the defendant did not act in good faith. The fact that the cost of repairs was small in relation to the purchase price did not mean that the damage was not substantial.

After the closing date the defendant failed to take reasonable steps to minimize his losses, so if his counterclaim had succeeded, he would have been entitled only to retain the deposit.

SCHABAS J.: —

Introduction

[1] This action involves a claim and counterclaim arising from a failed home purchase. Between the date of the agreement of purchase and sale and the closing date, a fire occurred in the house.

Although the plaintiff was aware of the fire and made requests to get into the house to see the damage before it was repaired, this did not happen. The plaintiff only saw the house after repairs were completed and he received limited documentation from the defendant about the repairs just days before closing. Given the lack of information, the plaintiff did not complete the sale, though he continued to try to obtain information about the damage and repairs for several days after the closing date, but the defendant did not provide any additional information.

[2] The defendant has not returned the plaintiff’s deposit of $80,000, which the plaintiff seeks in this action. The defendant counterclaims for a declaration that he can keep the deposit and should receive an additional $286,994.09 in damages arising from the difference in the price for which he eventually sold the house several months later, together with carrying costs.

[3] For the reasons set out below, I grant judgment for the plaintiff and dismiss the defendant’s counterclaim.

Background Facts

The agreement to purchase

[4] On March 7, 2017, the plaintiff Sam Pordell (“Pordell” or the “plaintiff”) entered into an agreement of purchase and sale with the defendant Paul Crowther (“Crowther” or the “defendant”), as the estate trustee for his mother, Rita Iona Crowther, to purchase a property at 22 Fenelon Drive in Toronto. The purchase price was $1,608,000 and the closing was set for June 22, 2017.

[5] The agreement of purchase and sale (the “Agreement” or “contract”) was in the standard Ontario Real Estate Association (“OREA”) form and contained the following clause 14:

14. INSURANCE: All buildings on the property and all other things being purchased shall be and remain until completion or the risk of the Seller. Pending completion, Seller shall hold all insurance policies, if any, and the proceeds thereof in trust for the parties as their interests may appear and in the event of substantial damage, Buyer may either terminate this Agreement and have all monies paid returned without interest or deduction or else take the proceeds of any insurance and complete the purchase. No insurance shall be transferred on completion. If Seller is taking back a Charge / Mortgage, or Buyer is assuming a Charge/ Mortgage, Buyer shall supply seller with reasonable evidence of adequate insurance to protect Seller’s or other mortgagee’s interest on completion.

[6] Pordell was buying the house with his partner, Narges Fetehi (“Matha”), with whom he had a young child. Both Pordell and Matha were living with their respective families and were excited about having a home of their own. They had looked at many properties and the house was in an area they wanted, convenient for their jobs, close to Matha’s parents, and close to the Toronto French School, where Matha wished to send their child.

[7] Their offer was the highest of eight bids on the house, which had been listed for sale at $1,180,000. The offers ranged from $1,220,000 to Pordell’s at $1,608,000. A deposit of $80,000 was provided by Matha and paid to the defendant, Re/Max Hallmark Realty Ltd., to hold the deposit in trust as Crowther’s listing brokerage. Pordell then arranged to finance the balance by way of a mortgage with Bay Bank for $1,200,000 and later arranged, through RBC, a $400,000 line of credit secured by a house he owns in Richmond Hill where he lived with his parents.

[8] The agreement of purchase and sale provided that the purchaser could have four visits to the home prior to closing, on 24 hours’ notice. Pordell and Matha had their first visit on March 22, 2017, when they took Matha’s parents to see the house. They decided to leave their other visits until closer to closing, including leaving the last visit until the day before closing.

[9] Pordell and Matha are both from Iran. Pordell has degree in civil engineering, and is a licensed engineer in Ontario. He now works as a contractor, supervising home construction, and has a number of other qualifications. Matha is trained as a software engineer and has an administrative position with a home service company. She is training to become a paralegal. The fire on April 27, 2017.

[10] On April 27, 2017, while studying at a public library for an exam he had the next day, Pordell received a call from his real estate agent, Saeid Hossein-Pour (“Hossein-Pour”), who told him that the Toronto Police had called because there had been a fire at 22 Fenelon. Alarmed, Pordell immediately left the library, leaving his laptop and materials there, and drove to the house, picking up Hossein-Pour along the way.

