When Size Does Matter: Misrepresentation Rescinds Real Estate Agreement

It isn’t very often that a purchaser of residential real property is able to rescind, or cancel, a valid Agreement of Purchase and Sale and reclaim their deposit, but a recent decision of the Ontario Court of Appeal provides a good example of one such scenario where this can happen.  In the case of Issa v. Wilson, 2020 ONCA 756, a purchaser of a property in Stouffville, Ontario was permitted to rescind his purchase agreement and reclaim his $50,000 deposit after the seller misrepresented the size of the property.

In this particular case, a young, first-time homebuyer was looking for a large enough property that he could live in with five other people; namely his parents and three sisters. The real estate agent, in this case, acted for both the seller (Wilson) and the buyer (Issa). The seller indicated that the property was around 2100 square feet in size, which was confirmed by the MLS listing, which stated that the property was between 2000 and 2500 square feet. After visiting the property, the buyer was advised by the agent over the telephone to put in an offer for the home before another prospective purchaser made an offer. The buyer subsequently made a purchase offer for the property which the seller accepted, and the next day, the buyer provided the agent with a cheque for the $50,000 deposit on the property.

The problem arose when the buyer received an appraisal on the property as part of the buyer’s mortgage application, which revealed that the property was in fact only 1400 square feet. The buyer asked the agent why the appraisal said this when the property was advertised as being between 2000 and 2500 square feet. With no explanation forthcoming, the buyer sued to rescind the purchase agreement and have the $50,000 deposit returned to him.

Rescission of Contract

Rescission of a contract is a remedy that is available under certain circumstances. One such circumstance is when one party to the contract has made a misrepresentation to the other. (Other circumstances might include where a genuine mistake has been made, or if a contract was signed under duress). A rescission means that the contract is effectively cancelled, relieving all parties of their obligations under the contract. In the case at hand, this meant the buyer was not obligated to pay the agreed deposit, and therefore was entitled to have the deposit returned. However, it is important to be aware that rescission is not a widely used remedy. It isn’t just any misrepresentation that will trigger the right to rescind a contract.

The Misrepresentation Must be Significant

If the misrepresentation was on a fairly trivial matter regarding the house or didn’t affect the intention of the buyer to purchase the property, chances are that rescission would not be available as a remedy. The misrepresentation needs to be “material” to the agreement and one which induced the purchaser to make the purchase and thus enter into the agreement.

At trial, the judge ruled that the misrepresentation in the size of the property was material and thus did matter. The buyer had specifically indicated that he wanted a property large enough to house his extended family. It was undisputed that both the owner of the property and the real estate agent provided misinformation that acted as an inducement to get him to purchase the property.

Buyer Relied on Representations When Deciding to Purchase Home

The case went to the Court of Appeal largely because of the issue that the buyer had visited the property twice and had seen for himself how large the property was. The real estate agent argued that the two visits effectively nullified the misrepresentation of the size of the property. To put it another way, that the misrepresentation was “immaterial” because the buyer saw the property for himself and should have relied upon his own observation.

The existence of this reliance was supported by the fact that the buyer contacted the agent immediately to say he wasn’t prepared to continue with the purchase once he discovered that the property was much smaller than that. The substantial discrepancy in the size was considered significant by the Courts, as was the fact that the agent in question was negligent in that he never actually checked for himself what the size of the property was before he listed it at the incorrect size.

Executing Real Agreements of Purchase and Sale

Misrepresentation and rescission cases in real estate law are very fact-specific. There have been cases where misrepresentation of the size of the property has not led to the rescission of a contract. In some instances, the discrepancy in the representation of the property size and the actual property size may not have been that significant and the buyer would have bought the property anyway.

In other instances, there may not have been negligence involved on the part of the selling party or its agent. Whether the purchaser is a first-time buyer or is fairly young is also a context that the courts may consider (it was even deemed relevant in the Issa case).

This case demonstrates the benefit of consulting with a skilled real estate lawyer before entering into a purchase contract, whether you are a buyer or a seller of a property. The complexities involved in determining where a misrepresentation has happened or when it might trigger the ability to rescind a contract are not easy to determine and could depend on a legal interpretation of the facts in question.

The lawyers at Prudent Law in Mississauga are trusted advocates with respect to real estate transactions and real estate litigation. We provide practical advice and passionate representation in both residential and commercial real estate deals. If you are contemplating the sale or acquisition of a piece of real property and you’d like to discuss it with one of our experienced real estate lawyers, please call us at 905-361-9789 or contact us online.

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