By Shaneka Shaw Taylor and Christina Wang
In Kazakevich v. Sychev, the Ontario Superior Court of Justice affirmed when an Agreement of Purchase and Sale (APS) will be kept alive, preventing a buyer’s release from their contractual obligations. The court also clarified the standard of care owed by a real estate agent to their clients.
On May 25, 2012, the seller, Klara Kazakevich and the buyers, Konstantin Sychev and Zarema Sychev signed an APS for 31 Saul Ct., Vaughan, Ont. The closing date was scheduled for Sept. 28, 2012. At the time of signing the APS, the Sychevs had not yet sold their home at 191 Patricia Ave. in Toronto, the proceeds from which was to finance the purchase of 31 Saul Ct. Despite not selling their home, the Sychevs waived all the conditions of the APS, most notably the home inspection, lawyer’s approval and financing conditions. By August 2012, the Sychevs still had not yet sold 191 Patricia. In mid-September, the Sychevs advised Kazakevich that they would not be completing the purchase of 31 Saul Ct. Kazakevich sued for breach of contract.
The Sychevs brought a counterclaim against their real estate agent, Angelika Bekman, for breaching the standard of care of a real estate agent. They alleged Bekman failed to ensure the Sychevs fully understood the terms of the APS and to use her best efforts to sell their home at 191 Patricia.
When the matter went before the court, the judge determined that the Sychevs’ request to be released from APS clearly demonstrated their intention not to proceed with and perform their obligations under the APS and therefore the Sychevs were in breach of the APS. As a result, Kazakevich was entitled to the difference in purchase price and additional costs pertaining to the financing of the subsequent sale of 31 Saul Ct., amounting to $345,057.12. The action against Bekman was dismissed since the Sychevs did not establish that Bekman failed her duties as their real estate agent.
The court evaluated the evidence and arguments advanced and found the following:
The Sychevs were not first-time buyers and had encountered similar conditions regarding lawyer’s approval, home inspections and financing from previous real estate transactions. In addition, Bekman reviewed the conditions with them along with the process of waiving the conditions. The Sychevs thus understood how these conditions operated and that if they did not waive or fulfil the conditions, the APS would be terminated.
Further, the Sychevs’ failure to read the terms and conditions (which they claimed they had not) did not release them from the terms they willingly agreed to absent fraud or misrepresentation.
Condition 1: Lawyer’s approval condition:
The Sychevs’ alleged that Bekman had backdated the lawyer’s approval condition and therefore the condition had not been waived by the required date outlined in the APS, making it null and void. The court did not agree. The court reviewed the email evidence from Kazakevich to Bekman stating that the “condition on buyer’s solicitor was due on May 31, 2012… I suggest the waiver dated May 31 will do”. This, the court found, did not imply that the waiver was “(back)dated” on May 31 but merely meant that a copy of the waiver needed to be sent to Kazakevich.
Condition 2: Home inspection:
The Sychevs also alleged that Bekman assured them they would be able to be released from the APS despite waiving the condition. The court found that this was highly unlikely to be true as no experienced real estate agent – such as Bekman – would make such a blatantly incorrect assurance. The Sychevs were also experienced in the real estate market and it was implausible they would believe such a nonsensical assurance.
Moreover, at the time the Sychevs requested a home inspection, they had already requested to be released from the APS. As such, it was likely the request for the home inspection and the allegation that Bekman assured the Sychevs they would be able to be released from the APS despite waiving the home inspection condition were disingenuous.
Standard of care for real estate agents:
Generally, it is inappropriate for a court to determine the standard of care of a professional in the absence of expert evidence. There are two exceptions to this rule:
1) non-technical matters in which ordinary persons can be expected to understand; and
2) where the action is so egregious it is obvious the conduct in question has fallen below the standard of care.
In this instance, Bekman’s actions were not so egregious to obviously fall below the standard of care owed to her clients. Certain duties, such as explaining and reviewing the conditions of an APS with clients, do not require expert opinion as they are obvious. The evidence established that Bekman fulfilled this duty as she ensured the Sychevs understood the conditions and the consequences of waiving them.
There is no obvious duty, absent expert evidence, that a real estate agent must investigate and ascertain the financial circumstances of his or her clients in order to protect them from making a purchase beyond their means.
Any signs of financial difficulty that the Sychevs demonstrated during the real estate transactions could be interpreted as hard bargaining and were not blatant red flags. The evidence adduced did not demonstrate Bekman was negligent in the performance of her duties as a real estate agent for the Sychevs.
Sale of 191 Patricia:
The initial list price of 191 Patricia was $1,460,000, which was exceptionally high based on the listing prices of other properties in the neighbourhood. The selling price of $1,460,000 aligned with the needs of the Sychevs at the time, since the Sychevs were required to produce $1 million to finance the purchase of 31 Saul Ct. and they had a $400,000 mortgage on 191 Patricia. It reasonably followed that the Sychevs requested 191 Patricia to be listed at such a price (as opposed to that price being recommended by Bekman) who understood the time frame to sell 191 Patricia was very narrow and a high listing price would not be conducive to the fast sale of the property.
In addition, the Sychevs were unco-operative with Bekman’s attempts to show potential buyers the house by placing restrictive showing hours, requiring very advanced notice of showings and declining showings on multiple occasions. Altogether, the court found that Bekman did not fail to advertise 191 Patricia to the best of her abilities and the failure to sell 191 Patricia in time for the closing date was the fault of the Sychevs.
What does this mean for prospective buyers and for real estate agents?
Buyers need to be careful and certain when waiving or fulfilling conditions of an APS, because they will not be entitled to later terminate the APS without facing significant penalties in the form of damages incurred by a seller in the subsequent sale of their property. Buyers will also not be able to rely on the argument that they did not read the conditions of the APS since, absent fraud or misrepresentation, a signing party will be bound to the terms they willingly signed, particularly if the party is not a first-time homebuyer.
In addition, buyers will have to be mindful of their own financial circumstances. Absent expert evidence, there is no obvious duty that a real estate agent should ensure their clients are purchasing a property within their means.
For real estate agents, the standard of care for them in some cases will be obvious, such as reviewing conditions to an APS and the consequence of waiving such conditions. However, expert evidence will generally need to be produced to affirm the standard of care owed to a real estate agent’s client.
Christina Wang is currently summering at Boghosian + Allen LLP while completing her J.D. at Queen’s University. During her time at Queen’s, she was president of the Queen’s Environmental Law Club and a student researcher for Pro-Bono Canada.