A Homebuyer Is Permitted to Rescind an Agreement of Purchase and Sale After Being Misled About the Size of the Property

Published on: December 2020 | What's Trending

Close up of business woman hands breaking contract document

A recent case involving a real estate transaction gone awry confirmed an often-used but seldom successful remedy; namely, that a written contract can be voided based on a prior oral representation. In Issa v. Wilson, 2020 ONCA 756, the Ontario Court of Appeal affirmed that a buyer can get out of an Agreement of Purchase and Sale when they were induced into entering the contract by misleading information.

In Issa, a young, first-time homebuyer retained the services of a real estate agent to assist him in purchasing a home to live in with his family. The agent informed the buyer that the size of the home was over 2,000 square feet. In obtaining this information, the agent relied on a representation made by the vendor of the property, as well as the Multiple Listing Service (“MLS”) listing of the home from 12 years earlier. However, the agent did not carry out any measurements to verify the square footage of the home.

The buyer was given the opportunity to visit the property and inspect it to verify these representations before executing the purchase agreement. The buyer met with the vendor of the property during his visit and was again informed that the home was about 2,000 square feet. Relying on the information provided by the agent and vendor, the buyer executed an Agreement of Purchase and Sale and provided a deposit.

Before the transaction closed, the buyer obtained an appraisal of the property, which indicated that the home was only 1,450 square feet and not 2,000 or more, as represented to him by the agent and vendor. The buyer decided not to complete the purchase of the home and commenced an action against the real estate agent and vendor seeking a declaration that the Agreement of Purchase and Sale was null and void and a return of his deposit.

The trial judge ruled in favour of the buyer. The court considered his young age, inexperience in measuring property and the fact that he was a first-time homebuyer, in holding that his inspection of the property did not override his expectation that the home was 2,000 square feet or more as was represented to him by the real estate agent and vendor.

The defendants appealed the decision, arguing that the trial judge erred by not accepting the proposition that a homebuyer’s reliance on a misrepresentation regarding the size of a property is displaced once the buyer performs an inspection of the property. The Court of Appeal disagreed with this submission, stating that this was not absolute law. Although it has been applied in some situations, the court noted that it is a case-specific exercise because its strict application would be unfair in many circumstances.

The court explained that a contract may be rescinded on the basis of misrepresentation where the defendant has made a false statement that was material and induced the plaintiff to enter into the contract. In this case, it was held that the misrepresentation regarding the size of the property was material to the buyer’s decision to purchase it. In reaching this conclusion, the court emphasized the following factors:

  1. The agent and vendor made explicit statements in the MLS listing and directly to the buyer regarding the square footage. Also, at trial, the agent admitted that he was negligent in making these statements, and the vendor admitted that he informed the buyer that the property was about 2,000 square feet.
  2. The discrepancy between the size of the property as represented and the actual size was substantial.
  3. The buyer’s reliance on the agent and vendor’s representations regarding the size of the home was supported by the fact that he was ready to close the purchase until his discovery of the actual size of the home. With this new information, he immediately communicated that he was not prepared to complete the purchase.
  4. The buyer was young and inexperienced in real estate transactions.

When it comes to contracts, the general rule remains that written agreements are to be viewed as ironclad. As such, parties to a contract can seldom escape their obligations by alleging reliance on prior representations. This is especially true for contracts akin to Agreements of Purchase and Sale, which contain clauses that state that the subject document forms the entire agreement between the parties and neither side can rely on prior agreements or representations, either oral or written. Homebuyers should therefore take all necessary steps to perform their due diligence before they commit to an Agreement of Purchase and Sale.

However, Issa demonstrates that, in certain circumstances, the court will carve out exceptions to this general rule, especially where a vulnerable and inexperienced party can prove that they were misled and taken advantage of.

Author: Daniel Waldman, Lawyer

The author would like to thank Lucas Morini, Student-at-Law, for his assistance with this article.