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Real Property - Breached APS (3). Marshall v. Hall [damages]
In Marshall v. Hall (Ont Divisional Ct, 2025) the Divisional Court allowed a vendor plaintiff appeal, here from an APS breach action, here on a damages issue:The Best Indicator of Market Value of a Property is what an Arm’s Length Purchaser Will Pay for the Property in the Open Market
[45] The trial judge rejected the proposition that the best indicator of market value of a property is what an arm’s length purchaser will pay for the property in the open market. As I will explain, this is a proposition which should have represented the starting point for the judge’s analysis.
[46] It is well-established that, as a general principle, where a purchaser fails to close a real estate transaction and the vendor takes reasonable steps to sell the property in an arm’s length sale to a third party in mitigation of damages, and there is nothing improvident about the sale, the difference between the two sale prices will be used to calculate the damages: Arista Homes (Richmond Hill) Inc. v. Rahnama, 2022 ONCA 759, at para. 9.
[47] There is no authority for the trial judge’s assertion that “absent exceptional circumstances, a resale below fair market value may not constitute “reasonable steps”, as such would render an unfairness to the defendants”, the effect of which would be to reverse the burden of proof
[48] Rather, as explained by Kimmel J. in Marshall v. Meirik, 2021 ONSC 1687, at para. 29, the onus is on the plaintiff to establish the resale price which will presumptively be the fair market value of the property:The damages formula is relatively straightforward. It is the original purchase price under the APS (which is known) less the market value of the Property on the assessment date, and then subject to further adjustment to account for mitigation considerations, if applicable. See 100 Main Street [100 Main Street Ltd. v. W.B. Sullivan Construction Ltd. (1978), 1978 CanLII 1630 (ON CA), 20 O.R. (2d) 401 (C.A.)] at para. 55. In describing the onus on a plaintiff to prove their damages, the Court of Appeal in 100 Main Street said (at para. 81):Included in the "normal measure" is the difference between the contract price and the market price. Thus, I think that the proper course is for the plaintiff, in presenting its case, to adduce evidence of the contract price and of the market price or resale price upon which he relies in establishing the loss of bargain. [49] In Palladino v. Durham, Sutherland J. was faced with conflicting expert appraisal evidence on the market value of a property. One appraiser opined that the fair market value of the property in question was $625,000. The other appraiser put the value in a range between $675,000 - $700,000. Following 37 days on the market after the original sale transaction had failed to close, the vendors accepted an offer of $625,000 in what the court described as a “down market”. In concluding that the price paid for the property by an arm’s length purchaser on resale was the best indicator of fair market value, Sutherland J. referred to the decision of the Nova Scotia Court of Appeal in Royal Bank v. Marjen Investments Ltd. (1998), 164 N.S.R. (2d) 293, 491 A.P.R. 293, 155 D.L.R. (4th) 538, 1998 NSCA 37, at para. 31:When the property has been resold, however, and, particularly, when subjected to vigorous marketing efforts … the Court should generally not depart from the selling price. Appraisal reports are a best guess, albeit by a person experienced in the real estate field. It is the market that actually determines the value of the property. [50] The trial judge pursued a different approach in his analysis. After framing as “the main issue in this case” whether the court should accept or reject that the $635,000 resale price was the fair market value of the property at the time of the resale, he then engaged in what he described as a credibility assessment between the views of Paul Marshall and Les Otto on fair market value, concluding that he preferred the evidence of Mr. Otto.
[51] The trial judge expressly declined to apply the proposition enunciated in Palladino because he considered the facts and conclusions in that case to be different than the case before him. The decision in Marshall v. Meirik was not referred to by the trial judge at all (the Court of Appeal’s decision in Arista Homes had not yet been released).
[52] The appellants submit that, there being no finding by the trial judge that the sale of the property was not at arm’s length or improvident, the trial judge erred by relying on the opinion of fair market value given by a real estate appraiser called by the respondents to determine damages, rather than the evidence of what an arm’s length purchaser was prepared to pay.
[53] I agree. Unless the defendant can prove that the sale was not to an arm’s length third party, or that it was improvident (i.e., the vendors were thriftless, imprudent, prodigal, careless, wasteful or shortsighted), the resale price is the presumptive fair market value. In such circumstances, there is no need for expert appraisal evidence. This court affirmed that approach in Eyelet Investment Corp. v. Song, 2024 ONSC 2340 (Div. Ct.), at para. 72, citing Arista Homes.