[11] Upon arriving at the house, Pordell found police and fire trucks outside. The police did not let him into the house and gave him no information about the fire, explaining that it was under investigation. The defendant’s wife, Lisa Crowther (“Lisa”), was also outside the house with at least one of her sons, as was Crowther’s real estate agent, Helga Tietsson (“Tietsson”). The only thing Pordell and Hossein-Pour were told about the fire was that it appeared to be a “set up fire”, or deliberately set. Pordell testified that he approached Lisa and asked her to contact him so that he could inspect the property. He said she was very nice and that Lisa said she would do so. Although this conversation is disputed by the defendants, Hossein-Pour also testified that Pordell

spoke to Lisa, and there is reference to it in the police report. Lisa did not testify at the trial. Crowther told the court that Pordell did not speak to Lisa, but he was not there and his evidence is

hearsay. Further, Crowther acknowledged that he became aware that day that Pordell wanted to get access to the property. The only admissible direct evidence that the conversation did not occur

came from Tietsson, whose evidence I did not find compelling on this point, or on other issues, as I discuss below. Accordingly, I accept that Pordell asked Lisa for access to the house that day, and that Crowther knew about Pordell’s access request.

[12] On April 27, 2017, Hossein-Pour also sent a text to Tietsson saying that “I need to go and see what happened there.” This text was sent after Hossein-Pour and Pordell had been to the house, making it clear to Tietsson their need for information and their wish to inspect the damage.

[13] Pordell was very concerned about the fire. As a structural engineer, he was concerned about the scope of the damage, and whether the house was safe to occupy. He also had a personal reason, which was that when he was a youth in Iran his family’s cottage had burned down due to an electrical fire from a heater he had connected in his brother’s bedroom. His younger brother died in the fire, and Pordell continues to blame himself for it.

[14] Lisa Crowther and her sons discovered that the fire had occurred when they went to the house on the morning of April 27. Lisa had gone to the property, which had been vacant for several months, to check on it and to do some packing. The house had been her husband’s family home, and had been occupied by his mother, who had moved to a nursing home in September 2016, and by his sister, who died of cancer in December 2016.

[15] According to Crowther, on her arrival on April 27 Lisa had found a door ajar and the house smelled of smoke. She discovered evidence of a fire in the basement bedroom, with a burned bed and bed coverings, a melted lamp, and evidence of fire on the floor, walls and windows. She called the police and fire department. One of her sons, Peter, took photographs of the damage. However, even before the arrival of the fire department and police, they had removed some of the damaged bed coverings.

[16] Paul Crowther was at work that day. He studied urban planning at Ryerson University, and has been in in the construction business since 1987. He supervises construction for a general contractor, and at the time was overseeing a large project for Metrolinx in Whitby. He was notified of the fire by his son, Kyle, who was also at the property with Lisa. Crowther saw Peter’s pictures that day, but did not come to 22 Fenelon on April 27.

[17] Sometime after 5:00 p.m., Lisa was allowed back into the house. She and Peter took more photographs. Neither Lisa, her sons nor anyone else who saw the damage that day was called to testify by the defendant.

[18] Over the next few days the Crowthers called in an insurance adjustor and contractors to deal with the damage caused by the fire. They learned on May 2, however, that their insurance would not cover the repairs because the house had been unoccupied for 30 consecutive days. The Crowthers did not dispute this and obtained their own quotes for repairs.

[19] Despite being aware that Pordell had requested access to the house, no one made any attempt to contact him to inspect the damage. The repairs and efforts to see the damage.

[20] Crowther obtained repair estimates from two companies. One was from Servpro of Agincourt (“Servpro”). It was in two parts. The first quote outlined “work required to REPAIR structural due to fire and soot” for $6,821.78. The second quote was to “RESTORE & CLEAN structural and content damage and odor due to fire and soot” for $12,689.18.

[21] The Crowthers also obtained an estimate from Service Master of Toronto East (“Service Master”), which was more extensive and more expensive, proposing cleaning and repairs throughout the house. The quote also proposed to make test holes in various places to “inspect for smoke migration”. This estimate also noted that “[a]dditional repairs may be required for damages not visible at the time of our inspection”. The Service Master estimate was for $25,993.23.

[22] Crowther testified that they chose the Servpro quote because Servpro could start right away, as the Crowthers wanted the repairs to be done as quickly as possible.

[23] In the meantime, both Pordell and Matha were anxious to get access to the house and see the damage, and they pressed their agent frequently to see the property. Hossein-Pour testified that he made telephone calls to Tietsson in May to get access and to discuss an appraisal inspection for the mortgage. However, he was told first that the fire was under investigation, from which he concluded they were not allowed in, and then he was put off when told it was under construction. He said this was a barrier and it made his clients, Sam and Matha, very unhappy.

