Speight v. Balkwill

 

JOANNE SPEIGHT, AS POWER OF ATTORNEY FOR PAUL BROWN (Applicant / Respondent to Cross-Application) and WAYNE ROBERT PATRICK BALKWILL (Respondent / Applicant to Cross-Application)

 

Ontario Superior Court of Justice

 

Daley J.

 

Heard: May 28, 2008

Judgment: June 16, 2008

Docket: CV-08-0699-00

 

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Counsel: K. Seeback for Applicant / Respondent to Cross-Application

 

L. Keown, S. Sosnovich for Respondent / Applicant to Cross-Application

 

Subject: Property; Contracts; Estates and Trusts

 

Real property — Interests in real property — Co-ownership — Creation and incidents — Tenancy in common.

 

Real property — Sale of land — Option contracts — Exercise of option — Right of first refusal.

 

Cases considered by Daley J.:

 

Mitsui & Co. (Canada) Ltd. v. Royal Bank (1995), 32 C.B.R. (3d) 1, 1995 CarswellNS 59, 1995 CarswellNS 84, 180 N.R. 161, 123 D.L.R. (4th) 449, [1995] 2 S.C.R. 187, 142 N.S.R. (2d) 1, 407 A.P.R. 1 (S.C.C.) — referred to

 

SBS Sealants Inc. v. Robroy Industries Ltd. (2002), 158 O.A.C. 365, 59 O.R. (3d) 257, 2002 CarswellOnt 1306, 2 R.P.R. (4th) 1 (Ont. C.A.) — considered

 

Daley J.:

 

Introduction

 

1   This application is brought on behalf of the applicant by his sister, Joanne Speight, who is his guardian of property and guardian of personal care (the “Applicant”).

 

2   The Applicant seeks an order determining what interest the Respondent has in lands owned by the applicant, municipally known as 19 Beaty Avenue in the City of Toronto (the “Property”).

 

3   The Respondent/Applicant to Cross-Application seeks an order determining what interest the Respondent has in the Property as well as declarations that he owns 18.5 per cent of the property and that he has a valid first right of refusal (“F.R.O.R.”) to purchase the remaining 81.5 per cent interest in the Property.

 

Factual Background

 

4   The Applicant was, at all material times, the owner of the Property and was the Respondent’s landlord during a 16 year tenancy.

 

5   During his tenancy, the Respondent carried out repair and maintenance work at the Property. The Respondent indicates in his affidavit evidence that he had expressed an interest in purchasing the Property from the Applicant and that it was agreed between the Applicant and Respondent that the value of the Respondent’s work and materials, applied to the Property, would be credited towards the price that the Respondent would pay to purchase the Property from the Applicant.

 

6   As the Applicant owed the Respondent $22,855 for work and materials in relation to the Property, the Respondent registered a claim for lien against the Property. An action was commenced by the Respondent against the Applicant, which the Applicant did not defend, and on April 16, 2003, the Respondent obtained a default judgment against the Applicant in the sum of $23,830.51 inclusive of costs.

 

7   On June 3, 2003, the Applicant and the Respondent entered into a written agreement (“the Agreement”).

 

8   The Agreement provided, among other things:

 

(a) the value of the Property at that time was in the sum of $350,000;

 

(b) it was agreed that the total indebtedness owing by the Applicant to the Respondent was $64,750, which represented18.5 per cent of the agreed-to value of the Property;

 

(c) the payment to the Respondent of the sum of $64,750 would be made by way of a transfer of 18.5 per cent of the Applicant’s interest in the Property to the Respondent resulting in a “split ownership” of the Property;

 

(d) the transfer of the 18.5 per cent ownership interest to the Respondent was to be registered by June 30, 2003;

 

(e) the Respondent had “the first right of refusal to purchase” the remaining portion of the Property in the event the Applicant died, moved to another dwelling or required professional care out of the Property.

 

9   The Agreement was drafted and executed by the parties without assistance by lawyers.

 

10   The affidavit evidence submitted by the Respondent discloses that he requested that the Applicant transfer 18.5 per cent ownership interest to him, however, the Applicant failed to do so.

