OVERVIEW

[1]   The Court is seized of an application to order the Defendant, 9143-5818 QUEBEC INC, ) (“the Defendant” or “9143”) to allow the Plaintiff, Pinchos Freund, (“the Plaintiff” or “Mr. Freund”) to conduct an environmental assessment of a property owned by the Defendant in accordance with an accepted promise to purchase the property.

[2]   The dispute arises in the context where the Plaintiff made an offer to purchase the Defendant’s property[1] (“the Property”) conditional on the results of an environmental assessment.

[3]   The Defendant refuses to allow the assessment because he does not believe it is necessary. He believes that the Plaintiff is deliberately delaying the transaction because he does not have the means to close the deal and that he is trying to find someone to buy his offer to purchase. 

[4]   The Plaintiff believes that the Defendant has come to realise that the Property is worth more than the price he accepted and is refusing to allow the assessment as a way to escape the obligations of the promise to sell.

[5]   The Court must determine if the promise to purchase is binding on the parties and, if it is, whether the defendant should be ordered to allow the environmental assement to proceed.

CONTEXT

[6]   In November of 2020 the Plaintiff, Mr. Freund, was approached by a real estate agent with whom he had recently concluded a transaction and asked whether he may be interested in a industrial building owned by the Defendant.

[7]   He was interested and on November 27, 2020 Mr. Freund made an offer to purchase the building for the asking price of $8,700,000.[2]

[8]   The offer was to be accompanied by a deposit of $ 100,000 paid in trust to a notary, Me Phillipe Friedman.[3] The method of payments for the Property was to be as follows:  the $ 100,000 deposit, an additional $ 2,600,000 in cash, and a loan of $  6,000,000[4] at a rate of no more than 3%. Proof of the loan was to be provided within 60 days of the accepted offer.

[9]   The offer also required that the seller provide two expert reports at his expense. One aimed to evaluate the presence of pyrite on the Property, the other was described as an “environmental characterization study”. These conditions are contained on the standard form used for real estate transactions prepared by the Organisme d'autoréglementation du courtage immobilier du Québec (“OACIQ”).[5]

[10]           It reads as follows:

2.5- ENVIRONMENTAL CHARACTERIZATION BY THE SELLER

The SELLER, as soon as possible and at his own expense undertakes to have an expert perform an environmental characterization study on the land in accordance with the guide of the Ministère du developpement durable de l'environnemenet des parcs (MDDDEPH). He shall provide a copy of the characterization study report(s) to the BUYER upon receipt, within 60 days following acceptance of the promise to purchase at the latest.

If the BUYER has not received a copy within this time period or if the Phase 1 of the characterization study report recommends a Phase 2 characterization study be performed or if any future characterization study report ( Phases 2 and 3  ) reveals the presence of any contaminant, hazardous material or residual material in a proportion or a manner that does not conform to what is prescribed by the minister responsible for the environment or to environment protection laws and regulations the BUYER shall be able to cancel the promise to purchase by notifying the SELLER in writing within four (4) days following the expiry of the above time period. The promise to purchase shall become null and void from the time of receipt of such notice by the SELLERS should the BUYER fail to give notice to the SELLER within the time period and in the manner specified above, he shall be deemed to have waived this condition. (Emphasis added)

[11]           The offer also included an agreement to conclude a one year lease agreement between the parties, to be finalized on or before January 31st, 2021 that would allow the seller to remain in the building after the sale.[6]

[12]           The offer was not accepted, but a counter proposal was made and accepted.  It included further conditions with respect to the lease as well as modifications concerning the delays in which conditions were to be fulfilled.[7]

[13]           Mr. Freund accepted the counter proposal on December 16, 2020.

[14]           On January 21, 2021, the parties agreed to a further amendment that adjusted the date of execution of the deed of sale from “on or before March 15th, 2021" to "on or before April 15th, 2021".[8]

[15]           Critically, in this further amendment, all the other conditions of the promise to purchase, including the requirement for proof of funds, were waived except for the requirement of an environmental assessment, which the Plaintiff now undertook to conduct himself. As a result, the promise to purchase was now only conditional on the Plaintiff’s acceptance of the environmental assessment.[9] 

[16]           The “Other conditions” clause reads:

In reference to the promise to purchase PPG 31487 all the buyer’s conditions have been waived and or realized with the only exception of the results of a Phase 2 environmental update should the financial institution request one and this at the expense of the buyer and that the final report is at the full satisfaction of the buyer and the financial institution.

Clause 4 (4.3) deposit of $100,000 in trust to the notary shall become non refundable once the environmental report and results have been accepted by the buyer and the financial institution.