[24] Although Tietsson’s affidavit stated that she did not hear from Hossein-Pour between April 27 and May 29, Tietsson’s phone records show that she spoke to Hossein-Pour for several minutes on May 1. She has no recollection of the call, but agreed that it must have been about 22 Fenelon and its status. There are no phone or text records of communications between the agents after May 1 and before May 30, but the records available are limited, and Tietsson’s records do not identify incoming calls. In cross-examination, Tietsson conceded that she may have had other communications with Hossein-Pour in May, which would have involved attempts by Hossein-Pour to get his clients into the property, so that they could see the extent of the damage and the location of the fire, and perhaps to get some sense of its cause.

[25] As the communications between the parties was almost entirely through their agents, and there are disputes over those communications, I must assess the agents’ credibility.

[26] Hossein-Pour was also trained as a structural engineer. He is from Turkey, but also speaks Farsi. His wife is a friend of Matha’s, from Iran, which is how he came to represent Matha and Pordell. He had only been a real estate agent for about a year in 2017. Although Hossein-Pour testified competently in English, he does not always express himself clearly. Nevertheless, he demonstrated a good recollection of the events in question.

[27] Tietsson grew up in Toronto, and had been a childhood friend of Crowther’s sister. English is her first language, and she has been a real estate agent for many years. She admitted that she was extremely busy during those months and her recollection of conversations was limited, to the extent that she had any recollection at all. She testified in quite a matter of fact way, taking the position that she responded to specific requests from Hossein-Pour but that is all, and believed that that was all that was required of her.

[28] In an e-mail to her clients later in June, after Pordell had indicated his intention not to close, Tietsson seemed quite inflexible, saying she did not see how “buyers can arbitrarily decide they don’t want to close . . . when they receive copies of invoices”, and referred to Hossein-Pour as the buyer’s “incompetent” agent. Regardless of how competent Hossein-Pour was, where his evidence differs from Tietsson’s I prefer his evidence. Despite his challenges in English and his lack of experience, he did make efforts to see the property and to obtain information about the damage. While perhaps he ought to have tried harder to get in to view the property in May, he made requests and Tietsson put him off. To the extent that Tietsson took the position that she did not have clear requests for an inspection or, later, for reports on the damage and repairs, this explanation is disingenuous, given her knowledge of the situation and Hossein-Pour and Pordell’s requests. Instead of taking reasonable steps to ensure that the buyer’s concerns were addressed so that the deal could close, Tietsson on behalf of her client did the opposite, by avoiding scheduling a visit before or during construction, and, as I address below, by not being forthcoming with any information about the fire until just days before closing.

The June 1, 2017 visit

[29] On May 29, 2017, Hossein-Pour called Tietsson asking to see the property the next day. At Lisa’s request, Tietsson attempted to put off the visit until the following week, but Hossein- Pour insisted and a visit occurred at 5:00 p.m. on June 1, one day after Servpro completed its work.

[30] On June 1, Pordell attended with Hossein-Pour, Matha and Mehran Zanganeh, a work acquaintance of Pordell’s who needed an inexpensive place to live with his wife and two sons and was interested in renting out the basement. All four of them noticed an odour of smoke in the house. At the visit, Pordell realized the fire likely occurred in the basement, due to a stronger smell of smoke and evidence of recent repairs, such as new wood panelling in the basement bedroom, and a new carpet. Pordell remained unaware of the scope of the repairs. Previously, he had thought that the fire had occurred upstairs. Zanganeh also identified some black spots on a vent in the living room, which he thought came from soot. Zanaganeh, who is also a civil engineer employed in the renovation business, decided not to rent the basement because something didn’t feel right. He had concerns about air quality the nature of the repairs and whether they had been done by a licensed person and the quality of any structural work that had been done, as he saw some panelling move when leaned against.

[31] Matha also noticed some black dots in the basement bathroom but was told by Tietsson it was from some kind of water damage. In fact, the police report, which was obtained much later, disclosed that there was evidence of a fire in the bathroom as well.

[32] The house was also full of air fresheners, which caused concern for Pordell and Matha. Although Crowther said that his wife uses air fresheners in their own home and that Lisa had simply bought them to make the house smell nice, the fresheners created an unusual odour. Tietsson, on the other hand, said the house had no particular smell at all.

