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Collapsing Real Estate Transactions: "Specific Performance" Revisited
Posted in Real Estate

Frequent readers of this blog may recall a post from October 2012, in which we wrote about a Supreme Court of Canada decision that some believed, at the time, would result in the “death knell” for the remedy of specific performance in Canada at least in respect of commercial real estate transactions.  Since then, many courts have indeed grappled with whether that particular remedy, which permits a purchaser to conclude a transaction and buy the property in question by way of a court order as opposed to obtaining an award of damages as compensation, is still part of the arsenal of remedies potentially available to aggrieved purchasers.

In a decision which was released this past Friday, the B.C. Court of Appeal, in practical terms, has confirmed that reports of the demise of the remedy of specific performance have been greatly exaggerated.

In that case, a vendor refused to close on a sale of commercial property in Burnaby, B.C.  The purchaser, who was still interested in buying the property, sued and sought as one of its remedies, an order for specific performance whereby it asked the court for an order allowing the sale to go through despite the alleged breach by the vendor.  The purchaser therefore filed a Certificate of Pending Litigation (“CPL”) against title to the property.  The vendor brought an interlocutory application under the Land Title Act to have the CPL removed as it argued that it was suffering hardship and inconvenience by the registration of the CPL on title to its land and that in any event the purchaser ought not to be entitled to the remedy of specific performance.  The Chambers Judge removed the CPL with the posting of $1.5million security by the vendor and asserted that the remedy of specific performance was not available to this purchaser.  The purchaser therefore filed an appeal.

The Court of Appeal, in a unanimous decision, held that on an interlocutory application pursuant to the Land Title Act, the Court is not fully and finally determining whether specific performance is in fact available to a purchaser but rather the test at that stage is whether it is “plain and obvious” that a claim for specific performance will not succeed after a trial on the merits.  Absent compelling evidence in that regard, the claim for specific performance ought to proceed to trial.  The Court noted that the landmark Supreme Court of Canada decisions in Semelhago and Southcott Estates were following a trial of those matters and although the legal principles arising from those cases regarding the availability of specific performance are clearly to be applied, it is likely only after a trial where those issues can be finally determined by the Court.  If there is a triable issue on the availability of specific performance, a CPL which is filed based on that remedy ought not to be removed.

Given the decision in Youyi, it is clear that at least for the time being in B.C., a claim for the remedy of specific performance in connection with failed commercial real estate transactions, together with the usual clogging of title to property by the filing of a CPL, is still alive and well and is a valuable and useful tool for aggrieved purchasers.  For landowners’, where property becomes encumbered by a CPL, it may prove helpful to move quickly to trial (or summary trial) in order to have a CPL removed, and a claim for specific performance dismissed, as opposed to seeking to have the CPL removed by way of an interlocutory application very early on in the litigation.  Once again, the seeking of timely legal advice regarding parties’ rights and remedies in response to a collapsing real estate transaction is critical.  We have argued as much on many previous occasions on this blog and Youyi provides yet another example of why that is extremely important.

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This blog is authored by members of the Litigation and Dispute Resolution Department. We follow new and interesting issues emerging in the legal and business communities. The wide range of experience among the members of our litigation group will provide a diverse and insightful examination of current legal trends and topics. Our goal is to provide a source of valuable information and insight on a wide variety of matters for our readers.

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