Canada: Buyers Of Home Entitled To Rescission (1000425140 Ontario Inc. V. 1000176653 Ontario Inc.)

In Ontario, the doctrine of "buyer beware" (caveat emptor) puts the obligation on real estate buyers to take diligent steps to discover any defects with the property before buying it, as those who do not protect themselves with contractual terms or an inspection may be without a remedy after closing. A notable exception to the doctrine of buyer beware arises where a seller has made a fraudulent misrepresentation concerning important facts about the property. A misrepresentation can be a specific statement or an omission of a fact that ought to have been disclosed.

The consequences of fraudulent misrepresentation can include a rescission of the entire transaction, as demonstrated by the Ontario Superior Court of Justice decision of 1000425140 Ontario Inc. v. 1000176653 Ontario Inc., 2023 ONSC 6688 (CanLII).

In early 2023, a couple were looking for a home to start their family together. Their real estate agent identified a property in Burlington, Ontario, that could meet their needs. The registered owner of the property was a numbered corporation owned by the individual defendants. The property was one of their many family assets.

In March 2023, a corporation owned by the couple agreed to purchase the property. The transaction was completed in May 2023. However, the couple occupied their newly purchased dream home for only a few days before moving out, never to return.

The couple moved out of the home after they discovered that it had been occupied by the self-described "Crypto King," Aiden Pleterski. The discovery was prompted by the visit from a stranger shortly after they moved in demanding to know Mr. Pleterski's whereabouts.

An internet search revealed that Mr. Pleterski was involved in fraud claims and hotly contested bankruptcy proceedings. Further investigations with the police and a private security business revealed that Mr. Pleterski had defrauded some "very bad people," that there had been attempted break-ins at the house, and that someone had threatened to burn it down.

None of this information was disclosed by the seller when the property was marketed and sold.

The couple's corporation sued the defendants and brought a motion for summary judgment to rescind the purchase of the property on the grounds of fraudulent misrepresentation.

The plaintiff's owners relied on their evidence that they had no knowledge of the home's prior history and that its relationship with Mr. Pleterski had not been disclosed to them.

There was no question that the listing agreement specifically described the house as a "Private Waterfront Estate Property". The plaintiff further submitted that the property was marketed as "private and secure." Based on the evidence, the motion judge was satisfied that the seller had represented as a fact that the property was private and secure.

The plaintiff also argued that the seller had made a false representation by omitting to disclose the safety risk that existed, which left the false impression that there was no reason to doubt that it would be safe to live at the property.

To rise to the level of being fraudulent, a misrepresentation must be made by a defendant knowing that the statement was false or was reckless as to its truth. Whether or not the seller's statements were false turned primarily on whether or not there was a safety risk at the property at the time it marketed and sold the property to the plaintiff.

The motion judge assessed the evidence concerning the relationship of the defendants to Mr. Pleterski and their knowledge of the safety risks that had arisen regarding the property. There was evidence that the defendants knew that threats were being made against Mr. Pleterski and that unwanted visitors were coming to the property. Mr. Pleterski moved out of the property in mid-2022 and was allowed to stay at another one of the defendants' properties rent-free.

After Mr. Pleterski moved out of the property, a staff member of one of the defendants' companies stayed in the property and was harassed every single day by people looking for the Crypto King. The staff member requested that security be present and his wife refused to live in the property with him.

In December 2022, Mr. Pleterski was kidnapped, held for several days before being released, and roughed up by people demanding a ransom.

The situation grew more dangerous in March 2023, when Mr. Pleterski's trustee in bankruptcy released a report advising that the property was up for sale and that Mr. Pleterski had diverted $1,095,764 of investor funds into it.

Notwithstanding these circumstances, the defendants argued that they did not believe there was any connection between Mr. Pleterski's circumstances and any perceived threat or danger to the property where he had recently lived.

The motion judge did not accept the defendants' position. The property was neither private nor secure. At the time that the defendant marketed and sold the property to the plaintiff, the defendants knew that the property was not safe but falsely stated that it was.

The court also found that the defendants "suppressed the truth" about the property. Silence can amount to a fraudulent misrepresentation where there is dishonest conduct on the part of the defendant intended to (i) deceive the plaintiff by his/her failure to disclose relevant information, and (ii) commit a fraudulent act by such non-disclosure equivalent to that which would prevail had he/she made a false statement knowing it to be false: Perdue v. Myers, 2005 CanLII 30860 (ON SC), at paragraph 31.

The motion judge was also satisfied that the danger posed by Mr. Pleterski's prior occupation and dealing with the property amounted to a latent defect. A "latent defect" in a property is not readily apparent to an ordinary purchaser during a routine inspection, as opposed to a "patent defect" that would be discovered by inspection and ordinary vigilance: McGrath v. MacLean et al., 1979 CanLII 1691 (ON CA); Giancola v. Dobrydnev, 2021 ONCA 793 (CanLII).

In the motion judge's view, the law does not require that the source of a latent defect be located within the property as long as the fact is known by the seller to affect the property. Prior examples in the case law include nearby radioactive waste, a convicted child pornographer across the street, or a garbage dump that posed a health risk. The association between Mr. Pleterski and the property would not have been discovered by a routine inspection of the property.

Further, the latent defect was an ongoing safety risk that rendered the property unfit for habitation and it therefore ought to have been disclosed to the seller.

In the result, the court awarded recission of the agreement to purchase the property and damages equivalent to put the plaintiff in the position it was in before the transaction, including mortgage payments and insurance payments on the house.

The decision reflects the consequences that may arise from a seller's failure to disclose facts that would objectively affect a reasonable buyer's decision to purchase the property. Facts that would cause someone to choose not to live in a home out of justifiable concerns for their family's safety ought to be disclosed to potential buyers. In some markets, a buyer may still choose to complete the transaction notwithstanding the potential concerns, but the circumstances need to be raised. A PDF version is available for download here.

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