A recent order of the Ontario Superior Court illustrates the complexities of the right of rescission in real estate transactions. The purpose of the remedy of rescission is to restore the parties to the position they were in prior to the entering into of the transaction in question. When there has been a conveyance of interests in real property and consequently, the transfer of legal ownership of those interests, which often triggers tax consequences, restoring the parties to their pre-contractual position and unwinding the transaction can be complicated and is akin to “putting Humpty Dumpty back together again.”
The recent order referred to above is that of Partners REIT, in which the REIT sought to rescind its April 2014 transaction whereby it acquired three Ontario retail centres in Hamilton, London and Kemptville from Holyrood Holdings valued at approximately $90 million. The problematic aspect of the transaction under securities laws was that the interim CEO of the REIT had a relationship with the owner of the vendor sufficient that they might be considered as acting together. The rescission was completed pursuant to terms set out in a Rescission Agreement originally dated June 6, 2014.
As a result of the Superior Court’s order, the three retail centres were returned to Holyrood and the securities were returned to the REIT. One of the most significant aspects of restoring the parties to their original positions to be dealt with had to do with the reality of the significant tax consequences that had been triggered as a result of the transaction. An important aspect of the parties obtaining the order was to engage the Canada Revenue Agency to assist with achieving a workable solution for all parties. These circumstances highlight the unique nuances and complexities of real property transactions and how rescission is not an impossible remedy, but certainly not a straight-forward one in restoring the parties to their pre-contractual positions.