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Real Property - Breached APS (4). Eyelet Investment Corp. v. Zhou
In Eyelet Investment Corp. v. Zhou (Ont CA, 2026) the Ontario Court of Appeal dismisses a plaintiff-developer's breached APS appeal, this brought against orders which "dismissed the appellant’s motion for summary judgment and dismissed the claim on the basis that the appellant had failed to mitigate its damages".
Here the court considers the issue of how, if the plaintiff-developer had numerous other properties to sell, it could evidence that they reasonable focussed their mitigation efforts on those other properties rather than the subject property:[2] The respondent agreed to buy a home in a development built by the appellant for $1,680,151.38 and paid deposits amounting to $127,500. The scheduled closing date was September 28, 2017. On September 11, 2017, the respondent’s counsel told counsel for the appellant that the respondent was terminating the agreement of purchase and sale (the “APS”). The appellant advised that it would treat the termination as an anticipatory breach and take steps to mitigate its damages. The appellant ultimately sold the property six months later for $1,300,000, approximately $380,000 less than the contract price with the respondent.
[3] The appellant brought a claim for breach of contract, seeking damages of $253,981.97, which was the difference between the APS price and the ultimate sale price six months later, plus carrying costs, less the deposit paid by the respondent. The motion judge dismissed the appellant’s motion for summary judgment and dismissed the claim on the basis that the appellant had failed to mitigate its damages.
[4] The motion judge recognized that the respondent, as the party who failed to perform the contract, bore the burden of proving that the appellant failed to make reasonable efforts to mitigate and that mitigation was possible, citing Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, [2012] 2 S.C.R. 675, at para. 24.
[5] The appellant took the position before the motion judge that it did not want to “flood” the market with homes for which agreements of purchase and sale were terminated, and that it should have complete discretion to determine which house to put forward on the market at what time.
[6] The motion judge noted that the appellant failed to list the property on the Multiple Listing Service (“MLS”). She found that failure to list on MLS was not necessarily a failure to mitigate damages, but described it as a “troubling” factor that gave rise to the need for the appellant to show a reasonable alternative marketing strategy for the property.
[7] The motion judge found that the appellant’s evidence about its marketing strategy for the property was insufficient because it failed to provide any records or details about its efforts to market the particular property. The appellant’s affiant did not recall what efforts were made to market the particular property after the termination of the APS, but instead testified about the appellant’s usual marketing practices. The appellant’s usual practices included sending “email blasts” to past interested buyers and a list of real estate agents, putting up signs or billboards advertising the development or specific homes, and using social media to invite prospective buyers to visit the development.
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[10] The motion judge found that the appellant chose to delay marketing the property because it was concerned about depressing prices in the development and imperiling other closings. The motion judge accepted that in some circumstances, such a delay might be reasonable, but in the absence of any records about the appellant’s marketing efforts for the property, the record did not support a finding that the appellant took reasonable steps to mitigate its damages.
[11] The motion judge noted that the basic principle for assessing damages for breach of contract “is based on putting the injured party as nearly as possible in the position it would have been had the contract been performed.” In general, that is done by assessing damages on the date the contract was to be performed, although it is open to a court to choose a different date if contextual considerations require it.
[12] She recognized that in real estate transactions, where a purchaser fails to close, the vendor takes reasonable steps to sell the property at arm’s length, and there is nothing improvident about the sale, the measure of damages is usually the difference between the contract price and the resale price. However, she found that where the property is resold for below its appraised value and there is no record of what was done to market the property, it was not appropriate to use the sale price six months later as the true measure of the property’s value. The motion judge held that because of the delay in the resale and the absence of evidence of the appellant’s marketing efforts, it was appropriate to use the date of the termination of the APS, September 11, 2017, to assess damages. . 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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