Ontario Court decides Oral Agreements of Purchase and Sale for Real Estate can be Enforceable

By Matthew Reardon of Merovitz Potechin LLP on Tuesday August 8, 2023.

   

Ontario Court decides Oral Agreements of Purchase and Sale for Real Estate can be Enforceable

By: Matthew Reardon, Merovitz Potechin LLP

If you are a landowner undertaking negotiations with a would-be purchaser with respect to the sale of a piece of land, be warned! You may be undertaking more than you bargained for.

A recent case of the Ontario Superior Court, 2730453 Ontario Inc. v. 2380763 Ontario Inc. has ruled that oral agreements of purchase and sale for real estate may be enforceable in certain circumstances.

Are Oral Agreements of Purchase and Sale of Real Estate Normally Enforceable?

No. Legislation in Ontario normally requires that agreements of purchase and sale for real estate be in writing (or, if not a formal agreement, recorded in a written note or memorandum) and signed by the party it is to be enforced against or by a person lawfully authorized by that party (see section 4 of the Statute of Frauds)

What happened in this Case?

The defendant was a seller of real property. The plaintiff was a prospective buyer. Evidence showed that the parties agreed to the essential terms of the transaction including a sale price, closing date, commission structure, and description of the property.

They also agreed that no written agreement of purchase and sale would be completed during the time of negotiations but one would be completed prior to closing. Following negotiations, the parties took some steps to perform the agreement including:

• Obtaining environmental assessments, surveys, title searches, and due diligence;
• Negotiating and preparing commission agreements;
• Drafting, revising and negotiating the written agreement;
• Retaining lawyers; and
• Tendering documents and funds required on closing.

The defendant refused to close, asserting that that there was no enforceable agreement of purchase and sale because there was no written agreement signed by him. The plaintiff started a legal action asking the court to order that the defendant close the transaction on the basis that there was an enforceable oral agreement of purchase and sale.

What did the Court Decide in this Case?

The court found that there was a binding oral agreement of purchase and sale for the land based on the evidence. The court used the common law to find that an oral agreement of purchase and sale existed based on 3 fundamental terms being established: 1. the identity of the parties; 2. a description of the property; and 3. the purchase price.

The court then applied the legal doctrine of “part performance” which is, essentially, a legal framework and set of rules related to part performance of a contract.

The court applied this doctrine to disallow the seller from, unfairly, using the Statute of Frauds, to avoid completing the sale due to the fact that there was no written agreement of purchase and sale. It found that, in the circumstances, each party had partly performed the contract and it would not be equitable to allow the seller to avoid completing the agreement simply because a written agreement of purchase and sale was not signed.

What does this mean for me?

The author suspects that, in recent years, the Ontario courts are taking a more activist approach in determining cases of this type – by disregarding the requirement that an agreement of purchase and sale be in writing and be signed.

Instead, the court may be more liberally finding the existence of oral agreements of purchase and sale and may allow that, due to part performance, such agreements should be legally enforceable.

Parties undertaking a negotiation for an agreement of purchase and sale of land should, therefore, be extremely cautious in their discussions prior to establishing a written agreement and must make it absolutely clear that legally binding obligations are not established or created prior to a written agreement of purchase and sale being drafted and executed by all parties.

How can we Help?

If you are an individual or business purchasing or selling real estate we can assist in ensuring your rights are protected in the negotiations by ensuring that it is made clear that no legally-binding obligations are to be created until an agreement of purchase and sale is drafted and executed by all parties.

We can also ensure your rights are protected by drafting an agreement of purchase and sale for the property with terms appropriate to your transaction and closing the transaction accordingly.

Please reach out to our firm if you would like assistance.