Specific Performance in Real Estate Transactions
Do you get the property if the Seller changes his mind?
The answer appears to be: “sometimes”.
Mr. Semelhago purchased a property under construction from Mr. Paramadevan, who was a builder in 1986. A little bit of time went by while the building was being finished and the value of the land and building escalated. Rather than honour the contract, Paramadevan decided to transfer the title of the property into his wife’s name in order to thwart any recourse from the purchaser.
The default was clear and evident. The question for the Courts was:
- Money, or
The market increased rather substantially from 1986 to 1990. Ten years after the breach of contract, the case reached the Supreme Court of Canada for a decision (see Semelhago v. Paramadevan 1996 SCC).
The Court outlined some basic principles and here is a summary from the headnote:
- A party who is entitled to specific performance is entitled to elect damages in lieu thereof.
- Damages are normally assessed at the date of breach in the case of breach of contract for the sale of goods. The rationale for this rule is that if the innocent purchaser is compensated on the basis of the value of the goods as of the date of breach, the purchaser can turn around and purchase identical or equivalent goods.
- Given the flexibility of the rule at common law as to the date for the assessment of damages, it would not be appropriate to insist on applying the date of breach as the assessment date when the purchaser of a unique asset has a legitimate claim to specific performance and elects to take damages instead.
- It is not inconsistent with the rules of the common law to assess damages as of the date of trial.
- The rationale that the innocent purchaser is fully compensated if provided with the amount of money that would purchase an asset of the same value on the date of the breach no longer applies where the claim for specific performance has been maintained until the commencement of the trial.
- Moreover, the claim for specific performance revives the contract to the extent that the defendant who has failed to perform can avoid a breach if at any time up to the date of judgment, performance is tendered.
- In the circumstances of this case, the appropriate date for the assessment of damages is the date of trial.
The increase in value of the respondent’s residence which he retained when the deal did not close should not be deducted from the amount of damages awarded. If the respondent had received a decree of specific performance, he would have had the property contracted for and retained the amount of the rise in value of his own property.
In this case, the purchaser elected to take damages at trial rather than specific performance. That approach extended the “measure of damages date” to the date of the trial. That was very important since the real estate market rose significantly over that period of time.
A purchaser suing a defaulting vendor should always include a claim for specific performance in a rising market. The trial might easily be 4 or 5 years after the contract default.
This does not necessarily mean that a Certificate of Pending Litigation (CPL) be obtained from the Courts and registered against the title. That is a decision which should be made in individual cases. If the lawsuit is unsuccessful, the Seller will have a claim for “slander of title”.
Specific performance is available if the property is unique!
Brian Madigan LL.B., Broker