[33] Pordell and Hossein-Pour testified about concerns they had with the repairs. Although there was new wood paneling in the basement bedroom, it seemed to have nothing behind it and the panelling sagged or moved when it was pushed. This caused concern about damage behind the wall and whether there was damage to load bearing walls. Pordell was also concerned about heat and the effect the fire might have had on the electrical integrity of the house.

[34] Although Tietsson was at 22 Fenelon for the visit on June 1, she stayed in the kitchen area, and was not forthcoming with information about the fire or the damage, other than to say that the repairs made the house better than before the fire. She did, however, disclose, in response to a question from Hossein-Pour, that the repairs were done by contractors retained by the Crowthers, not an insurance company, although she did not explain why.

[35] Both Matha and Hossein-Pour gave evidence that Hossein- Pour mentioned the odour and air fresheners to Tietsson and that Hossein-Pour asked Tietsson for more information about the damage and repair work, including a report. Tietsson said she would follow up with the Crowthers and get them a report.

[36] However, in an e-mail she sent to the Crowthers from the house at the end of the visit, Tietsson said that “there was no mention of smoke or anything”, and noted that “[t]he buyers agent asked if there was any kind of a report or statement of what work was done after the fire. I said it was all handled professionally, not aware of any report. They may ask for something, and I assume you have the invoices etc.”

[37] This e-mail confirms the Crowthers’ concern about a smell of smoke, and at the very least, alerted them to the fact that the Pordells wanted more information about the fire. I accept the evidence of Matha and Hossein-Pour that Hossein-Pour asked Tietsson for a report about the fire on the June 1 visit, but Tietsson chose to treat his question narrowly, as simply an inquiry as to whether there was a report as opposed to a request to receive it. This was not reasonable. The evidence of Hossein-Pour and Matha is clear that they wanted more information, and Tietsson and the defendant took no steps to provide it.

[38] Tietsson and her client should have done more. As an experienced real estate agent, Tietsson was on notice that the buyers, not surprisingly, were concerned about the repairs and wanted some comfort by way of more information about the damage and repairs. Those concerns should have been addressed in a timely way. Yet Tietsson did nothing unless she received an explicit written request, which only happened much closer to the closing date. Nor, apparently, did she advise her clients to provide more disclosure to Pordell.

[39] Pordell and Matha were also concerned because the work had not been done by an insurance company which would stand behind it. Both he and Matha, while frustrated they did not get access to the house in May, testified that they had taken some comfort from the assumption that at least the repairs would be done by an insurance company which would be responsible for them, which turned out to be incorrect. They still had no information on the damage or scope of repairs.

[40] They expected to get a report after June 1. However, as noted, Tietsson chose not to treat the discussion on June 1 as a request for more info, and then went on a vacation to Spain. Matha called Hossein-Pour to follow up and he says he did. Disclosure of Servpro estimate and the failure to close on June 22, 2017.

[41] On June 15, Hossein-Pour sent an e-mail to Tietsson requesting “a copy of what you have done for the fire accident”. He went on to state, among other things, that “[m]y client wants to have peace of mind that no damages were happened [sic] to the base of the house as my client touched the wall and looks like hollow wall. There are also some burnt harwood [sic] floor pieces on the main floor . . ..” Tietsson was away on holidays and sent Hossein-Pour’s e-mail to the Crowthers asking them to check with their lawyer “to ensure its ok to send the buyers agent a copy of the invoice relating to the repair”.

[42] On June 16, 2017, Pordell’s real estate solicitor, Ahmari Law Firm, sent a letter to Crowther’s solicitors, Durno & Shea. This letter reviews some of the background between the parties, including “repeated attempts to contact the seller’s agent . . . in order to schedule an inspection” as well as requests for reports on the work done to the home. It noted that nothing had yet beenreceived. The letter referred to clause 14 of the agreement of purchase and sale and advised that Pordell wished to terminate the agreement and obtain a return of the deposit. Pordell said this letter was sent to try to get some action or response, noting that he also needed information about the fire to get insurance on the house. He felt he had no choice, as he was not willing to invest $1.6 million without knowing if the house was safe. Pordell insisted that he still wanted to complete the transaction if he could get adequate information and assurances, but they never came.

[43] On June 19, Hossein-Pour received the Servpro estimates from Tietsson, together with copies of invoices and cheques showing they were paid, although the invoice for the lower estimate was for a different amount, of $6,222.76. Tietsson did not send anything else, such as the photos of the damage, or the Service Master estimate. This was five days before closing. Hossein-Pour sent these documents on to Pordell and Matha.

