$100,000 deposit lost when fax not read in time
In an age of instant communication with emails, text mesages and cell phones, when it comes to real estate contracts, the notion of what is ‘timely’ takes on a new meaning.
In an unusual case, a judge decided that a woman’s $100,000 deposit on a $1.5 million Toronto home was forfeit because her lawyer didn’t see a fax on her machine that could have saved the deal from falling through. Judge Sidney Lederman ruled, in a February 20, 2013 ruling that a busy lawyer should monitor correspondence until 6 pm.
Toronto lawyer Bruce Baron, with the firm Gaertner Baron, who represented the buyer in a lawsuit, says the decision is likely to be appealed, but he is awaiting final instructions from his client.
It could all have been avoided if someone had picked up a phone.
In June, 2011 Brenda Thomas agreed to buy a Toronto home from Sonia Carreno and Simon Jennings for $1,510,000 with a closing in early July and put down the $100,000 deposit.
Thomas soon discovered that the City hadn’t signed off on a building permit for construction that had taken place four years earlier. Her lawyer, sent a letter to the seller’s lawyer, saying they would not close the deal until the City okayed the construction.
A clause in a standard Ontario real estate contract says that if a buyer’s lawyer finds a problem that can be corrected by title insurance, then the buyer has to accept it.
On closing day, the sellers’ lawyer Roman Zarowsky sent a fax to Thomas’ lawyer Maureen Galea at 11:51 a.m., saying that they were still trying to clear the permit. Zarowksy suggested the closing be extended for a few days to get it done.
Zarowsky had verbally contacted Stewart Title Guaranty Company, to see whether it would provide title insurance to cover this open permit. Stewart Title was prepared to do so if $100,000 from the sale was held back to allow for the permit issue to be resolved.
Galea replied by fax at 1:18 p.m., that the buyer was not satisfied and was going to cancel the agreement.
At 3:55 p.m., Zarowsky faxed a letter to Galea saying they could now close the deal, since they had title insurance.
Galea didn’t see that fax and at 4:01 p.m. sent her own fax, repeating that the buyer would not extend. It was only after 6 p.m. that she realized that the 3:55 fax had been sent.
The deal did not close and the buyer asked for the deposit back. The sellers resolved the permit by July 19, 2011, 11 days after the original planned closing. By then, Thomas had put an offer in on another home.
She took the position in court that since an open permit could lead to a work order, it was a valid reason to walk away. She also argued that since the seller did not actually arrange the title insurance policy, they did not comply with the contract. It was unfair to provide a verbal confirmation so late in the day, anyways.
However, Justice Lederman, in his ruling, quoted other legal decisions that decided if title insurance is available to deal with the problem, the buyer has to close.
The decision will likely be appealed, probably on the basis that a verbal communication about the availability of title insurance should not force a buyer to complete a deal.
Both lawyers were busy with other deals that day, which is usually the case in busy real estate law practices. You wonder why the lawyers just didn’t pick up the phone and call each other. The lesson here is that when anything needs to be communicated in a time sensitive manner, consider sending multiple communications, phone, fax and email, to make sure that the other side gets the message. Don’t leave things to the last minute.
Mark Weisleder is a Toronto real estate lawyer. Contact him email@example.com