 

11   The Applicant moved out of the Property in March of 2004, at which time the Applicant was found to be mentally incapable of managing his affairs.

 

12   In the Respondent’s affidavit, he further indicates that he made requests of the Applicant’s attorney to carry out the terms of the Agreement however that was not done.

 

13   On August 3, 2004, the Respondent registered against the title to the Property a document entitled “Notice of Option to Purchase” which quoted from the Agreement as follows:

 

I Wayne Balkwill have the first right of refusal to purchase 19 Beaty Ave. In the event of your expiration or you move to another dwelling or in the event that you should require professional care out of residence, I will be able to purchase the remaining portion of the property. All funds will then be forwarded to you or your estate.

 

14   It is asserted by the Respondent in his affidavit filed in support of his cross-application, that in March of 2007, without notice to him, the Applicant’s attorney put the Property up for sale, following which the attorney entered into an agreement of purchase and sale with Alan McFarlane (“McFarlane”) for the sale of the Property to him at the price of $471,500. The agreement of purchase and sale was conditional on the Applicant’s attorney being able to discharge the registrations which the Respondent had put on the title to the Property. The Respondent states in his affidavit that upon becoming aware of the Applicant’s efforts to sell the Property, and without the benefit of having received and considered a copy of the offer submitted by McFarlane, he delivered an offer to purchase the property to the solicitor representing the Applicant’s attorney.

 

15   The relevant terms within the offer from McFarlane were as follows:

 

(a) purchase price — $471,500;

 

(b) closing date — September 20, 2007;

 

(c) McFarlane was to provide a $20,000 cash deposit;

 

(d) the offer was not subject to a financing condition;

 

(e) the offer was conditional upon the Applicant obtaining discharges of the Respondent’s claims against the Property.

 

16   The Respondent’s offer to purchase was delivered in September of 2007 and contained the following relevant terms:

 

(a) purchase price $470,000 — although a copy of the offer from McFarlane was not provided to the Respondent prior to his tendering his offer to purchase, counsel for the Applicant acknowledged during the course of the argument of this application that he mistakenly advised counsel for the Respondent that the purchase price in the McFarlane offer was in the amount of $470,000;

 

(b) closing date October 15, 2007;

 

(c) offer was conditional upon the Respondent obtaining financing;

 

(d) the Respondent agreed to pay a deposit of $90,000.

 

17   I find that the Applicant, by his attorney, entered into a binding agreement of purchase and sale with respect to the Property subject to the conditions mentioned, and those outlined in the agreement of purchase and sale (Exhibit H — the affidavit of Wayne Balkwill of April 15, 2008).

 

18   At the time the Respondent’s offer was tendered upon the solicitor for the Applicant, the Respondent’s solicitor provided a letter dated September 10, 2007, which stated in part:

 

Further to our discussions of September the 7th, 2007, please find enclosed our client’s offer to purchase the property at 19 Beatty (sic) Avenue. As discussed my client would offset the $90,000.00 in outstanding judgments, liens, interest and costs as against the purchase price, leaving your client in exactly the same position, or better.

 

19   Thus, the Respondent’s offer, as amended by his solicitor’s letter, proposed that in lieu of a cash deposit, he would be credited with the sum of $90,000 in regard to outstanding liabilities owed by the Applicant to him. The amount remaining payable to the Applicant at closing would therefore be $380,000 in order to complete the transaction.

 

Analysis

 

20   It was the Applicant’s primary position on this application that the Agreement between the parties granted to the Respondent an option to purchase. It was further the Applicant’s position that the option to purchase was unenforceable in that the Agreement was not under seal or alternatively no consideration passed for the granting of the option.

 

21   It was also the Applicant’s position that as the option to purchase did not contain the required terms to make it a valid and enforceable option (Mitsui & Co. (Canada) Ltd. v. Royal Bank, [1995] 2 S.C.R. 187 (S.C.C.).), no option rights were conferred upon the Respondent.

