Canadian Lawyer

Real Estate Roadblock to revenue A recent Supreme Court of Canada ruling is detouring developers so they could end up acquiring property they do not need. property developer. As Stikeman Elliott LLP associate Andrew Elliott explains, it is common for development companies to set up single purpose corporations with limited assets in order to purchase and develop one particular property, thus limiting their liability by shielding their assets from one another. In 2004, the school board decided to sell off some property it no longer needed and Southcott agreed to purchase 4.78 acres of land for $3.44 million, intending to develop 48 semi-detached homes. A closing date was set and then extended as the board tried to get municipal approval for severing the land. The severance hearing was delayed because the board failed to provide the city with a development plan. There was still no development plan in January 2005 and the school board refused the developer's request it again extend the closing date. Instead, the board declared the transaction to be at an end and returned Southcott's 10-per-cent deposit. Southcott launched a suit, claiming specific performance — asking the court to require the school board honour the contract to sell the property. In the alternative, the developers asked for compensation for any loss flowing from the breach of contract. Once a common remedy in cases involving breaches of real estate contracts, specific performance claims have not tended to fare well in recent years, according to Elliott. "Courts have chosen to set the bar very high in deciding whether to award specific performance, particularly on commercial real estate. It's less common for that reason and this case will make it much less common," he says. This can be attributed to a trend towards viewing real estate as a commodity, says Derek Bell, a Toronto-based partner with Bennett Jones LLP. "At one time it was perceived that all land was unique and, if you entered into a transaction to acquire a piece of land and they didn't deliver they were required to deliver it. . . . Today the fact that you are perusing land as and of itself isn't going to result in specific performance," he says. www.CANADIAN L a w ye r m a g . c o m Jan uary 2013 21 Juan Carlos Solon D evelopers are facing a roadblock in their route to revenues, as a recent Supreme Court of Canada ruling is diverting them along a detour where they could end up acquiring property they do not need. "It turns out to be quite a harsh result for an innocent party," says Matthew Halpin, a senior partner in the Ottawa office of Norton Rose Canada LLP. He is commenting on the October 2012 Supreme Court decision in Southcott Estates Inc. v. Toronto Catholic District School Board that deals with developers' obligation to take steps to mitigate the defendants' loss — usually by buying additional property, the profits from which may offset any accumulating losses they may incur — and hence any further claim for damages they may make as the case proceeds through the courts. Southcott was a single purpose corporation, a part of the Ballantry Group of Companies, a large Toronto-area By Kevin Marron

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