Buyer on the hook for $213K after court dismisses zoning misrepresentation claim

During the peak of the Ontario real estate market in 2022, the plaintiffs listed a single detached dwelling in LaSalle, Ont., for $299,000. The plaintiffs received at least five offers ranging from $350,000 to an offer of $557,000 received from the defendant. The defendant’s offer was accepted, forming a binding agreement of purchase and sale (APS).

The APS contained a standard term stating that the “seller and buyer agree that there is no representation or warranty of any kind that the future intended use of the property by the buyer is or will be lawful except as may be specifically provided for in this agreement.” The APS did not contain any terms dealing with the future intended use of the property and was not conditional on financing.

The zoning dispute

The initial closing date was extended at the defendant’s request to Jun. 30, 2022. However, the defendant refused to complete the purchase on the grounds that her offer was based on the MLS listing, which identified the property’s zoning as “residential.” The property was actually zoned as “W2” based on a comprehensive zoning by-law for the entire town of LaSalle that came into effect in 2021. The W2 zoning provided for additional uses, including residential, and specifically “single-detached dwellings that existed prior to the date of this by-law.”

The plaintiffs subsequently re-sold the property to another buyer for $329,000 in December 2022. Litigation ensued, with the plaintiffs seeking damages from the defendant for the lower sale price, additional mortgage payments, taxes, lost rent and utilities.

The plaintiffs took the position that they were able to convey good title to the property and that the APS reflected the deal that the parties chose to make.

Of note, the defendant’s real estate lawyer had sent a requisition letter within the timelines required by the APS that made no mention of zoning issues. On June 29, 2022 — the day before the extended closing date — the defendant’s lawyer advised that the defendant no longer wished to purchase the property “due to the fact that it was misrepresented as residential property on the agreement of purchase and sale and the property is zoned as W2.”

This letter was inaccurate since there was in fact no such representation in the APS. Rather, the APS provided that the present use was residential and could be continued, which was accurate. The only source of the misrepresentation allegedly relied upon by the defendant was the MLS listing.

The mini-trial

The court ordered a mini-trial to determine whether the defendant relied on the representation in the MLS concerning the residential zoning.

To be successful in her defence, the defendant would have to prove that the plaintiffs, or their agent, made a false statement; that she relied on the statement when she entered the contract to purchase the property; that the reliance was reasonable in the circumstances; and that the representation was material.

The defendant’s evidence was that she suffered from autoimmune diseases and planned to downsize from her home to one that was wheelchair accessible. She planned to renovate the property but claimed that the W2 zoning may not have allowed the renovations.

The evidence

The defendant’s evidence was that after her offer was accepted, she sought the advice of a mortgage broker to arrange financing and was told that the land was not zoned residential but rather commercial. As a result, the down payment, mortgage interest rate, insurance and mortgage payments would be substantially more than anticipated. However, the APS was not conditional on financing.

The defendant’s real estate agent gave evidence concerning the events surrounding the APS. The agent’s evidence was that although the listing identified the zoning as residential, he did his own investigation and discovered the zoning had been changed to W2, an enhanced form of rezoning. He accessed the municipality’s website and found a description of W2 zoning, then conveyed the information to the buyer by phone and by email on the offer presentation day. His evidence was that the buyer did not want to include any conditions in the offer and that financing was not an issue.

The agent further stated that the defendant contacted him before the closing date and asked him to arrange an extension to June 30, which was accepted, as she was having difficulty with her financing. The agent arranged for her to meet with a mortgage broker who presented three different financing options. None of the options were acceptable to the defendant. He then sought a release of the APS from the plaintiffs, which was refused.

The trial judge noted that there was clear animus between the defendant and her agent, and that she had complained about the agent to the Real Estate Council of Ontario — a complaint that was dismissed.

The decision