[44] The disclosure of the Servpro information heightened Matha and Pordell’s concerns even more. All it contained was a contractor’s estimate. It did not provide information on whether the fire had caused structural damage, yet the estimates referred to “structural” repairs. There were no inspection reports on either the damage or the repairs. The indications of damage to insulation and the need to replace it, as well as references to a vapour barrier and baseboards, raised concerns that something had happened behind the walls. There was also a reference to doing a test for asbestos. Pordell expressed particular concern as to the lack of any information about any electrical damage, given his traumatic experience as a child. As noted below, unknown to Pordell, there was in fact some minor electrical repair work completed by Servpro. Pordell did not think the house had been repaired properly, and he and Matha wondered what was being hidden from them.

[45] Crowther’s solicitors Durno & Shea also sent the Servpro material to Ahmari Law Firm by email on June 19, and formally followed up on June 20, asserting that there was “no substantial damage” and that there had been “complete repairs”. The letter also referred to the existence of a video of the interior of the house made prior to the fire and invited Pordell to compare it to the state of the house now. Pordell’s solicitor responded the same day, stating that the damage was “substantial”, and pointed out that the video did not resolve the fact that Pordell was denied the opportunity to inspect the damage and be consulted prior to repairs in order to decide what to do under clause 14 of the agreement of purchase and sale.

[46] On June 21, Durno & Shea responded, repeating their position stated on June 20, and Ahmari Law Firm repeated its position from June 20 on June 22. Durno & Shea then wrote on June 22 that it was treating Pordell’s position as “an anticipatory breach”, and that the property would be relisted.

[47] However, even on the day before closing, June 21, Tietsson attended at the property to permit an appraiser to inspect it in order to approve Pordell’s mortgage, and she said she was still hoping that the deal would close on June 22. In an e-mail to Tietsson on June 21, Lisa continued to indicate concern about whether the house smelled of smoke.

[48] The transaction did not close on June 22, 2017. Post-closing date communications

[49] Pordell and Matha continued after the closing date to see if they could get information and still buy the house. Concerned that their lawyer had not done enough, they contacted a new lawyer, Mark Persaud (“Persaud”), on Friday, June 23, 2017, and after retaining him on Monday, June 26, Persaud sent an e-mail that day to Crowther’s lawyer “urgently” requesting documents on the repairs so that Pordell could make “an informed decision”. Persaud received no response and followed up with another email on July 3, 2017.

[50] Crowther’s lawyer eventually responded on July 7, not addressing any of the specific requests, but simply asserting that there was “no structural damage” and that “the damage was very minor in nature”. The letter alleged that Pordell was “motivated” by the market shift, but gave no basis for the allegation. The lawyer said that Crowther would “shortly be re-listing the property” but nevertheless suggested that the transaction was still open for completion, as he asked Persaud: “would your clients not be better off to simply complete the transaction?”

[51] When cross-examined on his interpretation of Persaud’s intervention, Crowther stated that the documents Persaud was asking for “don’t exist”, and that he was advised that the deal was over, so “the deal is done”. It does not appear that anyone considered sending Persaud the photographs or the Service Master estimate, which Crowther pointed out in his affidavit contains a section called “Loss Report”, which he said, “serves as evidence of the fact that the fire caused minimal damage”. When asked why he didn’t provide those documents, Crowther said this was on the advice of counsel. 

The re-listing and eventual sale of 22 Fenelon

[52] In fact, Tietsson had already relisted the property on July 5. However, in this listing Tietsson provided a “Schedule C” which contained considerably more information about the fire than had been provided to Pordell. It told prospective purchasers that the fire was caused by someone who broke into the house and was confined to the basement bedroom, and that “everything was a bit charred, but the damage wasn’t extensive”. It also said that some electrical work had been done (although it did not say that the work had not received Electrical Safety Authority approval by an electrician). Although the Servpro scope of work noted that an asbestos test was to be done, the Schedule confirmed that there may be an asbestos issue elsewhere in the house. All of this was known to the Crowthers but was not disclosed to Pordell.

[53] It is not contested that house prices dropped in the spring of 2017 due to new ownership regulations. Tietsson said the “market took a huge dive, like 15%”, although Hossein-Pour said it was not as serious in Toronto as it was in suburban locations such as Richmond Hill. However, Pordell denied that the dropping market had anything to do with his failure to close, and I accept his evidence on this issue. He and Matha were both very clear on their desire to buy the house in that location. Pordell said he was in the housing market for the long term. The regulatory changes that came into effect in April were not a surprise, and Pordell said he knew that prices would come up given the way in which Toronto continues to grow. Although the mortgage was arranged with Bay Bank in March of 2017, Pordell testified that he was continuing to look for better rates in June, and the RBC line of credit agreement for $400,000 was dated June 13, 2017, which is consistent with someone who still wanted to acquire the property. He also retained Mr. Ahmari to handle the sale in May, after the regulatory changes, and was also in the market for insurance in June.

