The Ontario Superior Court of Justice has recently reaffirmed the importance of good faith—or the lack thereof—and reasonableness in real estate transactions, particularly when disputes arise over title defects, third-party claims and the operation of the annulment clause in a standard real estate agreement of purchase and sale. Brighton Breeze Ltd. v Noel Property Management Ltd.1 demonstrates the careful balance courts strike between enforcing contractual rights and ensuring fair dealing.
On March 3, 2021, Noel Property Management Ltd. (Noel), as vendor, entered into an Agreement of Purchase and Sale (APS) with Sivanandarajah Sivarajan (Sivarajan), as purchaser, for a waterfront property in Brighton, Ontario. Sivarajan, the sole officer and director of Brighton Breeze Ltd. (Brighton), subsequently assigned the APS to Brighton. Brighton intended to develop a townhouse project on the property.
The APS set out a purchase price of C$950,000, with an initial deposit of C$100,000. The transaction's closing date was originally scheduled for October 1, 2021, but was later extended by mutual agreement to February 28, 2022. The APS afforded the purchaser 120 days to conduct due diligence and included an annulment clause, which stated that, in the event of a valid objection to title, Brighton could elect to: (i) waive any objection to title and close the transaction; or (ii) treat the agreement of purchase and sale as at an end. The relevant clause read as follows:
TITLE: …If… any valid objection to title… is made in writing to Seller and which Seller is unable or unwilling to remove, remedy or satisfy… and which Buyer will not waive, this Agreement… shall be at an end and all monies paid shall be returned without interest or deduction and Seller… shall not be liable for any costs or damages.
During the due diligence period, Brighton raised concerns regarding the use and occupation of the property by third parties. Specifically, Brighton identified a series of informal and verbal arrangements involving the adjacent condominium, Northumberland Standard Condominium Corporation No. 48 (NSCC48), of which Noel was the declarant. These arrangements included the use of docking slips and parking areas on the subject property by NSCC48 unit owners and other parties. Further concerns were raised regarding the use of a laneway identified as "Part 2" of the property, over which Brighton claimed the purchaser would be entitled to an unencumbered right-of-way.
Although Noel initially cooperated in addressing Brighton's concerns—including initiating communication with neighbours and providing historic documentation—the relationship between the parties quickly deteriorated. Brighton began unilaterally engaging with NSCC48 and its property management, taking increasingly adversarial positions regarding dock access and the alleged encroachments. Brighton sent five communications to NSCC48 in September 2021, two of which were sent without Noel's knowledge. Brighton eventually asserted that Noel was obligated to deliver clear title, including the removal of all third-party claims and unregistered interests.
On September 27, 2021, in response to provocations from Brighton, NSCC48 registered a notice on title pursuant to s. 71 of the Land Titles Act, asserting an unregistered interest in the property. NSCC48 also initiated legal proceedings against both Noel and Brighton, seeking declaratory relief regarding its alleged rights. Throughout this period, Noel attempted to advance a settlement with NSCC48 on several occasions. However, Brighton requested that these attempts be withdrawn. Brighton subsequently refused to close the transaction unless Noel removed the s. 71 Notice. In response, Noel asserted that Brighton was obliged to either waive its objection and complete the transaction or invoke the annulment clause in accordance with the APS, and offered to return Brighton's deposit in full. Brighton asserted that Noel had rescinded the APS, as it was unable or unwilling to remove the s. 71 Notice, and that the failure to transfer clear title was a breach of the APS. Noel disputed that it had rescinded the APS and was ready, willing and able to complete the sale as per the APS or, if Brighton elected to treat the APS as at an end under the annulment clause, Noel would return the deposit. Brighton refused to waive its objection but did not expressly invoke the annulment clause, so Noel took the position that the APS was at an end and offered to return the deposit.
Following the collapse of the Brighton transaction, Noel entered into a new purchase agreement with Decent Homes Capital Inc. (Decent Homes) on April 29, 2022, for a purchase price of C$1.5 million. However, this sale quickly became entangled in ongoing litigation. Upon becoming aware of the pending sale to Decent Homes, Brighton commenced legal action seeking specific performance, among other relief. Without notice to Noel, Brighton obtained leave to register a Certificate of Pending Litigation (CPL), which was registered on June 15, 2022. The CPL effectively encumbered the title and obstructed Noel's ability to complete the sale to Decent Homes.
Noel subsequently counterclaimed for damages in the amount of C$1.6 million, representing the lost opportunity to sell the property at a significantly higher price. Noel alleged that Brighton's refusal to close the original transaction and its reliance on claims were barred by the annulment clause, and that its registration of the CPL directly caused the failure of the Decent Homes sale.
