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Legally Compelled to Buy: Specific performance in Contracts for the Sale of Property

Posted On: September, 16 2015

Earlier this summer, the Supreme Court refused to grant leave to appeal from the Ontario Court of Appeal’s decision of InStorage Limited Partnership and InStorage Trustee Corp. v. Matthew Brady Self Storage Corporation. In refusing to grant leave, the Supreme Court implicitly approved the Court of Appeal’s holding that specific performance is an appropriate remedy for vendors of commercial properties when buyers back out of a deal.

The key legal issue in Matthew Brady was whether a vendor could compel a buyer to complete a purchase where the property itself is not unique, which is habitually the key consideration in granting specific performance. The court ruled that where a vendor seeks specific performance, the focus is not on the uniqueness of the property. Rather, the appropriateness of specific performance depends on the special character and circumstances of the transaction and the subject matter of the contract viewed more broadly. This is a threefold test dependent on the circumstances of the case. It considers whether, looking at the contract as a whole: (i) damages will afford the vendor an adequate remedy; (ii) the vendor has established a fair, real and substantial justification for specific performance; and (iii) the equities between the parties favour a granting of specific performance.

The plaintiff satisfied the test in Matthew Brady. Some of the factors the court looked at to ground the special character of the transaction as a whole included that: the plaintiff renovated the property according to the defendant’s specifications in preparation for the sale; the defendant had managed the facility poorly; the plaintiff would not have bought the property but for its agreement with the defendant to buy it; and the defendant was always intended to be the sole owner of the property. Fairness dictated this result.

This is a significant decision in property litigation. In the past, courts commonly ordered specific performance only where a property was itself unique. Commercial properties, like the one at issue in Matthew Brady, are usually available in mass quantities and it is more difficult to prove they are unique. Since the test for specific performance traditionally turns principally on the uniqueness of the property itself, vendors had a harder time obtaining this remedy than purchasers and relied on exceptional circumstances. Purchasers could more readily argue that a property is “unique” for the specific purposes of the purchase (e.g. a special family home or farm), in that a ready substitute cannot be found.

Where a vendor or a purchaser wants to back out of or renegotiate the terms of a binding property deal, litigation is obviously an option. If there is a firm deal, courts can award damages or compel specific performance, which may now be a more viable remedy for vendors. In all cases, clients are encouraged to carefully determine if specific performance may be available on their facts or if it is best to seek damages.

 

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