[54] Pordell’s efforts to close, even after the closing date when he retained a new lawyer to see what could be done to save the deal, are inconsistent with trying to get out of the deal. Nor was there any mention of a concern with the price or any attempt to renegotiate, which one might have expected if Pordell was motivated by a market drop. Pordell would also likely have been aware of the consequences of not closing, which put the deposit in jeopardy and which, along with the threat of liability in this action, has likely had a significant impact on his and Matha’s ability to buy another home. 

[55] The house was re-listed by Teitsson on July 5, 2017, for an asking price of $1.608 million. According to Crowther, this price, which was what was to be paid by Pordell, was used on advice from his solicitor in order to attempt to lessen the damages; however, he seemed to recognize that the price would need to be lowered. That asking price did not make sense if the market had dropped considerably, and in light of the fact that Pordell had made an offer considerably above a much lower asking price just a few months earlier. Not surprisingly, the house did not attract offers at that price and over the next several months the price was lowered a number of times in order to attract a buyer. Further, as Tietsson said in a note to her client, “the longer the home sits on the market, the less attractive it becomes to potential buyers”.

[56] The agents differed over the impact a fire might have on the value of a house. Hossein-Pour said that disclosure of a fire puts a stigma on a house and it can have a serious impact on its value. When asked if the disclosure in “Schedule C” had an impact on price, Tietsson couldn’t say, but said her view was that the drop in price was caused by “market conditions”.

[57] Eventually, a sale was negotiated in early 2018 for $1,245,000, or $361,000 less than what Pordell had agreed to pay. The sale closed on May 1, 2018. The defendants also incurred $8,494.09 in taxes and other expenses during that period, although the home was occupied by the Crowthers’ adult son, Kyle, rent free.

The experts

[58] Each party called a structural engineer to give expert opinion evidence on the scope of the damage to the house and, indirectly, on whether it was reasonable for Pordell to have refused to close the deal based on the limited information he had on June 22, 2017. The experts were both qualified as experts in structural engineering, and both had experience in assessing fire damage.

However, both of them had more information on which to base their opinion than did Mr. Pordell. This included the more extensive Service Master estimates, the photos taken by the Crowthers of the damage, and the Toronto Police Services report which was obtained by the defendants in April, 2018, through a freedom of information request.

[59] The plaintiffs’ expert, Israel Katzenberg, found the Servpro documents insufficient to come to an informed position on the damage caused by the fire. He said that one would have to see the studs and inspect behind the walls to be satisfied as to the scope of damage and the sufficiency of repairs. He noted that the Service Master quote included more extensive work, which suggests they saw more damage. Katzenberg said he would want to know why this quote was more extensive than Servpro’s, and what they saw. He was concerned by the fact that the work was not overseen by an insurance company, noting amount Service Master proposed to charge as another indication that the house required significant work. He noted that in addition to smoke migration, heat can cause damage to wood and steel. He also had concerns about water, and whether water was used to put out the fire since, if so, the studs could get wet and begin to rot. In short, he was concerned that there was significant damage and he had many unanswered questions about the scope of heat and smoke migration, and whether the fire and its aftermath had caused damage to the structural frame of the house, as well as to its electrical and mechanical components. In Katzenberg’s view, photos do not tell the whole story, and a structural engineer should have been retained to assess the damage. There was, however, no evidence of any professionals being involved in assessing the damage caused to 22 Fenelon.

[60] Edward Poon, the defendants’ expert, was comfortable saying that the house had sustained no substantial damage based on the material reviewed. He was willing to assume that Servpro was an experienced restoration contractor which would recognize any structural damage if it had occurred, and he relied on its estimate in supporting his conclusion. He acknowledged, however, that structural engineers are often called in by insurance companies after fires to check for structural damage. When questioned on the disparities between the two quotes, he agreed that it would have been prudent to make test holes elsewhere in the house, as proposed by Service Master, and that the black dots seen on a vent upstairs are an indication of smoke migration.

