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Honesty, good faith & the survey plan

A new development in Canadian common law will continue to play out in the business and legal worlds this year, with significant and far-reaching implications for all contractual agreements in Canada, including those that govern real estate transactions.

The Supreme Court of Canada (SCC) decision in the case of Bhasin v. Hrynew SCC 71 imposes a new duty of honest contractual performance and clarifies how the principle of good faith fits into contract law.

“This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract,” wrote Justice Cromwell (paragraph 73).

The ruling “will be of dramatic consequence to the real estate industry,” states real estate broker Brian Madigan in his isourcerealestate.com blog. “This will have an effect on real estate listing agreements, buyer representation agreements, agreements of purchase and sale (including the ancillary documents, being waivers, amendments and fulfillments).”

So what does the ruling mean for property boundary issues and the role of the survey plan in a real estate transaction?

The Ontario Real Estate Association’s Agreement of Purchase and Sale (APS) instructs the seller to deliver to the buyer any “survey of the property” in his or her possession, upon the buyer’s request; however, this clause often falls by the wayside in the rush to close a deal, even though the survey plan is arguably the “most important” document in a real estate transaction, according to lawyer Bob Aaron (for more on that point, see Aaron’s Toronto Star column: Land survey outlines what's really yours.)

Which bring us to the question: what if a real estate agent knows that a survey plan exists for his or her listing, but doesn’t encourage the home seller to provide it to the buyer? Or what if the agent knows that there’s an encroachment or other property boundary issue but doesn’t disclose it, and the new homeowner has to pay thousands of dollars to remedy the problem or ends up in an expensive court battle?

Those answers are yet to come: it will be up to future courts to establish with more certainty how the duty of honest contractual performance will be interpreted and applied.

At the same time, it’s easier, quicker and more cost-effective than ever before to get an existing survey plan for properties in the Greater Toronto Area: more than one million plans by dozens of leading surveyors are now available online at ProtectYourBoundaries.ca, allowing property sales to proceed expeditiously and with confidence that proper due diligence has taken place.