The centuries-old doctrine of caveat emptor – “let the buyer beware” – continues to play a significant role in real estate transactions in Ontario and beyond. Buyers are expected to conduct their own due diligence before entering into an Agreement of Purchase and Sale (“APS”). The buyer is free to avoid running into problems with a property either by choosing not to sign the deal or by negotiating conditions within the APS that will allow the buyer to walk away. However, there are still circumstances where a buyer may seek to rescind an APS (the remedy of “recission”) in spite of caveat emptor. For instance, where a buyer purchases a property for an intended use and information arises after the agreement is made that materially affects that intended use, the buyer may still have room to avoid completing the deal depending on the seller’s conduct. While sellers are not obligated to disclose all potential issues about a property, silence on an issue can in some cases amount to an actionable misrepresentation.
A recent Superior Court decision examined the remedy of recission in connection with a buyer’s disappointed expectations about a property’s development potential. The buyer entered into an APS in May, 2025 for a vacant lot in Toronto’s Bridle Path community. The property was advertised as a prestigious location to build a custom dream home. After signing the APS and submitting a $150,000 deposit, the buyer discovered a restrictive covenant registered on title that limited development to a single detached dwelling. This restriction conflicted with his intention to develop the property into a multi-unit townhouse or condominium. Initially, the buyer had included a due diligence clause in his offers, allowing him to investigate the feasibility of development. However, he removed this clause in the final, unconditional offer accepted by the seller.
The restrictive covenant had been registered in 2023 and was discoverable through a title search. It provided as follows:
Only one single detached house may be permitted to be constructed on each of Parcel 1 and Parcel 2, and no application shall be made by the Owners to rezone either of Parcel 1 or Parcel 2 nor shall any of the Owners make application to the Committee of Adjustment of the City of Toronto or such other authorities, municipal or provincial, to permit more than one single detached house to be constructed on each of Parcel 1 and Parcel 2.
These restrictive covenants shall expire thirty-five (35) years from the date of registration of this Application to Annex Restrictive Covenants, and shall have no force or effect thereafter.
After discovering that he would not be able to redevelop the lands for multi-residential use, the buyer applied to the Court to rescind the APS and order the return of the substantial deposit he had paid. The scheduled closing date for the transaction was July 18, 2025. The application was heard on July 15, 2025. The buyer argued that the restrictive covenant materially affected his intended use of the property and that the seller should have disclosed it to him. The evidence was that the buyer had not made his multi-residential intentions known to the seller until after the APS was signed. The seller had advertised the property as a prime lot for building a single detached house – “Your custom Dream Home”. The seller made no representations that anything could be built on the property other than a large single home.
Justice Leiper of the Superior Court dismissed the application in a decision issued the day following the hearing and just two days before the scheduled closing date. She accepted that the buyer was taken by surprise in learning of the restrictive covenant. However, she disagreed with the buyer’s contention that the seller should have told him of the existence of the restrictive covenant because of the price he paid for the property ($2.3 million), the nature of the property, and the local trends in multi-residential development in that particular area of Toronto. Justice Leiper noted that the buyer did not ask the seller whether there were any limitations on development: “The Seller was not required to actively inquire into the [Buyer]’s intentions or to divine from the negotiated price that the Seller must have had a certain kind of development in mind.”
In the end, the circumstances of the transaction did not displace the doctrine of caveat emptor. Justice Leiper explained:
Given the price paid for this land and the Purchaser’s plans to act as the developer of townhouses there, I infer that he is not an unsophisticated party. He could have inserted terms into the APS to protect himself from registered restrictive covenants that might interfere with his plans. His initial offers included a condition that permitted time to exercise due diligence and find out if the property could be developed in a way that was “economically feasible.” He chose to remove this condition, and in doing so, he accepted a measure of risk. Perhaps he thought he was getting a bargain by purchasing this amount of land for the price, making it worth the risk. Having discovered after the fact that there was a registered restrictive covenant on title, he now asks the court to relieve him of the bargain that he made in clear terms, and having turned his mind initially to an alternative means to protect his financial interests. The doctrine of caveat emptor applies: the Purchaser chose not to exercise caution that he knew was available to him to insist upon or forego the purchase.
Read the decision at: 2025 ONSC 4210 (CanLII).
