When Monetary Compensation is Not Enough: A Closer Look at Specific Performance in Real Estate Transactions

By Slonee Malhotra

In cases of breached real estate contracts, the usual remedy for the injured party is to receive damages as compensation. However, an exceptional remedy known as specific performance may be sought in certain circumstances. The recent case of 9725440 Canada Inc. v Vijayakumar highlights the stringent criteria that must be satisfied to obtain court-ordered specific performance, particularly when the subject matter is real property, and the purchaser is a corporation. ^[1]

Specific Performance

Specific performance is granted by courts when damages are insufficient to adequately address the unique circumstances of a case. ^[2] In real estate transactions, the intended use of the property may be predicated on its distinct features, making damages an inadequate solution.^[3] Consequently, the transfer of the property itself could serve as a just remedy between the parties.

The seminal case of Semelhago v Paramadevan articulated that specific performance should not be granted as a matter of course unless evidence exists that the property is genuinely unique and cannot be readily replaced.^[4] The court in John E. Dodge Holdings Ltd. v 805062 Ontario Ltd. further elaborated on assessing uniqueness, incorporating both subjective and objective perspectives.^[5] The subjective aspect entails considering the plaintiff's perception of the property at the time of contracting, while the objective aspect involves demonstrating that the property's characteristics make damages insufficient.^[6] Notably, investment properties are generally not candidates for specific performance, as highlighted in Dodge.^[7]

The Case of 9725440 Canada Inc. v Vijayakumar

On June 8, 2017, the appellants in Vijayakumar entered into an Agreement of Purchase and Sale (APS) to sell their Ontario home to the respondent, a corporation, for $1,620,000. Mr. Lin, the respondent's 50% shareholder and sole director, signed the APS on behalf of the corporation, creating a binding agreement.

However, on June 10, 2017, the appellants informed their agent that they had decided not to proceed with the sale, eventually failing to close on the scheduled date of September 28, 2017. Subsequently, the respondents initiated legal action, seeking specific performance of the agreement.

The trial commenced in 2019, by which point Mr. Lin had returned to his home in China. Instead of providing testimony himself, Mr. Lin instead had his son, Mr. Blanc, testify on behalf of the family's intentions regarding the property. While this testimony had persuaded the judge of the trial court, leading to an order of specific performance, Justice Lois Roberts of the Ontario Court of Appeal was not convinced. Justice Roberts determined that the trial judge erred by considering Mr. Blanc's testimony, which amounted to inadmissible hearsay evidence. Moreover, no other admissible evidence was presented at the trial to infer Mr. Lin's intentions.^[8]

Additionally, unlike Mr. Lin, Mr. Blanc had no connection to the corporation as a shareholder, director, or officer at the time that it contracted with the appellants. The court held that a corporation cannot “fall in love” with a property.^[9] Instead, it concluded that the corporation's purpose in purchasing the property was for investment objectives, consistent with corporate goals. Consequently, damages were the appropriate remedy to compensate for the appellants’ breach of contract.

Implications and Legal Precedent

The Vijayakumar decision holds significant implications concerning the applicability of specific performance, particularly when corporations are involved as purchasers of real estate. Furthermore, it reinforces the principle established by the Supreme Court of Canada in Southcott Estates Inc. v Toronto Catholic District School Board: a plaintiff seeking specific performance for an investment property must demonstrate that monetary compensation would be inadequate due to the property's peculiar and special value.^[10]

For any inquiries or legal assistance regarding residential real estate matters, we encourage you to reach out to one of our qualified lawyers, such as Slonee Malhotra (slonee@sorbaralaw.com).