After entering into the Agreement of Purchase and Sale, the Defendant discovered that a TransCanada Pipelines Limited ("TCPL") easement ran directly under the pool, cabana and patio. An agreement provided that TCPL could remove the pool and cabana if necessary, and the agreement and the easement were the subjects of ongoing litigation between the Plaintiffs and TCPL. The Agreement of Purchase and Sale between the Plaintiffs and the Defendant did not expressly reference the easement or the litigation.
The Defendant discovered the easement on November 6, 2014. On November 7, 2014, the Defendant advised the Plaintiffs that he would not close the deal, and requested the return of the $50,000 purchase deposit. The Plaintiffs refused to return the deposit and commenced an action against the Defendant for damages resulting from the failure to close the deal. The Defendant counterclaimed for the return of the deposit.
As the Court explains in its decision on the claim and counterclaim, the Plaintiffs had constructed the pool, cabana and patio in 2011 without the consent of TCPL. The TCPL easement dated from 1992, but the Plaintiffs were apparently unaware of it when excavations began (it was actually the second of two TCPL easements on the property). TCPL permitted the Plaintiffs to encroach on the TCPL easement on certain conditions including:
(a) The owners agree to sign a formal agreement prepared by TCPL which will be registered against the title of the land and will carry forward with future ownership;
(b) In the event TCPL’s future operations, new installations, integrity or maintenance programs require the removal of the improvements (the pool and cabana) situated on its easement, the Owner agrees to remove the improvements immediately upon receipt of notice. The Owners and TCPL agree to equally share (50/50) the cost to remove the improvements;
(c) The Owners covenant and agree that upon the Owner’s sale or disposition of the Lands, the Owners shall fully disclose the restrictive covenant to any prospective purchaser.A letter containing those terms was registered on title to the property, but the Plaintiffs did not otherwise advise the Defendant of the letter or the subsequent litigation between TCPL and the Plaintiffs.
After the Defendant failed to close the transaction, the Plaintiffs defaulted on their mortgage and the property was sold under power of sale in May, 2015 for $1,730,000. Although the sale price was higher than the price the Defendant would have paid, the Plaintiffs claimed they received $78,100 less in the power of sale because of the difference in the real estate commission charged (5% vs. 2.5%).
The Plaintiffs brought a motion for summary judgment seeking the damages they claimed from the Defendant. Instead, the Court dismissed the Plaintiffs' claim and granted judgment to the Defendant for the return of the $50,000 deposit. The Court ruled that the Defendant was entitled to rescind the Agreement of Purchase and Sale because the (second) TCPL easement and associated encroachment agreement and litigation had not been disclosed to the Defendant in the Agreement of Purchase and Sale. As the Court noted:
The reference to a single easement in Schedule A of the APS did not provide the defendant with notice or disclosure of the 1992 easement or the June 2, 2011 letter agreement. Schedule A did not referentially incorporate the 1992 easement or make it part of the APS. This is especially true when the wording of Schedule A is compared to the wording of Schedule A in the earlier Purbas APS, which specifically referenced the TCPL litigation. Accordingly, the existence of the 1992 easement, the June 2, 2011 letter agreement, the unexecuted “Agreement To Install Swimming Pool and Cabana”, and the cloud of the litigation in relation to the plaintiffs’ refusal to execute the agreement, all meant that the plaintiffs did not comply with paragraph 10 of the APS which required the title to be free from all registered restrictions except as specifically provided in the agreement.Read the decision at: Savo and Robichaud v Moursalien.