The “entire agreement” clause in a purchase contract, writes Bob Aaron, will always be a complete bar to any claims by a buyer for an innocent misrepresentation outside an agreement of purchase and sale.
A decision of the Ontario Superior Court last summer is a reminder to home buyers that they cannot rely on the contents of a published listing unless any details of importance are set out in the agreement of purchase and sale.
In April 2022 Rajnish and Veena Sharma agreed to buy a luxury house on McArthur Heights in Brampton for $2,900,000.
According to the listing the home contains 6,900 square feet of living space, of which about 4,800 were above ground. It has nine bedrooms including three in the basement, and five bathrooms plus one in a cabana adjacent to the in-ground heated pool. There is a three-car garage and room to park another eight cars on two driveways.
The listing stated that the municipal taxes on the property were $7,297.03 for 2021. The amount of the taxes was important to the Sharmas because they wanted to make sure they could afford all the expenses related to owning the property.
Prior to closing the Sharmas learned from their mortgage broker that they could not obtain financing because the quoted taxes were incorrect due to a discrepancy in square footage. The Municipal Property Assessment Corporation (MPAC), which establishes assessments for all Ontario properties, had relied on an incorrect square footage resulting in a number which was substantially lower than the true figure.
The discrepancy in size arose as a result of the fact that the owners had enlarged and renovated the property, but the improvements had not yet been entered into the MPAC database. Since a correction to the assessment would result in an increase in taxes going forward, the Sharmas were unable to secure financing in time for closing.
Following the reassessment, the taxes did in fact increase by $2,753 to $10,050.
When the Sharmas refused to close, the Langens resold the property at a loss of $400,000 plus $25,000 in carrying costs.
They sued the buyers for their losses and forfeiture of the $100,000 deposit.
The Sharmas in turn claimed a refund of their deposit. They argued that they were entitled to rescind the transaction because the sellers misrepresented the amount of the taxes and had acted in bad faith by refusing an extension of closing to allow more time to arrange financing.
The dispute was heard last June by Judge Ivan Bloom as a summary application without a trial since the facts were not in dispute.
Much of the case centred on the effect of what is known as an “entire agreement” clause in the purchase and sale contract. That clause, which is standard in every agreement, states that the contract contains the entire agreement between the parties and there is no “representation, warranty, collateral agreement or condition which affects this agreement” other than what is set out in the contract.
In awarding the sellers $425,319.69 and forfeiture of the deposit, Judge Bloom ruled that the buyers were not able to rely on the seller’s innocent misrepresentation of the amount of the taxes.
The entire agreement clause will always be a complete bar to any claims by a buyer for aninnocent misrepresentation outside an agreement of purchase and sale.
Langen v. Sharma, 2024 ONSC 4212 (CanLII), https://canlii.ca/t/k659c