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Seller Backs Out of Deal After HST Dispute

The 2022 Ontario court case of Stanziano v. Wolfe shows the dangers of making unconditional offers to purchase a property.

The Buyer and his wife were looking to purchase an office in St. Catharines and learned about a 4 bedroom brick house that was potentially for sale. The house had been built in the early 1900’s and had historic elements including leaded glass windows, a large fireplace and hardwood floors.  The house was zoned residential however the Seller (who was a lawyer) had been using it to operate a law practice for almost 20 years under a zoning exemption permitted by the city.

After touring the office twice, the Buyer’s wife (who was also a lawyer) prepared an Agreement of Purchase and Sale (“APS”) offering to buy the property at $318,000. The closing date was set for January 27, 2021 and the deposit was $5000. The offer was conditional on the Buyer obtaining financing. 

Importantly, the APS stated that if HST was applicable to the purchase then it was included in the purchase price. The Seller accepted the offer without making any changes to the APS. In doing so, the Seller did not notice the clause that any HST would be included in the purchase price.

Months later and just a few weeks before the closing date, the Seller learned that HST was indeed payable on the purchase price after speaking with an accountant.  The Seller contacted the Buyer and proposed that the sale price be increased to $364,540 to account for the HST. The Buyer responded by offering to pay $350,000. The Seller did not respond to this offer and refused to close the deal. 

The Buyer searched for comparable properties on the market but could not find anything in a similar price range as of early 2021 because housing prices had since skyrocketed. He sued the Seller in Court asking for the remedy of Specific Performance – forcing the Seller to go through with purchase.  The Buyer argued that the Seller was not entitled to an increase in the purchase price and that the APS was clear that HST was included in the price.

The Seller argued that neither party knew whether HST would apply to the sale or not and so there was no valid legal agreement. The Seller also argued the Buyer had misled them about how the office would be used so that the HST would not be a problem.  The Seller asked the court to make the agreement null and void.

The Court found there was no evidence that the Buyer had made any promises to the Seller that HST would not apply to the sale. The Court also found that the Seller should have been aware of the clause in the APS that clearly stated HST would be included in the purchase price.  The Court found that the Buyer’s “mistaken belief about the HST consequences was based on their own factual and legal misconceptions.”  The APS was unambiguous that any HST would be the responsibility of the Seller, not the Buyer.

The Court looked at three factors when deciding whether to grant Specific Performance and force the completion of the sale:

  1. The nature of the property and its “uniqueness”
  2. Whether awarding damages (money) would be inadequate
  3. How the Buyer and Seller behaved

When considering whether a property was “unique”, the Court looked at the property characteristics and also whether other similar homes were available for purchase in the same price range. The court found that when the housing prices suddenly increase due to a hot housing market then that was an important factor when considering uniqueness.

The Court found that the property was unique because the housing market was suddenly hot in St. Catharines and comparable homes were not available for purchase to the Buyer. The Court also found that damages would not be an adequate remedy. Finally, the Court did note that there was some evidence the Seller may have had an alternative motive for refusing to close the sale.

Thus, the Court granted the remedy of Specific Performance and granted a court order forcing the completion of the purchase.

Moral of the Story: Carefully read all the clauses in the Agreement of Purchase and Sale before accepting an offer.

If either a Buyer or Seller won’t close, send me an email to info@wontclose.com or click below to schedule a free confidential consultation about your case.

Mark Yazdani