[61] In my view, Poon’s evidence was not persuasive. Poon was prepared to assume that because the estimates did not identify certain kinds of damage, such as electrical damage, there was no such damage. He concluded that it was highly unlikely that there was any structural damage, but he also had access to considerably more information than was available to Pordell in coming to his conclusion. I do not accept his statement that the Servpro estimate was sufficiently detailed to give an owner comfort or to ground a reasonable conclusion that the fire had not caused substantial damage. 

Breach of Contract

[62] The legal issue to be decided in this case is whether the plaintiff or the defendant Crowther breached the agreement of purchase and sale. A related issue is whether Crowther breached his duty of good faith in the performance of the contract by failing to provide information to Pordell about the fire when it was requested.

Anticipatory breach

[63] The defendant argues that the plaintiff terminated the contract prior to June 22, 2017, when Ahmari Law Firm wrote to the defendant’s solicitors on June 16, 2017, and again on June 20, 2017, stating that Pordell did not intend to close, and that this was accepted and treated as an “anticipatory breach” by the defendant. However, neither party in fact treated the Agreement at an end. Tietsson attended the property on June 21 for purposes of an appraisal arranged by Pordell, who continued to seek information and wanted to close the deal if he could get additional information that would give him comfort that the house had not sustained serious damage. As noted, Pordell’s efforts continued even after closing, and Crowther’s solicitor suggested, on July 7, 2017, that Pordell should still close the deal.

[64] In my view, therefore, the concept of anticipatory breach has no application to this case. Rather, the issue is who breached the Agreement in causing the deal not to close on June 22, 2017, or sometime after that date.

Who breached the Agreement?

[65] The plaintiff relies on clause 14 of the agreement of purchase and sale in submitting that because there was “substantial damage” and the plaintiff was not given the opportunity to inspect the damage to decide what to do, the defendant breached the contract. The plaintiff also argues that the defendant breached his duty to perform the contract in good faith. The defendant, on the other hand, says there was no “substantial damage” to the property and that the plaintiff was not denied an opportunity to inspect the house. The defendant asserts that the plaintiff walked away from the deal because of the dip in the market and wanted to avoid overpaying for the house.

[66] Clause 14 of the OREA Agreement is intended to protect the purchaser. Not only does it require the vendor to continue to be responsible for insuring the property prior to closing, in the event that there is “substantial damage” the clause gives the purchaser options to terminate the Agreement, or to accept funds or a reduction in the purchase price reflecting the cost of repairs and complete the purchase. Implicitly, the purchaser is also given the option to agree to have repairs made by the vendor prior to closing.

[67] Of course, to exercise one of these options, the purchaser must have the opportunity to inspect and determine the extent of the damage. In this regard, I agree with Leibovich J. in Bilotta v. Booth, [2019] O.J. No. 5408, 2019 ONSC 5956, 311 A.C.W.S. (3d) 656 (S.C.J.), at para. 20, that clause 14 contains implied terms of “timely notice and a meaningful opportunity to inspect the property” in order to determine what to do. As in that case, Pordell was not given an opportunity to inspect the property and determine if there was substantial damage and, if so, what to do about it. The defendant only permitted the plaintiff to see the house after the damage had been repaired or, perhaps, covered up. The plaintiff, therefore, was denied his right to decide whether to terminate the Agreement or take a reduction in price reflecting the cost of repairs.

[68] A similar situation occurred in Hou v. Battacharya, [2005] O.J. No. 5163, [2005] O.T.C. 1029 (S.C.J.), where purchasers tried but could not gain access to a property which had experienced a flood until after repairs had commenced, thereby preventing them from assessing the full extent of the damage. Cameron J. held that the purchasers were entitled to refuse to close the purchase and to have relief from forfeiture of their deposit.

[69] The plaintiff also submits that the defendant had a duty to act in good faith, relying on the Supreme Court of Canada holding in Bhasin v. Hrynew, [2014] 3 S.C.R. 494, [2014] S.C.J. No. 71. In that case, the Supreme Court found that there is an organizing principle that requires parties to perform their contractual duties honestly and reasonably. As Cromwell J. stated, at para. 73:

I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance.

[70] In my view, as in Bilotta v. Booth, the duty to perform one’s contractual obligations in good faith has application to this case. While Crowther and his agent did not lie to Pordell, by failing to provide Pordell the opportunity to inspect the damage before repairs were made, especially when they knew he was concerned and wished to get access to the house, the defendant undermined Pordell’s legitimate contractual interests and rights under clause 14 of the Agreement. Furthermore, the limited and belated disclosure made to Pordell in mid-June, just days before closing was incomplete and somewhat misleading. In my view, this is the type of bad conduct that the Supreme Court was attempting to address in Bhasin v. Hrynew. [71] I draw further support for this conclusion from an earlier decision of the Supreme Court, Dynamic Transport Ltd. v. O.K. Detailing Ltd., [1978] 2 S.C.R. 1072, [1978] S.C.J. No. 52, at p. 1084 S.C.R., in which Dickson J. (as he then was), addressed the duty of a vendor in a real estate transaction, stating that “[t]he vendor is under a duty to act in good faith and to take all reasonable steps to complete the sale”.

