A significant decision of the Ontario Court of Appeal confirmed that oral representations may matter about the size of a property in a MLS listing. The case is important and relevant because it allowed a Buyer to rescind a contract based on a prior oral representation, thus overturning the general principle that oral representations do not allow a Buyer to rescind an Agreement of Purchase and Sale.
The facts of the case involve a Buyer (“Issa”) a first time home buyer who retained a realtor to assist him in purchasing a home that he would live in with his family. The realtor was a dual agent, advised Issa that the size of the home was about 2100 square feet. The agent relied on both a representation of the Seller as well as an MLS listing of the home from over 12 years ago. The agent, however, did not verify the measurements of the home to confirm the square footage.
Issa visited the property to inspect and verify the representations before executing the Agreement of Purchase and Sale. At his visit, Issa met with the Seller and was again informed that the home was about 2000 square feet. Relying on this information provided by the Seller and the realtor, Issa signed the Agreement of Purchase and provided a deposit. The purchase price was $730,000.00 and the offer was accepted by the Seller.
Before the transaction closed, Issa obtained an appraisal of the property which indicated that the home was only 1450 square feet and not 2000 as represented. Issa refused to complete the transaction and commenced a lawsuit against both the realtor and the Seller seeking a declaration that the Agreement was null and void and a return of its deposit. The trial judge ruled in favour of the Buyer. The court considered the age of the Buyer, his inexperience in measuring property and the fact that he was a first time home buyer. The judge also stated that both the realtor and Seller were negligent in their representations about the size of the house. The decision was surprising because it was contrary to similar cases and ran contrary to the standard provision in an Agreement of Purchase and Sale known as the “entire agreement clause” which states that representations or statements outside of the contract do not affect its validity or enforceability.
The decision was appealed to the Court of Appeal. The court dismissed the appeal and awarded costs to the Buyer. The court did not accept the proposition that the Buyer’s reliance on the misrepresentation regarding the size of the property was displaced once the Buyer performed an inspection of the property. While the court recognized the “entire agreement clause”, it stated that it should not be applied in every case and applying it to the specific facts of this case would result in an unfair outcome.
The court also stated that a contract may be rescinded where a party makes a false statement which is material and induces the other party to enter into the contract. In this case, the court concluded that the size of the property was material to the Buyer’s decision to purchase the property. In arriving at its decision, the court looked at several factors including the fact that explicit statements were made in both the listing and directly to the Buyer about the size of the property, the age and inexperience of the Buyer and the large discrepancy between the size of the property as represented and the actual size.
This case demonstrates that while the general rule is that one party to a contract cannot rescind the contract based on oral representations, there are certain circumstances where a court will allow a party to rescind a contract by carving out an exception to the general rule.