Written By Simon Crawford and Mykala Way

It's generally accepted good law that, in order to create a valid contract for the purchase and sale of real property, the agreed-upon terms must include, at a minimum, the identity of the parties, the description of the property at issue and the purchase price. It is also generally understood that pursuant to the statutory requirement set out in section 4 of the Statute of Frauds¹, agreements for the purchase and sale of real property must be in writing to be enforceable. It almost seems intuitive that a purchase agreement must be put down in writing of some sort.

That said, courts have been increasingly tolerant of informal expressions of what constitutes evidence of a written contract. Memoranda and emails have been accepted as constituting a contract. In fact, in a recent Saskatchewan judgement, South West Terminal Ltd. v Achter Land, a Saskatchewan judge ruled that the "thumbs up" emoji is a valid way to confirm acceptance to an agreement.

But what if all or some of the essential terms of the real estate contract were evidenced by oral agreement? Interestingly, the law recognizes an exception to the rule in the Statute of Frauds where the doctrine of "part performance" of the real estate contract can be established.

A recent application of the doctrine is illustrated in the Ontario case, 2730453 Ont. Inc. v. 2380673 Ont. Inc.², in which the court not only upheld an unwritten agreement for the sale of land (on the basis of part performance), but also ordered the specific performance of that contract—a remedy rarely granted with respect to commercial real estate transactions and very rarely granted in the context of a non-written commercial real estate contract.

Facts of the Case

The plaintiff and defendant entered into negotiations regarding the sale of the defendant's land. At the request of the defendant no agreement of purchase and sale was signed. Nevertheless, both parties moved forward with the transaction, and eventually the purchaser tendered the closing documents and purchase price. The defendant however, refused to close the transaction and the purchaser consequently brought an action against the defendant for breach of contract. The defendant relied on section 4 of the Statute of Frauds in justifying its conduct, stating that any oral agreement between it and the plaintiff was unenforceable because the Statute of Frauds requires an agreement for the sale of lands to be in writing and signed by the party to be charged. The plaintiff argued the Statute of Frauds does not prevent the enforcement of the agreement for two reasons. First, there was sufficient written evidence to satisfy the written requirement, and second, the doctrine of part performance applied.

In its decision, the court found that although none of the documents provided by the plaintiff described the terms of the agreement sufficiently to meet the requirements of s. 4. of the Statute of Frauds, the plaintiff was saved by the doctrine of part performance, which holds that a verbal agreement that has been partly performed will be enforced.

There are two requirements that must be met for an agreement to be saved by part performance. First, the acts of part performance must be connected to the land and second, the conduct, in and of itself, must indicate that there has been some dealing with the land.

In the case at hand, the court found that the following acts of part performance by the plaintiff were unequivocally connected to the land in dispute:³

1. obtaining an environmental assessment of the property;
2. obtaining survey and title searches on the property;
3. conducting other due diligence related to the property;
4. negotiating and preparing the commission agreement among the purchaser and the brokers;
5. retaining legal counsel to close the agreement;
6. drafting, revising, and negotiating the written agreement of purchase and sale for the property;
7. delivering the documents required on closing; and
8. obtaining, delivering and tendering the certified cheque for the full amount of the purchase price;

and the following acts of part performance by the defendant were connected to the property in dispute⁴:

1. retaining legal counsel to close the agreement for the purchase and sale of the property;
2. negotiating over the status of the easement on the property;
3. reviewing and revising the draft agreement of purchase and sale, including providing a revised version of Schedule A to that agreement to the purchaser and obtaining the consent of the purchaser to the revisions;
4. providing draft copies of the vendor’s closing certificate and statutory declaration and the owner executing those documents; and
5. negotiating the method by which the purchaser would deliver the agreed upon purchase price on closing.

The two requirements for part performance being satisfied, the court moved on to consider what the appropriate remedy should be.

The plaintiff sought specific performance of the contract while the defendant argued for damages. In determining whether the forced conveyance of land, rather than damages, would be appropriate, the court weighed three factors:

1. the nature of the property involved;
2. the related question of the inadequacy of damages as a remedy;
3. the behaviour of the parties, having regard to the equitable nature of the remedy⁵.

Nature of the Property

Specific performance should only be granted where the successful party proves that the property is "unique" or, in other words, that "its substitute would not be readily available."6 In this case the judge determined that the disputed property was unique in that it was immediately adjacent to the property owned by the plaintiff, and that the plaintiff had specific intentions to develop the lots together in a single development. Because the properties on the other side of the defendant's land were not at the time for sale, the disputed property was found to be 'unique' in that there was no adequate substitute.

Adequacy of Damages

The Supreme Court of Canada has held that courts should be reluctant to award specific performance of contracts for property purchased solely as an investment, since money damages are well-suited to satisfy purely financial interests.⁷ In this case the plaintiff intended to fold the disputed property into the land it already owned for ongoing commercial and developmental purposes. The court therefore determined that specific performance would better serve justice between the parties.

Conduct of the Parties

Finally, the court briefly noted that equitable relief may be refused if the party seeking relief has been guilty of misconduct in relation to the contract that party seeks to enforce.[8] However in this case the plaintiff had clean hands and there was accordingly no reason to deny equitable relief.

Conclusion

2730453 Ont. Inc. v. 2380673 Ont. Inc. serves as an important reminder that enforcing the intention of the parties lies at the heart of the doctrine of equity. Part performance is compelling evidence of intention and ultimately may be relied upon to evidence the existence of a wholly or partially unwritten real estate purchase agreement.

What this means for buyers and sellers is that they must be especially careful in how they (or their lawyers or agents) conduct themselves before a written contract for the sale of land is entered into.

A party may be "too clever by half" in leading the other party down the garden path on a transaction, agreeing to the essential terms of the sale without a formal contract and allowing the other party to rely on and perform those terms, only to find that the law of equity is intolerant of formality over fairness.

If you have any questions, please reach out to the authors of this blog or a member of the Bennett Jones Commercial Real Estate group.