Consider this nightmare scenario: you agree to buy a pre-construction home in a new neighbourhood, in a part of town you really like. A year later when you drive by to check on the construction progress, the house is nowhere to be found. Instead, you learn your house is being built three kilometres from where you had been told it would be – far enough away that it is actually in a different town!
This is the situation that confronted home buyers in a recent Court of Appeal decision, Zhang v. Primont Homes (Caledon) Inc. 2024 ONCA 622. The court ruled that the buyers did not have to go through with the purchase to be in a position to claim damages from the agent who misled them.
Background to the Appeal
The real estate agent marketing a new subdivision told the purchasers that their home would be built at or near the intersection of Mayfield Road and Kennedy Road in Brampton. On that basis, they signed an agreement of purchase and sale with the builder with a $1,232,500 purchase price, and made a total of $120,000 deposits to secure the purchase. When they drove by Mayfield and Kennedy a year later, they had an unpleasant surprise – the subdivision wasn’t there. Eventually they learned the house was being built in Caledon, over three kilometres away.
At that point, the buyers had a decision to make: go through with the sale, even though they would not have agreed to buy the house in the first place if the real estate agent had not misrepresented its location, or back out of – repudiate – the contract and risk the builder suing for breach of contract.
In this case, the buyers decided not to close on the sale, and then sued both the builder (for return of their deposit) and the real estate agent for damages for misrepresentation. The builder counterclaimed for damages resulting from the buyers’ repudiation of the agreement.
Before trial, the buyers settled with the builder by agreeing that the builder could keep their $120,000 deposit, and the builder agreed to drop its counterclaim. The case proceeded against the agent, and the buyers were successful: the court ruled that the agent was responsible for the buyers’ lost deposit of $120,000 and ordered the agent to pay that amount as damages.
The Court of Appeal’s Decision
On appeal, one of the main issues the court grappled with was agent’s argument that the loss of the $120,000 deposit was the buyers’ own fault by not closing the transaction. The Court of Appeal rejected this argument, finding that there is no general rule that a plaintiff who agrees to buy property based on misrepresentations is legally foreclosed from recovering damages for that misrepresentation if they fail to complete the purchase.
Another interesting wrinkle in the Zhang case was that the property in question had gone up in value by almost $600,000 from the time the buyers signed the APS to the date of trial. The real estate agent argued that the buyers should have closed the deal despite the misrepresentation about location, and they would have completely avoided a loss.
The Court of Appeal ruled that buyers in such circumstances cannot be expected to know, at the time they discover the misrepresentation, if the property will go up in value in the future. The buyers did not have to take the risk of an uncertain real estate market to recover against the agent.
Home buyers confronted with a misrepresentation that led them into an agreement to buy a house have difficult decisions to make. The decision in Zhang gives some comfort to those who choose not to go through with a deal they never would have made if they had not been misled.
And of course, the case serves as a reminder to always verify the location details in writing when purchasing pre-construction properties.
Alastair McNish