Justice Healey stated that if Noel's reliance on the annulment clause was reasonable in the circumstances, the APS came to an end when Brighton failed to make its election on the scheduled closing date of February 28, 2022.
Justice Healey relied on the Supreme Court of Canada's judgment in Mason v Freedman2. In Mason, the SCC considered the effect of a clause providing for requisitions on title and for the right of the vendor to declare the contract null and void if requisitions exist that the vendor is "unable or unwilling" to remove, in an agreement of purchase and sale. Similar to Brighton Breeze, the purchase agreement in Mason contained an annulment clause which provided for termination of the agreement in the event of a valid objection to title that the vendor was unable or unwilling to remedy, and the purchaser was not prepared to waive. The SCC noted that such a provision does not enable one to repudiate a contract because of issues that arise due to their own conduct, and that a vendor who seeks "to take advantage of such a clause must exercise his right reasonably and in good faith, and not in a capricious or arbitrary manner."3
However, there is a distinction between a title defect that existed, with the vendor's knowledge prior to entering into the purchase agreement, and one that was subsequently discovered.4 Justice Healey, citing Business Development Insurance Ltd. v Caledon Mayfield Estates Inc.5, stated that rescission "will not be readily available to a vendor who entered into an agreement recklessly and with full knowledge of their inability to remove the defect in title."
At issue in this case was whether Noel had actual knowledge of the underlying issues that gave rise to the s. 71 Notice. Brighton argued that Noel had knowledge as early as 2009, when NSCC48's counsel raised concerns regarding the easement, parking, and boat ramp access. The court rejected Brighton's argument by stating that any issues with respect to parking on Noel's lands were statute-barred (with the exception of the easement), and that Brighton's actions toward NSCC48 were the primary reason the s. 71 Notice was registered.
Justice Healey held that Noel had, at all times, acted reasonably and in a manner that supported the sale of the property to Brighton prior to relying on the annulment clause. NSCC48 had not made any complaints that would amount to a title issue at the time Noel entered into the APS. It was, in fact, Brighton's aggressive conduct that prompted NSCC48 to register the s. 71 Notice.
Noel also performed its obligations under the APS by putting Brighton to its election and offering, as it was contractually required to do, the full return of the C$100,000 deposit. When the closing date came, Noel tendered its documents and requested Brighton to make its election to waive under section 10 of the APS. Rather than make its election, Brighton alleged that Noel was in breach of the APS by failing to delete the s. 71 Notice and indicated that it would not close unless Noel discharged the s. 71 Notice. After receiving threats of litigation alleging breach, Noel advised Brighton that, since they were unwilling to waive its objection to title, Noel rightly treated the transaction as at an end. Finally, Noel acted reasonably and in good faith when it entered into the Decent Homes purchase agreement, and even though it was not required at law, Noel informed Brighton of the new sale. Justice Healey also found that Brighton had not met the test for specific performance and that the CPL should be discharged for misleading and material non-disclosure of significant facts by Brighton, which would have affected the motion judge's view of the merits.
Justice Healey also referred to Mitz v Wiseman6, noting that the law does not require a vendor to engage in litigation to remove an objection to title. Brighton objected to the conduct of Noel and alleged that Noel had knowledge of the claims from NSCC48 prior to the execution of the APS. Accordingly, based on the decision in Gu v Nothdurft7, Brighton argued that Noel was not able to rely on the annulment clause, as it was aware of the title defect prior to entering into the APS.
Justice Healey reviewed the evidence and concluded that, while there may have been discussions over the years with NSCC48 regarding the use of certain lands, it did not amount to a title defect. Instead, it was the aggressive conduct of Sivarajan, acting on behalf of Brighton, that compelled the registration of the notice in issue. Until that point, there was no title defect, and the vendor was neither reckless nor acting in bad faith in entering into the APS. Further, as Noel did not simply treat the APS as at an end when it determined it could not convince NSCC48 to remove its s. 71 Notice, it put Brighton to its election under the annulment clause, which it was required to do, and offered the return of the deposit.
The court dismissed Brighton's motion for specific performance of the APS and also ordered that the CPL be discharged from title. Summary judgment was granted, dismissing Brighton's claim, and Noel was entitled to costs.
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1 2025 ONSC 2377 [Brighton Breeze].
2 [1958] S.C.R. 48 [Mason].
3 Mason at 487.
4 Supra note 2, at para 98.
5 2015 ONSC 1978.
6 (1971), 22 D.L.R. (3d) 513 (Ont. H.C.)
7 2023, ONCA 480