Date of deed of sale shall be on or before April 15th 2021.

Sale price for the building shall be eight million three hundred thousand dollars + applicable taxes (if applicable) ($8,300,000).

[17]           On February 27, 2021, the parties agreed to a further amendment adjusting the execution of the deed of sale to “30 business days from the date of receiving a favourable environmental report”.[10] The parties also agreed to increase the non-refundable deposit from $100,000 to $500,000 following a favourable environmental report.

[18]           Around March 5th, 2021, a dispute arose between Mr. Freund and Mr. Sorella.  Around March 16th, 2021, Mr. Sorella refused to allow the company Mr. Freund had hired to perform the environmental assessment.[11]  Mr. Sorella wanted Mr. Freund to accept reports he had prepared at the time he purchased the Property about eighteen years earlier. As a result, Mr. Freund sent Mr. Sorella a letter demanding that he be given access to the Property.[12]

[19]           On March 25, 2021, the parties met to try to resolve the dispute. A new promise to purchase was drafted resulting from their meeting but it was never accepted by Mr. Freund.

[20]           While it appears that following the discussions aimed at resolving the impasse the Plaintiff was willing to accept an adjustment of the terms of the promise to purchase, the Defendant added conditions to the draft promise to purchase that had not been agreed to and that made the draft unacceptable to the Plaintiff.[13] In the result, the Court concludes that no new agreement was reached and the existing promise to purchase remains in place. The Defendant’s position that the conditions set out in the draft promise to purchase had been agreed to by the Plaintiff is not credible.

[21]           On April 14, 2021, counsel for Mr. Sorella answered the letter of demand taking the position that Mr. Freund had failed to respect his obligations under the promise to purchase. The letter also took the position that Mr. Sorella was not refusing to allow the environmental assessment, but was insisting that a Phase 1 assessment be conducted first and that it conclude that a Phase 2 was in fact required.[14]

[22]           Even though the financing condition was waived, Mr. Freund has communicated a proof of funds subject only to fulfillment of the environmental assessment.[15] Mr. Howard Szalavetz, an experienced commercial real estate investor, testified concerning the financing promise and his own participation in the project. His testimony was credible and the Court has no hesitation in concluding that he is willing to participate the transaction. The parties agreed that a representative of the lender, Mr. Aaron Bloom, was not required as he would testify only as to the content of his letter promising funds.

1.1   Are the documents forming the promise to purchase binding on the parties, in full force and having full effect between the parties?

[23]           In the Court’s view, the terms of the promise to purchase and its amendments are unambiguous with respect to its essential terms. All of the essential terms were agreed to and the only condition remaining was a satisfactory environmental assessment. 

[24]           The Defendant must allow the environmental assessment to be conducted.

[25]           There is a modest ambiguity with respect to the circumstances under which the buyer can insist on a Phase 2 envrionmental assessment. 

[26]           The ordinary approach is to first conduct a Phase 1 assessment, which examines the historical use of the Property and its neighbours, to determine whether a Phase 2 assessment is required.

[27]           In the initial offer to purchase, it is not clear that a Phase 2 can be required. The term of the condition reads:

 “If the BUYER has not received a copy within this time period or if the Phase 1 of the characterization study report recommends a Phase 2 characterization study be performed […] the BUYER shall be able to cancel the promise to purchase by notifying the SELLER in writing within four (4) days following the expiry of the above time period […] should the BUYER fail to give notice to the SELLER within the time period and in the manner specified above, he shall be deemed to have waived this condition.”

[28]           If this were the only language of the condition, it would appear that the parties would be in a situation where the buyer would be deemed  by the terms of the contract to have waived the condition.  However, the January 21, 2021 amendment makes specific reference to a Phase 2 report:

In reference to the promise to purchase PPG 31487 all the buyer’s conditions have been waived and or realized with the only exception of the results of a Phase 2 environmental update should the financial institution request one and this at the expense of the buyer and that the final report is at the full satisfaction of the buyer and the financial institution.

[29]           The Defendant says that because the financing condition was waived, there can be no requirement of an environmental report. The Court does not accept such an interpretation which renders the clause meaningless.[16]  It was the same amendment that waived the financing condition and included this one. It is clear that while financing is no longer a requirement, an environmental report is a requirement if it will be necessary to obtain financing.

[30]           In any case, the financing commitment communicated April 13, 2021 includes a requirement of an acceptable environmental assessment by reference to the February 26 2021 amendment which expressly requires “a favourable environmental report”.[17]

[31]           In addition to the language of the agreement, the Court notes that there was testimonial evidence that requiring a Phase 2 environmental report was standard and prudent practice prior to purchasing this kind of industrial property.

