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Buyer Claims Seller Failed to Give Clear Title

The buyer, Kennelly, put down $40,000 as a deposit in connection with an agreement to buy property in Niagara-on-the-Lake. At that time, there were several encumbrances registered on title to the property, including a caution from a prior deal that failed to close. The agreement therefore required the seller to remove the caution at her own expense prior to the closing date, which was set for February 14. However, the agreement allowed the seller to delay closing by up to two weeks.
 
On February 13, the seller advised that while she was still working on it, she had not obtained a release of the caution filed on title, and would be unable to close the next day as scheduled. Relying on the two-week extension option, she set a new closing date of February 23.
 
Shortly after, the seller advised Kennelly that she had assigned the purchase agreement to Hashemi, who was a tenant in possession of the property at the time.
 
In the role of seller, Hashemi took steps to have the caution removed from title. Two days prior to the new February 23 closing date, he registered a court order on title which (among other things) contained a direction that the caution was to be discharged. From the perspective of anyone checking the land registry records, the caution itself was not actually withdrawn until a few months later.
 
Kennelly was unaware of Hashemi’s efforts in this regard. What he did know, was that in the time leading up to the February 23 extended deadline, there was a great deal of uncertainty. This included the late-breaking notice of the original seller’s assignment to Hashemi, and indications that Hashemi was having difficulty finding the right lawyer to help with the transaction, since he had switched lawyers multiple times. Kennelly agreed to extend the deal by one additional day, to February 24, but by that day’s end, the registered caution was not yet deleted from the parcel abstract to the property and the seller had not obtained a mortgage discharge statement (as the agreement also required).
 
Since Kennelly was unwilling to extend the deadline any further, the deal did not close. He sued for the return of his $40,000 deposit, claiming that Hashemi’s inability to remove the caution from title was a breach of contract. Hashemi countered that it was actually Kennelly who was in breach, since he had refused to close even though the court order discharging the caution had been registered on title. Hashemi claimed that he had been ready, willing and able to close as agreed.
 
The court reviewed the circumstances, and sided with Kennelly; Hashemi had been in breach. Despite the registered court order, on the closing date he was not in a position to convey title free of encumbrances as he had agreed to do. The caution itself was still showing on title. Nor was there any basis for Kennelly to expect Hashemi to be in a position to convey good title, since his option to extend the closing date had been used up. Having extended it once to February 23, he did not have the right to additional extensions at his discretion within the two-week extension period.
 
Clearly, the court said, a property that was still subject to a caution from a prior putative buyer was not “free of encumbrances” as required by the purchase agreement. The existence of the caution was an impediment to Kennelly’s use and enjoyment of the property, if only because it may impede his access to financing. Hashemi was ordered to return the deposit. See: Kennelly v. Hashemi, 2017 ONSC 5502 (CanLII).