[72] Put against this conclusion is the defendant’s submission that clause 14 of the Agreement does not apply as the property did not suffer “substantial damage” as a result of the fire. I disagree.

Both experts discussed concerns about smoke migration, potential damage to foundations and the structure of the home, as well as electrical issues. The photos show visible damage to walls, floors and windows. The repairs took approximately one month to complete and cost over $19,000. Indeed, Service Master would have charged about $26,000 and done more extensive work.

[73] The defendant says that the damage was minor, and cosmetic in nature, and that the cost of repairs was insignificant compared to a purchase price of $1.6 million. Defendant’s counsel noted that the cost is between 1 and 2 per cent of the purchase price, and cited a case where damage of $3500 amounting to 2.3 per cent of the purchase price was found not to be “substantial”. However, in that case, Family Savings and Credit Union (Niagara) Ltd. v. Sustic, [1987] O.J. No. 593, 5 A.C.W.S. (3d) 218 (H.C.J.), the nature of the damage was not described, only three rugs needed replacing, and the seller had offered to replace them or give the purchaser a credit. Sustic is quite distinguishable from the case at bar.

[74] In any event, as defendant’s counsel conceded, “substantial damage” is not merely a numbers game. As Scurfield J. stated in Cassie v. Bazilewich, [2007] M.J. No. 430, 2007 MBQB 277, 162

A.C.W.S. (3d) 513 (Q.B.), at para. 17, “the phrase ‘substantial damage’ is not restricted to a definition based solely on the cost of repair. The quality, character and consequences of the damage must also be considered.”

[75] In this case, the fact that the cost of the repairs was small in relation to the purchase price is not a basis on which to find that the damage was not “substantial”. A fire occurred in a house in which the plaintiff was proposing to invest $1.6 million. It caused considerable damage and could not be repaired in a day or two. The extent of the damage could only be speculated by the experts after the fact based on limited information, though with more information than was provided to Pordell, and the experts disagreed. 

[76] In my view, therefore, the damage in this case was “substantial” and triggered the obligations on the defendant contained in clause 14 of the Agreement. Given that the defendant failed to provide the plaintiff with an opportunity to inspect the damage and exercise his rights under clause 14, it was the defendant who breached the Agreement.

[77] Although not necessary for my decision, I reject the assertion that the plaintiff was motivated to avoid the purchase due to the fall in the market in the spring of 2017. There is absolutely no evidence to support that argument, which was adamantly denied by Pordell. Unlike Bilotta v. Booth, where at least there was evidence of an attempt to obtain a reduction in price which might have been an indication of what was motivating the purchaser, here there is only the defendant’s allegation.

Remedy

[78] Having concluded that the defendant breached the Agreement, I grant judgment for the plaintiff. All necessary orders shall issue to have the plaintiff’s deposit of $80,000 returned to him, and he is awarded pre-judgment and post-judgment interest.

[79] It follows that the counterclaim is dismissed. However, had I decided otherwise, and ruled for the defendant, I would not have granted the defendant the damages sought in the counterclaim,but would simply have permitted him to retain the plaintiff’s deposit. In my view the defendant failed to take reasonable steps to minimize his losses after the closing date by continuing to fail to provide information available to him to Pordell, when Pordell continued to seek it and was still in a position to close at the negotiated purchase price. Crowther also failed to act reasonably by listing the house at too high a price given the drop in the market and the previous asking price, and at a price that did not take into account the possible forfeiture of the plaintiff’s deposit to him. Further, the subsequent sale of the house was likely affected by the fact that there had been a recent fire and the additional disclosure provided in “Schedule C” — which included information, as I have noted, that was not provided to the plaintiff.

[80] The plaintiff is entitled to his costs. If the parties cannot agree on costs, the plaintiff may provide written submissions not exceeding four pages double spaced (not including supporting records) to me within 21 days of the release of these reasons, and the defendant may submit similarly limited submissions within 14 days of receipt of the plaintiff’s submissions.

Action allowed; counterclaim dismissed.

*source: Ontario Reports

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