A verbal agreement may feel sufficient when buying or selling a home between family members. After all, parents, children, siblings, and other relatives often rely on trust rather than formal paperwork when arranging the transfer of property.
However, a family relationship does not eliminate the need for clear contractual terms. A dispute between a father and daughter over the sale of a Mississauga home demonstrates the risks of relying on a verbal agreement for a real estate transaction.
The case of Downey v. Arey began in the Ontario Superior Court of Justice and was later appealed to the Ontario Court of Appeal. In its September 29, 2022 decision, the Court of Appeal upheld the finding that there was no enforceable agreement because the parties had not reached sufficient agreement on the purchase price.
The case provides an important lesson for anyone considering a family property transfer: put the agreement in writing and clearly document every essential term before relying on the transaction.
Verbal Agreement to Purchase a Family Home
The dispute involved a Mississauga, Ontario home owned by Douglas Arey. His daughter, Heather Downey, and her partner, Francesco Marchese, lived in the home with their children.
The parties agreed that Mr. Arey would sell the home to his daughter and her partner for $850,000, with an original closing date of August 31, 2016.
The difficulty arose because the parties did not have the same understanding of what the $850,000 figure actually represented.
The purchasers maintained that they were entitled to a further $100,000 family discount at closing, effectively bringing the amount payable to $750,000. Mr. Arey maintained that the $850,000 purchase price already reflected a $100,000 family discount from the home’s value.
The parties also disagreed about whether the closing date had been extended to May 31, 2017.
When Mr. Arey refused to complete the sale, the purchasers commenced legal proceedings seeking, among other remedies, specific performance and damages.
The absence of a written agreement left the court to determine what the parties had actually agreed to.
What Happened in Downey v. Arey?
At trial, the Ontario Superior Court of Justice found that there was no enforceable agreement for the sale of the property because the parties had not agreed on a fundamental term: the purchase price.
Although both sides referred to $850,000, their understanding of the price differed by $100,000.
The purchasers said the $100,000 family discount was still to be applied at closing. Mr. Arey said the $100,000 discount had already been incorporated into the $850,000 purchase price.
The trial judge concluded that each side honestly believed its own version of the agreement. From the perspective of an objective, reasonable bystander, however, the parties had not reached agreement on the purchase price.
The purchasers appealed the decision.
Ontario Court of Appeal Upholds the Decision
On September 29, 2022, the Ontario Court of Appeal released its decision in Downey v. Arey, 2022 ONCA 673.
The Court of Appeal dismissed the appeal and upheld the trial judge’s finding that there was no enforceable agreement for the purchase and sale of the home.
The Court specifically agreed that the $100,000 difference was material. It also confirmed that the correct question was whether an objective, reasonable bystander would conclude, considering all the circumstances, that the parties had agreed on the purchase price.
The Court of Appeal did not need to determine the purchasers’ other arguments because the lack of agreement on the purchase price was sufficient to dispose of the appeal.
The case therefore provides an important modern Ontario authority on the risks associated with uncertain terms in oral real estate agreements.
Why the Purchase Price Was So Important
The purchase price is a fundamental term of an agreement of purchase and sale.
In Downey v. Arey, the problem was not simply that the parties used different words to describe the same price. Their positions resulted in a material $100,000 difference in the amount ultimately payable.
The purchasers understood that the $850,000 price would be reduced by another $100,000 at closing.
The father understood that the $850,000 figure had already been reduced by the $100,000 family discount.
That difference was significant enough for the Court to conclude that there was no agreement on the purchase price.
This illustrates why statements such as “we agreed on the price” may not be enough. The parties should document the exact purchase price and clearly state any gift, family discount, credit, adjustment, financing arrangement, or other amount that could affect the final amount payable.
Can a Verbal Real Estate Agreement Be Enforced in Ontario?
Ontario law generally imposes writing requirements on contracts involving the sale of land.
Section 4 of Ontario’s Statute of Frauds provides that an action relating to a contract for the sale of land generally requires the agreement, or a memorandum or note of it, to be in writing and signed by the party to be charged or an authorized person.
This does not mean every oral discussion about real estate is automatically meaningless. There are circumstances in which equitable principles, including part performance, can affect the application of the writing requirement.
That issue was relevant in Downey v. Arey. The parties acknowledged that the purchasers had moved into the home and undertaken substantial renovations in reliance on the alleged agreement. As a result, the writing requirement under the Statute of Frauds was not the ultimate reason the purchasers failed to establish an enforceable agreement. The central problem was that the parties had not agreed on an essential term of the alleged contract.
Therefore, relying on part performance as a substitute for a properly documented agreement can be risky. It is much safer to establish the terms of a real estate transaction in writing before money is spent, renovations begin, or possession changes.
Also Read: Beneficial Ownership Requirements for Ontario Corporations
What Does “Meeting of the Minds” Mean in a Real Estate Contract?
