Executive Summary: Key Legal and Evidentiary Issues

• Summary judgment was sought by both parties following a failed commercial real estate purchase in Ottawa.
   
• Determining whether the vendor breached a duty of honest performance by withholding knowledge of a tenant's lease termination formed the central issue.
   
• Caveat emptor principles were weighed against the common law duty not to knowingly mislead a counterparty during contract performance.
   
• Evidence conflicted on when and how clearly the vendor's agent disclosed the dance studio tenant's departure to the purchaser's agent.
   
• Whether a $30,000 purchase price reduction related to the lease termination or solely to inspection deficiencies required factual resolution.
   
• Retention or return of the $150,000 deposit turned on whether the purchaser's refusal to close was justified.
   

Facts of the case

6751067 Canada Inc. (the vendor) and 16002731 Canada Inc. (the purchaser) entered into an agreement of purchase and sale dated April 19, 2024, for a commercial property at 1480-1488 Stittsville Main Street, Ottawa, at a contract price of $2,710,800, with an original closing date of August 15, 2024. The purchaser provided a $150,000 deposit, held by Details Realty Inc. Brokerage. The sole condition in the agreement was a satisfactory commercial inspection, to be completed by May 3, 2024. École De Danse Louise Inc. (the dance studio) had signed a lease with the vendor in February 2024 but never took possession of the unit. On April 25, 2024, the dance studio's principal told the vendor's principal it would not honour the lease and would seek alternative premises, confirming this in writing the same day. The vendor and the dance studio ultimately negotiated a $55,000 lease termination payment. On May 2, 2024, the purchaser's principal, Tao Wang, signed a notice of fulfilment for the inspection condition, making the agreement unconditional. The parties then amended the agreement to reduce the price to $2,680,800 and move the closing date to August 6, 2024. The purchaser was unable to secure financing, in part because the lost tenancy represented roughly 30% of the property's income, and the transaction did not close. The vendor later resold the property for $2,595,000 on March 5, 2025.

Policy and legislative provisions at issue

The agreement contained a "time is of the essence" clause and an entire agreement clause stating there was "no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein." Schedule A warranted that the tenancies listed in Schedule B were the only leases affecting the property, a warranty that survived closing. No financing condition, no warranty regarding tenant standing, and no requirement that leases remain in force until closing were included. The court applied the principle of caveat emptor, and considered the common law duty of honest contractual performance recognized by the Supreme Court of Canada, under which a party may mislead a counterparty through silence or omission where that silence knowingly creates or perpetuates a false impression.

Reasoning and analysis

The motion judge found the matter suitable for summary judgment, as conceded by both parties, and applied the framework from Hryniak v. Mauldin for determining whether a genuine issue requires a trial. Referring to Tse v. Sood, the court noted the limited grounds on which a purchaser may refuse to close, and found the purchaser could not rely on the inspection condition, since that condition could not be exercised capriciously once satisfied. The court acknowledged that the purchaser, an experienced commercial investor, could have negotiated stronger contractual protections, including tenant estoppel certificates, confirmation that no termination notices had been given, and a financing condition, and was therefore bound by caveat emptor with respect to those omissions. However, applying C.M. Callow Inc. v. Zollinger, the judge found the vendor's principal knew before the inspection condition was waived that the dance studio had repudiated its lease, knew the purchaser was proceeding on the assumption that rental income remained intact, and chose to remain silent until after the waiver. The judge accepted that the vendor's agent likely told the purchaser's agent only that the tenant "may be wanting to leave," language too uncertain to alert the purchaser to the actual repudiation, and rejected the vendor's evidence that the $30,000 price reduction was tied to the lease termination, finding it related solely to inspection deficiencies and an earlier closing date. On that basis, the judge concluded the vendor's silence was knowingly misleading within the meaning of Callow, notwithstanding the purchaser's own lack of diligence.

Ruling and overall outcome

The court granted summary judgment, finding the vendor breached the duty of honest performance by withholding a material change to the property's income-generating tenancy until after the purchaser waived its only condition, and that this silence was sufficiently serious to justify the purchaser's refusal to close. The $150,000 deposit was ordered returned to the purchaser, 16002731 Canada Inc., rather than forfeited to the vendor. The purchaser was found to be the successful party and presumptively entitled to costs, with the parties permitted to file costs submissions if agreement could not be reached: the defendant's submissions due August 26, 2026, the plaintiff's by September 2, 2026, and a defendant's reply by September 9, 2026. No specific costs amount was fixed in this decision.