 

22   It was further the Applicant’s position that it was a condition precedent to the Respondent’s right to exercise the option that a split ownership agreement be executed by the parties and registered by June 30, 2003. This was not done. It is the Respondent’s position that the Applicant failed or refused to sign such an agreement. No evidence was offered by the Applicant as to why such a split ownership agreement was not executed and registered as required by the Agreement.

 

23   In the alternative, the Applicant submits that if the right to purchase granted to the Respondent in the Agreement was to be characterized as an F.R.O.R., it is unenforceable as the Respondent’s offer to purchase did not match the terms and conditions as put forward by the prospective purchaser McFarlane in his offer.

 

24   The Respondent’s position was, that as the result of the Agreement he was entitled to an 18.5 per cent ownership interest in the Property and further that he held an F.R.O.R., which crystallized into an option to purchase which gave rise to a registerable interest in the Property.

 

25   In my view, in entering into the Agreement, the Respondent, in exchange for foregoing immediate payment of monies owing to him by the Applicant received, among other things, an 18.5 per cent ownership interest in the Property. No evidence was offered by the Applicant to contradict the Respondent’s assertion. He had called upon the Applicant to execute a split ownership agreement and have it registered on title by June 30, 2003. In the result, I find that the Applicant breached the Agreement by failing to do so.

 

26   On behalf of the Applicant, counsel submits that the execution and registration of split ownership Agreement was a condition precedent to the Respondent’s entitlement to an 18.5 per cent interest in the Property. In my view, the Applicant cannot rely on his own breach of the Agreement so as to preclude the Respondent from receiving an 18.5 per cent ownership interest in the Property. I find that the Respondent is entitled to that interest.

 

27   The distinction between an option to purchase and an F.R.O.R. was considered in Mitsui & Co. (Canada) Ltd. v. Royal Bank, supra by Major J. where he stated at para xxiii:

 

XXIII The meaning of an option to purchase was considered in Canadian Long IslandPetroleum’s Ltd. v. Irving Industries (Irving Wire Products Division) Ltd., [1975] 2 S.C.R. 715, per Martland J. at pp. 731-32

 

An option gives to the optionee, at the time it is granted, a right, which may be exercised in the future to compel the optionor to convey to him the optioned property ….

 

In other words, the essence of an option to purchase is that, forthwith upon the granting of the option, the optionee upon occurrence of certain events solely within his control can compel the conveyance of the property to him.

 

In that case, it was held that the agreement in question created a right of pre-emption and not an option to purchase. The difference between an option and a right of pre-emption is that an option gives the optionee the unilateral right to exercise the option and thereby require the optionor to sell the subject matter of the option upon prearranged terms. The right of pre-emption, or right of first refusal, does not give the grantee the unilateral power to compel the grantor to sell the property in question. Instead, the grantor has the sole power to decide whether to make an offer. It’s only at that point that the grantee (or lessee) is given the opportunity of purchasing the property. A right of first refusal is a commitment by the grantor to give the grantee the first chance to purchase should the grantor decide to sell.

 

28   The paragraph within the Agreement granting to the Respondent the “first right of refusal” to purchase the Property, on a plain reading, provides preconditions to the exercise of the F.R.O.R. in that one of the described events must occur, in addition to there being implicitly an intention on the part of the Applicant to sell the Property, which in this case is evidence by the Applicant, entering into a binding agreement of purchase and sale with McFarlane. In my view, the moment the Applicant, by his attorney, entered into the agreement of purchase and sale with McFarlane, the Respondent’s rights with respect to the F.R.O.R. crystallized and he was then entitled to exercise his first right of refusal. One of the required events had occurred, namely, the applicant moved from the Property and, according to the Respondent’s affidavit, he was institutionalized in March of 2004.

 

29   In the decision SBS Sealants Inc. v. Robroy Industries Ltd. (2002), 59 O.R. (3d) 257 (Ont. C.A.), the Court of Appeal considered the language in a lease purporting to grant an F.R.O.R. and determined, to what extent, the Court can imply terms to be read into such an Agreement.

 

30   The language of the grant contained in the lease in that case read:

 

If the landlord, during the term of this lease, finds a qualified purchaser for the building, the tenant will be given the right of first refusal to purchase same.