[32]           For example, Mr. Sorella, the director of the Defendant, testified that when he bought the building he required a both a Phase 1 and Phase 2 assessment, even though he was presented with evidence that the previous owner, Sico paints, had remediated the Property.  He explained that he did so to “do things carefully”.[18]

[33]           Also, in the exchange of emails that the Defendant filed between Mr. Eli Feldman and Ian Quint, a person interested in purchasing the the offer to purchase, Mr. Quint, an experienced property owner writes “Are you on mars[?] I am not buying a property like that without an environmental assessment.”

[34]           Similarly, Mr. Szalavetz, a person owning more than a 100 properties, ten in partnership with Mr. Freund, testified that he would never buy an industrial property without a thorough environmental assessment because of the potential liability towards neighbours if the site were contaminated.

[35]           The president of GIE, Michael Abikhzder, the engineering firm Mr. Freund had contracted to conduct the assessment, also testified that they recommend a Phase 2 assessment given the presence of contaminants on neighbouring properties.[19] 

[36]           For these reasons, the Court is of the view that the promise to purchase and its amendments bind the parties. They require the Defendant to allow the Plaintiff to conduct a Phase 2 environmental assessment on the Property. In the event that the buyer is not satisfied with the assessment, he shall have the right to cancel the promise within 4 days of receiving the report.  In the event that he fails to notify the seller, he will be deemed to have waived the right to object to the report.  Unless a notice is sent, Mr. Freund will be required to close the deal 30 days following the receipt of the report. He shall also be required to provide a further $400,000 non-refundable deposit. Given the four day period within which the buyer has to declare himself unsatisfied with the report, this deposit must be paid 5 days following the receipt of the report unless the notice is sent, failing which, the promise to purchase shall be void.

1.2   Other grounds raised by the Defendant to invalidate the promise to purchase

[37]           To resist the requirements of the promise to purchase, the Defendant raises two grounds that it argues should lead the Court to conclude that the promise to purchase is no longer in effect between the parties.

[38]           In particular, the Defendant argues: (i) that Mr. Freund’s failure to pay the deposit in accordance with the terms of the promise to purchase invalidates the offer; and (ii) that Mr. Freund’s efforts to sell his promise to purchase contravene the promise or demonstrate that he does not have the funds necessary to purchase the Property. Each will be addressed in turn below. Neither lead the Court to conclude that the promise to purchase is not binding on the parties.

1.2.1           Does the failure to pay the deposit in accordance with the promise to purchase give rise to the nullity of the contract?

[39]           The Defendant argues that the offer to purchase is null and void because the Plaintiff failed to pay the deposit in accordance with the terms of the promise. 

[40]           The Defendant is right that the deposit was not paid in accordance with the promise to purchase, but the Court does not conclude that this led to the nullity of the promise.  The promise to purchase required that the deposit be paid at the time of the promise.  Mr. Eliot Sorella, the sole director of the Defendant[20] was aware that the deposit had not been paid and asked his agents many times to ensure that it was paid.  He was given a variety of excuses.

[41]           However, at some point in January of 2021, the $100,000 deposit was paid to Me Philippe Friedman in trust. The exact date of this payment was not established, but all the witnesses agreed that Mr. Sorella had grown suspicious and requested that it be paid in trust to Royal Lepage (instead of to the notary Me Friedman).  This was done on February 1st, 2021.[21] At the time of the hearing, the deposit was still held by Royal Lepage.

[42]           While Mr. Sorella was within his rights to demand that the deposit be paid and he may have been able to claim that this breach resulted in the nullity of this contract, he can no longer do so because he clearly accepted the late deposit in February of 2021.  He signed subsequent amendments that incorporated or modified the terms of the previous contract with the result of ratifying the past conduct. Indeed, the subject of the deposit was expressly addressed in the amendment where he sought to increase it by an additional $ 400,000 and make it non-refundable except in the case that a Phase 2 environmental assessment showed contamination.

[43]           As a result, the fact that the deposit was paid late is not grounds upon which the Court may nullify the contract.

1.2.2           Does the fact that Mr. Freund sought to to sell the promise to purchase give rise to the nullity of the contract or demonstrate that he never intended to buy the Property?

[44]           One of the reasons that the Mr. Sorella believes that Mr. Freund did not have the means to purchase the Property is that he became aware of communications between Mr. Freund and third parties to sell the promise to purchase.

[45]           While the Court accepts that such discussions took place, they have no impact on the issues before the Court for the following reasons.

