An interesting case decided by the Ontario Court of Appeal decided that a Buyer of a residential property was not entitled to rescind a transaction on the basis that they had not been provided with timely notice of water damage from a basement flood which took place prior to closing. The facts are as follows. Booth bought a house from Bilotta scheduled to close on July 7, 2017. On June 23, there was a flood which resulted in approximately 2 inches of water in the basement. On or around June 23 and June 28, the Seller had repairs done and paid for with the assistance of its insurance company. On June 28, the Seller advised its lawyer of the flood. On July 6, the day prior to closing, the Seller’s lawyer advised the Buyer’s lawyer of the flood and the estimated repairs and sent the insurance company adjuster’s report with an offer to holdback $10,000 to address any costs not covered by the insurer.
On the day of closing, there was a flurry of e-mails between the respective lawyers. The Buyers demanded either an extension of the closing date until the repairs were completed so they could reinspect the property, or in the alternative, a $50,000 abatement of the purchase price. The Seller agreed to hold back $50,000 to cover any additional costs and offered a 2 week extension. The Buyer refused to change their position and the deal did not close. On July 10, 2017, the Buyer requested an opportunity to reinspect the property. The Seller refused and took the position that the transaction had been terminated on July 7, 2017. The Seller sold the property over one year later for $100,000 less that the original purchase price. Both parties argued in court that the other was responsible for the breach of the Agreement of Purchase and Sale.
In the lower court decision, the Ontario Superior Court focused on the amount of the notice given by the Seller to the Buyer regarding the flood and the repairs. The judge faulted the Seller for not giving more notice to the Buyer of the flood and the damage. This argument was initially successful as the judge determined that it was not the Buyer’s failure to close, but that the Seller’s failure to provide timely notice of the flood and damage and a meaningful opportunity to inspect the property before closing was the cause of the breach.
The Seller appealed the decision to the Ontario Court of Appeal and the court overturned the lower court decision. The key point that the court focussed on was that the damage to the property was not substantial and therefore the Buyer did not have the right to demand an extension of the closing date or an abatement of the purchase price. While the Seller could be faulted for failing to provide timely notice to the Buyer of the damage, the Seller provided all documentation available from the insurance company to the Buyer, such that the Buyer ought to have been able to determine that the damage was not substantial enough to justify terminating the transaction.
This case is significant as it demonstrates that a Buyer must make a careful determination as to whether damage to a property prior to closing is substantial and whether it has the right to terminate a transaction. Furthermore, a Buyer is obligated to accept a reasonable offer from as Seller for an extension of the closing date in order to allow time for the damage to be inspected by the Buyer.
In my view, while I find fault with the failure of the Seller to provide the Buyer with timely notice of the damage, I agree that the refusal of the Buyers to close was unjustified. In addition, the case points out the perils of a Buyer refusing to close a transaction even where there is damage to the property prior to closing.