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In a recent case the court was asked to rule on several issues, including: (1) whether the parties had reached accord on a development property’s selling price, as fixed by formula; (2) if so, whether the seller breached the resulting agreement of purchase and sale; and (3) whether the interest provisions in a mortgage loan arrangement between the parties (with buyer as mortgagee) was in breach of s. 8 of the federal Interest Act. 

The background facts were these: The seller owned a 45.7-acre development property in Caledon. In 2017, the seller began to negotiate with the buyer, but it ultimately took the parties nearly 2.5 years to come to terms. Part of the struggle was that the seller’s land was designated under a local by-law as an environmental policy area. It was subject to restrictions as to the portions that could be developed – which according to early analysis fell anywhere between 6.98 acres on the low end, and 31 acres on the high end. The municipality was still making its determinations, as part of an ongoing process that could take years.

Given that uncertainty, the parties had agreed to negotiate price based on a formula:  The total would be calculated at $450,000 per developable acre, as determined at closing. There would also be post-closing adjustments for any additional acres approved for development by the municipality within the next three years.

Eventually, after many drafts and amendments, the parties seemed to reach accord in early 2019, and set a closing date for July 10 of that year. However, a few adjustments still remained around the acreage tally; the buyer also asked for a 60-day extension.  The seller then resiled from all further talks, and refused to close. It claimed there was no deal at all, pointing to the lingering uncertainties around the total acreage. Even assuming an agreement was reached, which to the seller’s mind was for the full 31 acres, it felt the deal had now expired. This led to a dispute, and litigation ensued.

First, the court rejected the seller’s position that there was never a binding agreement of purchase and sale at all. Admittedly, the final price is a key and necessary term of any legal contract, and in this case the written agreement did not specify a single figure. Nonetheless, on the evidence the parties had agreed, after lengthy negotiations and due diligence, that the sale covered 6.98 acres at $450,000 per acre. They had also set out a clear formula in case additional acres were approved and became eligible for redevelopment during the three-year post-closing period; it called for the buyer to make further payments accordingly. The court found sufficient certainty on all these points. It also disbelieved the seller’s claim that he thought the deal was for 31 acres, or that it had now expired. Given the parties’ continuing focus on working through various conditions, waivers and extensions, they both treated the deal as still being “alive” throughout.

As such, it was not the buyer but rather the seller who had breached the agreement, by refusing to close in July of 2019.  However, the court rejected the buyer’s claim for specific performance, noting that this remedy is rarely granted for investment properties, where an award of damages is usually sufficient to compensate the buyer for the lost opportunity. The present scenario was just such a case.

Next, the court addressed the mortgage dispute between these same parties. It arose from the buyer’s agreement to advance the seller $600,000 for six months, with “no interest payable for the Term”.  The balance due date was set at July 10, 2019 (i.e. the closing date for the aborted land deal). The interest rate was set at 0 percent until that balance due date, after which point it would be 12 percent calculated monthly.

When the deal collapsed, the seller acknowledged owing the principal sum, but took issue with paying interest. The buyer/mortgagee demanded pre- and post-judgment interest at 12 percent, calculated monthly starting on the mortgage maturity date. The seller claimed this offended s. 8 of the federal Interest Act,and was unenforceable. That provision voids any clause that imposes a higher interest rate on arrears than on money not in arrears.

The court examined the facts. It noted that it was the substance, not the form, of an impugned clause that determines whether it violates s. 8, which has a “results-oriented focus”.  If the interest rate increases only by virtue of the passage of time, unrelated to arrears, then it will not run afoul of that provision.

In this case, the mortgage maturity and its default happened to coincide. On the balance due date, one of three things could have occurred: (1) the balance could have been paid in full; (2) the buyer would have purchased the property, with the amount of the mortgage being credited toward the purchase price it owed; or (3) the mortgage would have come due, and not been paid.  In the first two scenarios, no interest would have been payable at all.

In the context of the third scenario, s. 8 was clearly offended.  The court rejected the buyer’s claim that the 12 percent interest would only have been payable for a single day (i.e. July 10, 2019) which fell on the last date of the mortgage, but before the funds were due. Instead, no interest was payable at all during the mortgage term, including its very last day.  But if the mortgage was not repaid on its balance due date, the 12 percent rate would be triggered, and would start to accrue the next day.  As the court noted, this outcome was triggered by non-repayment, not by the mere passage of time. The provision accordingly breached s. 8 of the Interest Act, and was unenforceable.  The court granted judgment for the full $600,000 respecting the mortgage funds advanced, but with no interest added.  See Rabinowitz v. 2528061 Ontario Inc., 2024 ONSC 2357.