Court Interprets Grow House Clause
On 24 May 2018, the Ontario Court of Appeal released its decision in Beatty v. Wei related to the interpretation of the “grow house” clause in common usage in Ontario real estate forms.
The clause reads as follows:
“The Seller represents and warrants that during the time the Seller has owned the property, the use of the property and the buildings and structures thereon has not been for the growth or manufacture of any illegal substances, and that to the best of the Seller’s knowledge and belief, the use of the property and the buildings and structures thereon has never been for the growth or manufacture of illegal substances. This warranty shall survive and not merge on the completion of this transaction.”
In the case at hand, Wei purchased a property from Beatty and this same clause appeared twice in the Agreement, both in Schedule “A” and Schedule “B”.
Wei’s real estate agent determined that the property had been a former marihuana grow house. Beatty didn’t know that. But, of course, he was told. So, when he signed the Agreement, the statement was truthful, but on closing, he now knew about the grow house issue.
What does it mean and when does it apply?
Justice Brown (Pepal and Hourigan agreeing) on behalf of the Court stated:
“In my view, the Sellers’ representation and warranty that the use of the property had never been for the growth or manufacture of illegal substances was limited to their knowledge and belief as it existed when they executed the APS.
I reach that conclusion for three reasons.
First, that interpretation flows from the plain language used in the Clause.
Second, the interpretation is supported by the absence of any language in the Clause that speaks of the Sellers’ knowledge and belief at the date of closing, in contrast to the use of such language in other provisions of the APS.
A fundamental precept of contractual interpretation is that “a contract is to be construed as a whole with meaning given to all of its parts…"
"For these reasons,
I conclude that the Sellers’ representation and warranty in the Illegal Substances Clause that the use of the property had never been for the growth or manufacture of illegal substances was limited to their knowledge and belief as it existed when they executed the APS.
At that time, they did not know about the property’s prior use as a grow-op. In those circumstances,
I conclude the application judge erred in finding the Sellers breached the Clause. They did not."
Brown stated: …
“I would substitute an order allowing the Sellers’ application to the extent of declaring that:
(i) the Purchaser breached the APS by failing to close; and
(ii) the Sellers’ are entitled to the deposit in the amount of $30,000.”
In addition. the matter of proof of damages in the case was remitted back to trial.
Obviously, we need a new and better clause related to grow ops than the one we have here, if it is to be of any benefit to a prospective Purchaser. Who cares whether the Vendor knew or didn’t know! Most importantly, the Purchaser should have the right to rescind the agreement. That matter needs to be negotiated.
Brian Madigan LL.B., Broker