[54] It can readily be seen why the resale price should the “normal measure” of damages in the absence of compelling reasons to do otherwise. In Marshall v. Meirik, Kimmel J. alluded to the “subjective variability of the expert appraisal evidence”, which she attributed to the experts’ “different points of emphasis”. Or, as Bateman J.A. in Marjen put it (at para. 31), “[a]ppraisal reports are a best guess, albeit by a person experienced in the real estate field. It is the market that actually determines the value of the property”.
[55] It was an error of law for the trial judge to bypass the resale value as the presumptive fair market value of the property, and instead to launch into a search for fair market value based on a credibility assessment between Paul Marshall and the respondents’ expert.
[56] As a result, the trial judge’s assessment of fair market value of $675,000 cannot stand: the correct assessment of the appellants’ damages, subject to mitigation, should have been the difference between the price agreed to in the APS ($701,000) and the eventual sale price ($635,000) - namely, $66,000. . EPRF Holdings Limited v. Fergus Bloor Inc.
In EPRF Holdings Limited v. Fergus Bloor Inc. (Ont CA, 2024) the Ontario Court of Appeal dismissed a breached commercial APS deposit appeal, here grounded on a failure to satisfy a requisition to remove an open building permit:[22] The appellant contends that the test to determine whether a seller can deliver good and marketable title is objective, and little or no weight should be given to a purchaser’s subjective views. The appellant submits that the motion judge accordingly erred in principle in relying on the respondents’ evidence about their concerns about the open work permit because the purchaser was “acting in a capricious or arbitrary manner in order to avoid its own contractual duties.”
[23] This argument mischaracterizes the test to be applied. As held in Stefanovska v. Kok (1990), 1990 CanLII 6848 (ON SC), 73 O.R. (2d) 368 (H.C.), at p. 378, “all of the surrounding circumstances must be considered to determine if the alleged impediment to title would, in any significant way, affect the purchasers' use or enjoyment of the property”. The materiality of a deficiency should accordingly be assessed with regard to how, objectively speaking, the defect could impede the peaceful enjoyment of property. But, if a buyer has a legitimate and specific intended use for the property, their subjective expectations and concerns may also be relevant.
[24] The motion judge considered the argument that the respondents’ termination of the APS was capricious and arbitrary. She found that the respondents fully intended to proceed with the purchase of the Property right up to the evening of March 31, 2020, when they discovered that the second work permit had not been removed and that insurance remained unavailable. She rejected the appellant’s allegation that Fergus had acted in bad faith either by assigning its rights under the APS to Storekey or by invoking the open permit as a basis to terminate. It is not this court’s role to revisit the motion judge’s findings on this point.
[25] The existence of the open permit gave rise to three legitimate and non-trivial concerns for the respondents. First, they could not obtain title insurance. Second, they intended to sell or lease the Property, and an open work permit could impede this. Third, if the City did not voluntarily remove the work permit – as it had failed to do, despite EPRF’s repeated requests – the respondents would have to bring a court application, something they wished to avoid. On this evidence, it was open to the motion judge to find that EPRF could not deliver peaceful possession of the Property.
[26] As the appellant concedes, an open building permit may give rise to a valid objection. In both Thomas v. Carreno, 2013 ONSC 1495, 31 R.P.R. (5th) 311, aff’d 2013 ONCA 566, 35 R.P.R. (5th) 5, and 1854822 Ontario Ltd. v. Estate of Manual Martins, 2013 ONSC 4310, courts found that an open permit could expose a property owner to work orders, expensive remedial work, and potential litigation. Where “the purchaser’s right to enjoyment of the property is by no means certain”, the open building permit is not a “minor defect” but rather goes to the root of title: 1854822 Ontario Ltd., at para. 15.
[27] The appellant contends that these cases are distinguishable because they concerned building permits for possible remedial work that had to be completed on the properties. Here, by contrast, the building permit that remained outstanding at the closing date did not, on its face, relate to any deficiency on the Property. As held by the motion judge, however, the outstanding work permit still exposed the respondents to risk, given the inability of EPRF to obtain its deletion by the City immediately on request. As held by this court in Holmes v. Graham (1979), 1978 CanLII 1438 (ON CA), 21 O.R. (2d) 289 (C.A.), at p. 292, a purchaser cannot be “compelled to take a title which would expose him to litigation or hazard”; a good and marketable title is “free from litigation, palpable defects and grave doubts and couples a certainty of peaceful possession with a certainty that no flaw will appear to disturb its market value.”
[28] The motion judge’s finding about litigation risk was not speculative. She was entitled to infer that litigation was a real possibility on the evidence before her, notably EPRF’s failure to obtain the removal of the open permit weeks after it had raised the issue with the City.
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