[46]           First, the fact that a person who benefits from a promise to purchase considers selling it tells us nothing about the person’s true intentions.  The parties recognize that the purchaser of the Property is a businessman.  His objective in buying the Property is ultimately to make money – either by leasing it or by reselling it at a profit. It goes without saying that if someone offers him an amount of money that allows him to realise a profit immediately, he will compare it with his anticipated future profits. He would not be a rational economic actor if he did not make such a calculation and accept to consider an offer that might maximize his profits or minimize his risks. 

[47]           Second, there was no restriction on Mr. Freund’s right to transfer the promise to purchase.  Indeed, his offer was made in his name “for nominee”. This is not the kind of contract where the Defendant can claim that the identify of his co-contractor was an essential element of the contract. It is understandable that Mr. Sorella would feel that he had accepted a bad deal when he became aware that a third party was willing to pay a premium to obtain the promise to purchase, but this sentiment does not give rise to a legal right to resist the transfer.

[48]           Finally, the transfer never took place. Indeed, while it is clear that while Mr. Freund accepted to discuss the possibility of selling the offer to purchase, he did not solicit the offer nor did he take any active steps to pursue it. At most, he allowed Mr. Eli Friedman to have copies of the promise to purchase documents.  It was Mr. Friedman who, for his own benefit, tried to solicit Mr. Ian Quint to make an offer on the promise to purchase.  The draft offer Mr. Quint prepared for the promise includes a finders fee to Mr. Friedman of $ 40,000.[22]

[49]           Whether Mr. Freund considered transferring his interest in the promise to purchase or not, the facts proved do not lead to the conclusion that Mr. Freund lost, breached, or renounced in his rights in the accepted promise to purchase.  

[50]           FOR THESE REASONS, THE COURT:

[51]           GRANTS the Re-Modified Originating Application for the Issuance of a Permanent Injunction;

[52]           DECLARES that the Promise to Purchase (PPG 31487 (Exhibit P-3), CP 63398 (Exhibit P-4A), AM 86910 (Exhibit P-5) and AM 96551 (Exhibit P-6), collectively) are in force and have effect between the parties;

[53]           ORDERS the Defendant not to proceed to any sale, transfer and/or encumbrance, lien or hypothec of the Property to any third party and/or affiliated person and/or entity whatsoever unless Plaintiff withdraws the Promise to Purchase or it otherwise becomes without effect;

[54]           ORDERS the Defendant to allow access to the Property to the environmental company retained by Plaintiff in order to conduct and prepare a Phase 2 environmental inspection and report pursuant to the Promise to Purchase

[55]           THE WHOLE with costs against Defendant.

[1] [...], Ville Saint-Laurent, Montréal.

[2]  P-3: Offer to Purchase number PPG 31487.

[3]  Clause 4.3.

[4]  Clauses 5 and 6.

[5]  Exhibit 3-A: Recommended Form Annex Expert Report, AE 37107.

[6]  Section 12.1.

[7]  P-4, Counter-Proposal CP 63398. P-4A is a more legible copy of the same document.

[8]  P-5, Amendment AM 86910.

[9]  P-5, P-6, and P-3A AE 37107.

[10]  P-6, Amendment AM 96551.

[11]  P-23, Email from Paul Dixneuf, engineer, GIE, stating that Mr. Sorella has refused him access to the building and stating that Mr. Sorella “wants to end the sale”.

[12]  P-8, Letter of demand, dated March 18, 2021.

[13]  P-19, Draft promise to purchase, PPG 35132. See also P-21 and P-22 email re new offer; P-25 email re instructions.  See also: Rechapage SP (1989) Ltée c. Boucher, 2004 CanLII 11648 (QC CS), at para 8; 9056-1457 Québec inc. (Construction Beauchamp Ouellet inc.) c. Descoteaux, 2009 QCCQ 2549 (CanLII), at para 27.

[14]  P-9, Defendant’s counsel’s letter dated April 14, 2021 to Plaintiff’s counsel replying to the letter of demand.

[15]  Exihbit P-11, Copy of an email emanating from Ace Mortgage Corp. dated April 13th, 2021.

[16]  Article 1428 CCQ.

[17]  P-11, Email from ACE Mortgage Corporation, dated April 13, 2021.

[18]  D-1, D-2.

[19]  P-10, Email from Adnane Farih, project manager, GIE, dated May 27, 2021.  See also: P-19, P-27, Screen shot of map extracts of the Ministère de l’environment website showing known sites of contamination.

[20]  P-1, Extract from the Registres des entreprises de Quebec.

[21]  P-7, Copy of a cheque and confirmation letter.

[22] D-9, Agreement to purchase the Promise to Purchase.