A valid contract requires more than a general intention to complete a transaction.
The parties must agree on sufficiently certain essential terms. An oral discussion can become difficult to enforce when each party has a different understanding of an important part of the proposed transaction.
In Downey v. Arey, the parties may have shared an intention to transfer the home, but their disagreement about the final purchase price prevented the court from finding an enforceable agreement.
The Court of Appeal confirmed that an objective assessment is required. The question is not simply what each person privately believed. The court considers whether an objective, reasonable person would conclude from the circumstances that the parties had agreed on the essential term.
This distinction is particularly important in family transactions, where informal conversations and assumptions can replace formal negotiations.
Specific Performance and Real Estate Agreements
Specific performance is an equitable remedy that may require a party to carry out the contractual obligation rather than simply paying damages.
Purchasers sometimes seek specific performance in real estate disputes because a particular property may have characteristics that cannot easily be replaced with money.
However, specific performance depends on the existence of an enforceable contractual obligation.
In Downey v. Arey, the purchasers sought specific performance of the alleged agreement. The trial judge found that there was no enforceable agreement because the parties had not agreed on the purchase price. The Court of Appeal upheld the threshold finding that there was no enforceable agreement.
This demonstrates an important practical point: before asking a court to enforce a real estate agreement, the party seeking enforcement must first establish that an enforceable agreement actually exists.
What Happened to the Renovation Costs?
The purchasers had spent a substantial amount renovating the property.
Although the court found that there was no enforceable agreement for the purchase and sale of the home, the purchasers were awarded damages for their proven renovation expenses at trial. The reported award was approximately $163,259.
The purchasers were also permitted to remain in the home subject to conditions while the property was marketed for sale.
The result demonstrates why the absence of a valid purchase agreement can create consequences far beyond the original disagreement about price. Years of litigation can arise over ownership, renovations, expenses, possession, and the parties’ respective expectations.
What Should Be Included in a Family Real Estate Agreement?
A family property transaction should be treated with the same care as an arm’s-length real estate transaction.
A written agreement should clearly identify the essential terms, including:
- The full legal names of the buyer and seller
- The legal description and address of the property
- The agreed purchase price
- Any family discount, gift, credit, or price adjustment
- Deposit requirements
- The closing date
- Possession arrangements
- Responsibility for property taxes, insurance, utilities, and other expenses
- Financing conditions, if applicable
- Any included fixtures, appliances, or other items
- Conditions that must be satisfied before closing
- Responsibilities for repairs or renovations before closing
- What happens if the transaction does not close
- Any amendments or extensions to the agreement
Changes should also be documented rather than left to informal conversations.
For example, if the parties initially agree to close on August 31 and later decide to move the closing date, that change should be recorded in writing and signed by the appropriate parties.
Ontario’s real estate regulatory framework also recognizes the importance of written agreements. For registrants representing clients in real estate transactions, Ontario regulations require best efforts to ensure agreements dealing with the conveyance of an interest in real estate are written and legible.
Why Family Real Estate Transactions Need Extra Care
A family transaction can appear simpler than a conventional real estate sale because the parties already know and trust each other.
That familiarity can actually create additional risks.
Family members may use terms such as “I’ll give you a discount,” “you can pay me later,” or “we’ll work out the details before closing.” Each person may understand those statements differently.
A parent may consider a discount to be a gift. A child may consider it part of the agreed purchase price. One party may believe a closing date is flexible while the other considers it fixed.
These differences can become much harder to resolve months or years later, particularly when property values have changed.
A written agreement gives everyone a common record of what was actually agreed.
Key Lessons from Downey v. Arey
The 2022 Ontario Court of Appeal decision provides several practical lessons for anyone considering a family property transfer:
- Family relationships do not replace a written contract.
Trust between family members does not eliminate the possibility of disagreement. - The purchase price must be clear.
Any discount, gift, credit, or adjustment should be expressly documented. - Closing dates should be documented.
Any extension or amendment should be recorded in writing. - Oral agreements can create evidentiary problems.
Years later, the parties may honestly remember the same conversation differently. - Renovating a property does not necessarily establish that a valid purchase contract exists.
Part performance may affect the application of the Statute of Frauds, but it does not automatically resolve uncertainty about essential contractual terms. - Legal advice should be obtained before the transaction progresses.
Getting advice before money is paid, renovations begin, or possession changes can help identify problems while they are still manageable.
Protect Your Family Property Transaction with a Written Agreement
Downey v. Arey is a strong reminder that informal family arrangements can result in significant legal disputes when important terms are not documented.
The Ontario Court of Appeal’s 2022 decision confirmed that the disagreement over a $100,000 family discount was material enough to prevent the alleged oral agreement from being enforceable.
If you are buying, selling, transferring, or otherwise dealing with real estate between family members, it is important to clearly document the transaction and obtain appropriate legal advice before relying on an informal arrangement.
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