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Apr 11, 2022

Court of Appeal scuttles European-based Purchaser’s attempt to cash in on local Toronto real estate boom

In its recent decision in Akelius Canada Ltd. v. 2436196 and B’Nai Fishel Corporation 2022 ONCA 2569, the Ontario Court of Appeal confirmed that an innocent purchaser of real property in Ontario is not entitled to damages for lost opportunity as a consequence of a breach by the vendor.  In doing so, the Court of Appeal confirmed that in the real estate context, the date of breach is the relevant date for assessing damages, modified only to the extent that the innocent party satisfies the Court that a different date is fairer and more appropriate.


In this case, the parties entered into an August 2015 agreement of purchase and sale under which, the European-based purchaser, Akelius Canada Inc. (the “Purchaser”) agreed to purchase seven residential apartment buildings from a Toronto-based vendor, 24361936 and B’Nai Fishel Corporation (collectively, the “Vendors”), for an overall purchase price of $228,958,320 (the “APS”). 

A closing date of January 7, 2016 was set for the transaction.  However, the deal did not close because the Vendors breached the APS on closing in failing to remove encumbrances from the properties, at which point the deposits were returned to the Purchaser.  It was common ground that the purchase price of $228,958,320 also represented the value of the property as at the date of the breach of the APS.  However, two and a half years later, in September 2018, the Vendors re-sold the Property for approximately 25% more, some $56,544,318.  The Purchaser sued the Vendors for breach of contract alleging damages of $56,544,318 as its loss of value of the transaction.

Motion Decision

In the Court below, the motion judge found that the Vendors breached the APS but refused to award the Purchaser damages for loss of profits and limited the Purchaser’s damages to its costs incurred in connection with the failed transaction in the sum of $775,855.46.  In so doing, the motion judge found that the Purchaser was in the apartment investment and rental business seeking to purchase income producing properties for long term holds and refused to award damages based on the profit that it would have made had it purchased the properties as a speculator intent on re-selling properties for a quick capital gain.  The motion judge also noted that the Purchaser refused to disclose information relating to buildings acquired after the January 2016 closing date which would have assisted the Court in determining whether the Purchaser had mitigated its loss in part or in whole, using the deposit funds that were returned from the failed transaction.  Lastly, the motion judge declined to order costs in favour of either party in light of the mixed success on the motion.

The Purchaser appealed the issue of damages to the Court of Appeal and the Vendors cross-appealed the issue of costs.

Court of Appeal Decision

A three judge panel of the Court of Appeal unanimously upheld the motion judge’s decision and dismissed the appeal and cross-appeal.  In so doing, the Court of Appeal reaffirmed the established legal principle that in the real estate context the starting point for the assessment of damages for breach of contract is the date of breach.  

As regards to the issue of damages, the Court noted that in certain circumstances it might be appropriate to move the assessment date somewhat later, however this has been done only where the plaintiff has established that it was not in a position to mitigate its damages and re-enter the market as at the date of the breach. The Court rejected the argument that the assessment date should be modified when a vendor defaults on a real estate transaction in a rising market because an innocent purchaser may have difficulty attempting to purchase a comparable property or properties in a rising market.  The Court saw no principled reasons to deviate from the general principle in the circumstances of this case and held that the fact that a party is innocent does not displace the date of breach as the presumptive date for the measure of damages in a real estate case.  Lastly, the Court of Appeal found that the Purchaser’s position presumes that it would have sold at the high point which was inconsistent with the Purchaser’s established business plans of keeping rental buildings for a longer period of time.

Lastly, as regards to the issue of costs, the Court of Appeal also dismissed the Vendors’ cross appeal and upheld the motion judge’s decision to decline to award costs finding that this was within the motion’s judge’s discretion as success was divided at trial.

Practical Takeaways

This case reaffirms the date of breach as the starting point in assessing damages for breach of contract in the real estate context.  The Court may modify that date but only as fairness dictates and in circumstances where it is established that the innocent party (whether as purchaser or vendor) was somehow precluded from re-entering the market as at the date of the breach.

While decided in the context of investment properties, this case has much broader application and is especially relevant in the context of our current rapidly rising Ontario residential real estate market.  For example, innocent purchasers faced with a vendor refusing to close on a property should consider the result in this case and make best efforts to mitigate their damages.  This would involve locating and purchasing a suitable replacement property as soon as possible after the breach and seeking legal advice to determine whether they may have a valid claim for damages against the vendor for any higher purchase price they paid for a replacement property.  Conversely, vendors should stay true to their bargain with purchasers and should caution against any temptation to profit from the rapidly rising real estate market by breaching their contractual obligations with the purchaser and re-selling at a higher price.  This course of action may well lead to litigation exposure well in excess of any additional purchase price the vendor may obtain in the market, when factoring in damages and legal fees.

For further information or if you require assistance with your real estate dispute please contact Ellad Gersh at Robins Appleby.

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