A recent ruling by the Ontario court in a real estate deal gone sour boiled down to the Entire Agreement clause in the Purchase and Sale Agreement. Almost all Purchase and Sale Agreements typically include this standard clause. Most buyers and sellers tend to overlook the importance of this clause until a dispute arises, as it happened in the recent Langen v. Sharma case. To avoid such legal pitfalls, it is best to have your agreement and all related documents vetted by a real estate lawyer Brampton Ontario.
What was the case all about?
The Langen v. Sharma case (2024 ONSC 4212) involved a house available for purchase in Brampton for which the buyers, Rajnish and Veena Sharma, agreed to pay the amount of $2.9 million to the sellers, John and Nancy Langen. They also paid a $100,000 deposit for the deal. The Purchase and Sale Agreement stipulated that they needed to finalize the deal by August 2022. However, as it turned out, there was some discrepancy in the municipal taxes paid for the property mentioned in the listing.
The listing for this luxury home in McArthur Heights, Brampton, indicated a total living space of 6,900 square feet. It consists of an above-ground area of 4,800 square feet, containing 6 bedrooms, another 3 bedrooms in the basement, and 5 bathrooms in total. There is also an in-ground heated pool and an adjoining cabana with a toilet. The two driveways have enough parking space for eight cars, and the garage can also accommodate three cars.
The Langens listed the property’s last paid municipal taxes as $7,297.03. However, when the Sharmas tried to obtain financing for the house, their real estate lawyer informed them that the actual tax figure was $10,050 and not the $7,297 mentioned in the listing. The Sharmas were unable to secure the necessary financing until they rectified the $2,753 discrepancy. They had inspected the property before signing the agreement and everything seemed to be in order.
What was the cause of the discrepancy?
The Municipal Property Assessment Corporation (MPAC) calculated a tax amount of $7,297.03 without accounting for the property’s recent renovations. MPAC never checked the increase in the total area, nor did they update or correct this information in their database. And when this discrepancy was finally corrected, the property tax went up to $10,050. This means that going forward, the Sharmas’ projected expenses on the property have increased, and there is a possibility that they may also have to pay the back taxes at some point in the future.
It became clear that they would not be able to arrange the financing by the deadline of August 2022 as mentioned in the agreement. They requested an extension of three months and a reduction of $200,000 in the price. However, the sellers were amenable only to an extension until September 16 and asked for an additional deposit amount of $25,000 from the Sharmas. Ultimately, the deal fell through. The Langens were forced to find a new buyer for their property. They had to settle for a selling price of $2.5 million, resulting in a loss of $400,000. They also incurred additional carrying costs of $25,000 during the process.
Breach of the Purchase and Sale Agreement
The Langens then sued the Sharmas for the breach of the Purchase and Sale Agreement, seeking damages for both the loss and the forfeiture of the $100,000 deposit. In response, the Sharma team argued that they had the right to rescind the agreement due to the unintentional or innocent misrepresentation of facts in the listing and that the sellers had acted in bad faith when they disagreed with the requested three-month extension.
However, the deciding factor in the case was the Entire Agreement clause in the Purchase and Sale Agreement, which stated as follows:
This Agreement including any Schedule attached hereto shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement, or condition which affects this agreement other than as expressed herein.
Under Ontario law, this clause excludes all unintentional or innocent misrepresentation of facts from consideration. Had the Sharmas argued that the misrepresentation of municipal taxes was deliberate or fraudulent, the court might have taken this fact into consideration. In the end, the judge ruled in favour of the Langens, awarding them total damages of $425,319.69 and forfeiture of the deposit amount of $100,000.
How can our Real Estate Lawyer Brampton help you in such cases?
As you can see, it may not always be clear to the average layman how the law will be interpreted and which document takes precedence over the other. An experienced lawyer will guide you through these legal challenges and safeguard your interests from the start. Do not hesitate to contact us at 905-405-0199 for legal counsel.
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