When Can a Purchaser Refuse to Close? Making Sense of Conflicting Trends in the Law of Fundamental Breach, Conditions, and Misrepresentation

• Author: Valerie A. Edwards/Janice Grevler
• Profession: Torkin Manes Cohen Arbus LLP
• Pages: 765-788

When

Can a

Purchaser

Refuse

to

Close?

Making

Sense

of

Conflicting Trends

in

the Law of

Fundamental Breach,

Conditions,

and

Misrepresentation

Valerie

A.

Edwards

and

Janice

E.

Grevler

I.

INTRODUCTION

One

of

the

greatest challenges

facing

the

real estate

bar is

advising

clients,

and in

particular

purchasers,

of

their obligations

to

close agreements

of

purchase

and

sale when

difficulties

arise

in the

transactions.

The

prob-

lems

are

sometimes extrinsic

to the

transaction itself:

for

example,

the

purchaser lacks

sufficient

funding

to

close,

or

experiences "cold feet"

and

no

longer wishes

to

complete

the

purchase.

In

other circumstances, either

the

solicitor

or the

client discovers

a

defect

with

the

property.

The

fault

might,

for

example, relate

to a

title

problem,

an

outstanding work order,

or

a

change

in

building

design.

To the

disgruntled purchaser

who

seeks

legal

advice,

the

question then becomes,

"do I

have

to

close?"

The

purpose

of

this paper

is to

assist

a

real estate practitioner

to

pro-

vide meaningful advice

to a

purchaser concerning

his or her

obligations

to

complete

a

real estate transaction.

A

lawyer

who

appreciates

the

com-

plex

and

often

confusing

jurisprudence

in

this area

is

best equipped

to

advise

a

client

who no

longer

wishes

to

close. This

understanding

is

cru-

cial,

particularly

in

view

of the

swiftness with which

a

client

may

sub-

sequently allege negligence against

a

real estate practitioner

in

order

to

pass along

a

liability that

he or she has

incurred with

a

third party.

Of

Torkin

Manes Cohen Arbus

LLP.

765

766

Valerie

A.

Edwards

and

Janice

E.

Grevler

When

confronted

with

the

question,

"do I

have

to

close?",

the

solic-

itor's

mind will likely turn

to a

series

of law

school

principles,

including

the

concepts

of

fundamental

breach, repudiation, rescission, conditions,

warranties,

and

misrepresentations.

If

those principles were compre-

hensible when

we

initially studied them, they

do not

seem

so

clear

when sitting across

from

a

client

who is

posing

a

simple question.

It is

not

just

the

passage

of

time

and

failing memory that makes

the

lawyer

question

his or her

ability

to

answer

the

client's question competently

—

the

truth

is

that

the

courts themselves have

often

demonstrated

a

lack

of

clarity

in

analyzing

the

rights

of a

purchaser

to

avoid

his or her

obliga-

tions to

close

an

agreement

of

purchase

and

sale.

The

tendency

of

lawyers

to

resurrect

legal

expressions

that

we

thought

we

understood

in law

school

is

well-illustrated

by the

general

misuse

of, and

confusion between,

the

terms

"repudiation"

and

"rescis-

sion"

when

referring

to the

failure

to

complete

a

transaction. This paper

will

not

concern

itself

with

the

distinctions between these concepts;

repudiation

and

rescission

are

terms

of art

that convey

specific

and

dif-

ferent

legal meanings.

In

this

regard,

the

practitioner

is

counselled

to use

these

words with diligence.

For an

excellent

discussion

of the

correct

usage

of

these terms

the

practitioner

is

referred

to

Guarantee

Company

of

North

America

v.

Gordon

Capital

Corp.1

and the

noted

article

by

P.M.

Perell.2

It

is

noteworthy that many

of the

cases

do not

refer

to the

principles

of

rescission

or

repudiation

at

all;

instead,

the

courts will

often

review

the

facts

and

simply conclude that

the

purchaser

was or was not

entitled

to

refuse

to

close.

The

narrow question that

we

hope

to

answer

in

this

paper

is as

follows:

under what circumstances will

a

purchaser

be

relieved

of his or her

obligation

to

complete

an

agreement

of

purchase

and

sale?

A

real estate practitioner conducting

a

careful

review

of

relevant

case

law

might easily conclude that

it is

impossible

to

give

a

purchaser

meaningful

legal advice concerning

his or her

obligations

to

complete

a

real

estate transaction.

Not

only

are the

cases

fact-specific,

but the

courts

appear

to be

utilizing

inconsistent

and,

at times,

contradictory

tests.

Some

of the

cases that

the

lawyer

may

encounter

in the

course

of his or

her

research

are so

surprising

in

their outcomes that

the

lawyer

can

hardly

be

blamed

for

wishing

to

abandon

the

exercise altogether. How-

1

[1999]3S.C.R423.

2

P.M. Perell, "Rescission"

in

Special

Lectures

of

the Law

Society

of

Upper

Canada:

Principles

and

Proofs

in the Law

of

Remedies

(Toronto:

Carswell,

1995)

at

255.