In a significant decision, the British Columbia Court of Appeal awarded the remedy of specific performance for a breach of an option to purchase (OTP) in Culos Development (1996) Inc. v. Baytalan, 2025 BCCA 265. This case provides important guidance on the application of specific performance in real estate transactions involving an OTP, particularly where substantial pre-development work has been undertaken.
Background
The appellant, Culos Development (1996) Inc. (Culos), entered into an OTP with the respondent, Gregory Steven Baytalan (Baytalan), to purchase land owned by Baytalan in the Glenmore area of Kelowna, BC (the Property). The purpose of the purchase, as proposed by Baytalan to Culos, was to develop non-profit social housing. The OTP granted Culos one year to exercise the option, with an optional six-month extension. Pursuant to the final version of the OTP, the purchase price was to be the greater of C$1,300,000 or the appraised market value of the Property as of the agreement's execution date, March 26, 2020.
Upon the registration of the OTP, Culos initiated some pre-development activities, such as seeking to have the Property rezoned and submitting a proposal of social housing development to BC Housing, for which Culos incurred time, expenses and overhead costs.
An initial appraisal obtained by Culos valued the Property at C$1,505,000, based on the specific development proposal. However, aware of the improving market conditions, Baytalan obtained his own appraisal in August 2021, valuing the Property at C$3,950,000 based on then-current market conditions. When Culos attempted to exercise the OTP, Baytalan knowingly and persistently avoided service of the notice and later claimed that the OTP had expired due to improper notice. In December 2021, Culos attempted to complete the purchase in accordance with the OTP, but Baytalan refused to proceed. Culos then filed a Notice of Civil Claim in which it sought, inter alia, specific performance of the OTP.
The Trial Judge Found That the Property was not Unique
At trial, the judge rejected Culos' claim for specific performance, finding that the Property was not unique for Culos' purposes, either subjectively or objectively. Instead, the judge awarded reliance damages for costs incurred in rezoning and preparing development plans. Culos appealed, arguing that the trial judge erred in concluding that specific performance was not an appropriate remedy.
Legal Framework
Historically, specific performance was the default remedy for breaches of real estate contracts, based on the inherent uniqueness of land. However, the Supreme Court of Canada in Semelhago v. Paramadevan, [1996] 2 S.C.R. 415 established that the presumption that each piece of land has special value is no longer universally applicable because real property was increasingly being purchased as an investment.
Following the Supreme Court of Canada's reasoning in Semelhago, specific performance as a remedy has been reserved for cases where the property has unique qualities that make it especially suitable for the buyer's intended use and where damages would not adequately compensate the buyer. Uniqueness in this context means that the property cannot be reasonably substituted.If equivalent property is readily available, then damages are considered an adequate remedy.
The Court of Appeal Allowed the Appeal and Ordered Specific Performance
The Court of Appeal found that the trial judge erred in treating the Property as presumptively replaceable and thereby finding that specific performance was not the appropriate remedy. The Court of Appeal acknowledged that uniqueness is rarely established for properties purchased solely for investment purposes, but stressed that the jurisprudence had not created a "presumption of replaceability".
The Court of Appeal noted, inter alia, that the judge had failed to consider evidence that the Property was in a desirable area with a limited supply of multi-family development land. Additionally, the Court of Appeal emphasized that substantial pre-development work, including rezoning and planning, had been completed for the Property. These factors contributed to the Property's uniqueness and supported the appropriateness of specific performance. The Court also noted that pre-development work, in cases involving an OTP, can render a property unique, as such work may make it difficult to find a suitable substitute.
The Court of Appeal concluded that damages would not adequately compensate Culos for the loss of the Property and ordered specific performance of the OTP.
Key Takeaways
This decision highlights the importance of considering site-specific factors, such as pre-development work and market conditions, when determining the appropriateness of specific performance especially when it involves an OTP. It also clarifies that there is no presumption of replaceability for property purchased solely for investment purposes. This case reaffirms that specific performance remains a viable remedy in real estate disputes where the property is uniquely suited to the buyer's intended use and damages would be insufficient.
To discuss your specific needs and to receive tailor-made advice, please contact one of the authors, or contact the Bennett Jones Litigation and Dispute Resolution Department or Commercial Real Estate group.