 

31   Carthy J.A. concluded that, although the language of the grant was somewhat simple and lacking in detail, it was still an enforceable F.R.O.R.

 

32   Carthy J.A. stated at para. 16:

 

16. The purpose of the right of first refusal was to give the tenant an opportunity to match any offer the owner was prepared to accept. Such offers might be open for hours or days and the time for presentation, consideration and an election must, of necessity, be whatever is reasonable in the circumstances. A time for acceptance would be a sensible term if the right of first refusal also provided that the owner must obtain an offer from the proposed purchaser conditional on the non-exercise of the right of first refusal. In that case the offerer would know and be bound by the time provision in the option. However, where, as here, all offers that the owner was prepared to accept — even unilateral ones — are subject to the right of first refusal, a specific time provision would be counterproductive in that it could not be written to embrace all potential offers and the timing provisions in them. An implied term must be read into such agreements before the Court; namely, that the offer will be presented and the right exercised in a reasonable time given the circumstances that exist when the offer is made.

 

33   In this case, the Applicant did not provide to the Respondent a copy of the McFarlane offer. It was acknowledged by counsel for the Applicant that he mistakenly advised counsel for the Respondent that the McFarlane offer was in the sum of $470,000. It was confirmed by counsel that no other information concerning the McFarlane offer was provided to the Respondent or his counsel prior to the Respondent delivering his offer.

 

34   It was submitted on behalf of the Applicant that the Respondent’s offer did not contain the same terms and conditions as the McFarlane offer.

 

35   In view of the Applicant’s failure or refusal to provide the Respondent with a copy of the McFarlane offer, I conclude that the Respondent did all he could reasonably do in the circumstances to tender an offer in the exercise of his F.R.O.R. (SBS Sealants Inc. v. Robroy Industries Ltd., supra).

 

36   Having acknowledged that the wrong purchase price with respect of the McFarlane offer was communicated to the Respondent’s counsel, in comparing the offers, counsel for the Applicant submits that the deposit amount, stated in the Respondent’s offer, at $90,000 was not actually to be advanced or paid, and as such it is the Applicant’s position that the deposit amount was not actually being offered.

 

37   No evidence was offered as to how the sum of $90,000 was determined as it was referenced in the Respondent’s solicitor’s letter of September 10, 2007.

 

38   The Respondent’s offer, as amended by his solicitor’s letter, would have resulted in a net purchase price of $380,000.

 

39   The Applicant had acknowledged an indebtedness to the Respondent of $64,750 in the Agreement. In consideration for that sum, the Applicant agreed to convey to the Respondent an 18.5 per cent interest in the Property as well as grant the F.R.O.R.

 

40   Thus, the $64,750 represents past consideration and as such that amount could not again be treated as consideration to be applied to the purchase price in the Respondent’s offer, as part of the $90,000 credit against the deposit that the respondent claimed in accordance with the terms of his solicitor’s letter of September 10, 2007.

 

41   In my view, the Respondent has exercised his F.R.O.R., however, the offer presented is not on the same or substantially the same terms as the McFarlane offer and as such the Respondent’s rights in the F.R.O.R. have been exhausted.

 

Conclusion

 

42   In the result, an order shall issue in the following terms:

 

(a) declaring that the Respondent owns 18.5 per cent of the Property pursuant to the Agreement of June 3, 2003;

 

(b) ordering that the Applicant’s power of attorney forthwith register on title to the Property a transfer in favour of the Respondent of the 18.5 per cent interest in the Property as tenant in common;

 

(c) declaring that the Respondent had a valid first right of refusal to purchase the remaining 81.5 per cent interest in the Property, and having exercised that right, that right was exhausted such that the Notice of Option to Purchase registered by the Respondent on August 3, 2004, as instrument number A-T-5663667 is no longer a valid and proper registration.

 

43   In the event the parties cannot agree on the issue of costs, counsel on behalf of the Applicant may deliver written submissions within 15 days from the release of these reasons, to be followed by submissions on behalf of the Respondent within 15 days thereafter. The submissions should be limited to two pages in addition to a costs outline.