Facts
In 2022, NBA star and Canadian native, Shai Gilgeous-Alexander, and partner, Hailey Summers, began looking for a residential home where they planned to live together. In late February or early March 2023, their real estate agent advised Mr. Gilgeous-Alexander and Ms. Summers that he had identified a luxury home in Burlington that might meet their needs (the “Property”).
On March 27, 2023, Shai Gilgeous-Alexander, on behalf of 1000425140 Ontario Inc. (as Buyer), and the principal of 1000176653 Ontario Inc. (as Seller), signed an Agreement of Purchase and Sale for the Property. The purchase price for the home was $8.45 million. The closing date was set for May 17, 2023, but closed a week earlier than scheduled on May 10, 2023.
Four days after closing and having moved into the Property, a stranger knocked at the door and demanded to know the whereabouts of someone named Aiden Pleterski. Mr. Gilgeous-Alexander and Ms. Summers advised the visitor that they did not know who Mr. Pleterski was and that he did not reside at the Property. Ms. Summers quickly searched the internet to find Aiden Pleterski, the self-proclaimed “Crypto King,” was being sued for fraud and involved in bankruptcy proceedings. She then called the police to report the incident and was advised by the police that they have received numerous reports of people trying to break into the Property. Ms. Summers later discovered through a contact in the private security business that Pleterski had defrauded some “very bad people” and that someone had previously threatened to burn down their new house. After receiving this information, the couple moved out of their newly purchased home and never returned.
The Buyer, 1000425140 Ontario Inc., sued the Seller, 1000176653 Ontario Inc. (“653 Ontario Inc.”) and related parties (the “Defendants”) for, among other things, fraudulent misrepresentation and failing to disclose latent defects in the Property. The Plaintiffs sought the equitable remedy of rescinding the Agreement of Purchase and Sale.
Issues
The issues in this case are:
1. whether the Plaintiff was induced to sign the agreement of purchase and sale through 653 Ontario Inc.’s fraudulent misrepresentation;
2. whether the Defendants had knowledge of a latent defect that rendered the premises unfit for habitation or dangerous in itself and failed or otherwise refused to disclose it to the purchaser; and
3. whether recission of the Agreement of Purchase and Sale is the appropriate remedy in the circumstances.
Issue 1: The Defendant 653 Ontario Inc.’s Fraudulent Misrepresentations
The Court found that the Defendant, 653 Ontario Inc. made two false representations:
1. that the Property was “private and secure;” and
2. omitting to disclose the safety risk that existed at the Property, which left Mr. Gilgeous-Alexander and Ms. Summers with the false impression that there was no reason to doubt that it would be safe to live there.
First, the listing of the Property described it as a “Private Waterfront Estate Property.” Second, 653 Ontario Inc.’s realtor marketed the Property as “private and secure” in his discussions with the Plaintiff’s realtor. Mr. Gilgeous-Alexander and Ms. Summers swore affidavits attesting they would not have purchased the Property had they known of the history and ongoing risk of threats to the Property. The Court accepted this uncontradicted evidence.
Issue 2: The Safety Risk at the Property, the Defendants’ Knowledge of their False Statements, and Failure to Disclose
In the weeks preceding July 7, 2022, Pleterski informed the Defendant owners of the Property of threats and unwanted visitors. Concerned for Pleterski’s safety, the Defendant owners of the Property had Pleterski stay rent-free at one of their other properties. One of the Defendants testified they “literally thought [Mr. Pleterski] was going to be harmed” by the “randoms showing up at the house every day.”
After Pleterski moved out, one of the Defendants’ staff members moved into the Property. The unwanted visitors and harassment at the Property continued and got so bad that the staff member’s wife refused to stay at the Property and the staff member wanted security present on site.
The Defendants also knew that Pleterski was kidnapped in December 2022 by people he had defrauded. The kidnappers demanded that Pleterski obtain $3 million in ransom funds. On March 13, 2023, the bankruptcy trustee’s report revealed Pleterski diverted $1,095,764 of investor funds into the Property, which further intensified the risks associated with the Property.
The Court did not accept the Defendants’ arguments that the Plaintiff’s damages were caused by (1) the Plaintiff’s failure to fix the main gate before moving into the Property and (2) the Plaintiff’s failure to ensure the security cameras were functioning properly. First, the Court found the Plaintiff made the decision to delay repairing the gate for a week because other work was being completed at the Property. The Defendants argued the unwanted visitations would have been completely avoided had the gate been fixed. The Court rejected this argument. There was no evidence before the Court that fixing the gate would have completely solved the problem of unwanted visitors coming to the Property and if that was the case, why the Defendants did not fix the gate earlier. Second, the security cameras were also installed when Pleterski and the Defendants’ employee lived at the Property, which “had little to no deterrent effect whatsoever” on the unwanted visitations.
Against this backdrop of facts, the Court found there was a significant safety risk at the Property at the time 653 Ontario Inc. marketed and sold the Property to the Plaintiff and that the Defendants had knowledge of this fact. The Court also determined the Defendants made these representations when marketing the Property with the intention that they would be acted upon by the Plaintiff, and that the Plaintiff relied on these false representations in deciding to purchase the Property.
The Property’s latent defect, an ongoing safety risk associated with the previous owner’s fraudulent activities, was intentionally hidden from the Plaintiff. The court emphasized that this defect would not have been discoverable through a routine inspection, and the Defendants actively took steps to obscure the Property’s history by describing it as “private and secure” when it was neither of those things.
The ongoing safety risk was found to render the Property dangerous and unfit for habitation. The court rejected the Defendants’ speculative claim that Mr. Gilgeous-Alexander, as a celebrity, athlete, and NBA Star, faces a higher degree of risk in his professional life in comparison to the risk to his safety from the fact that the previous tenant at the Property being Mr. Pleterski.
While the defendants argued that the risk was extrinsic to the property, the Court cited Dennis v. Gray and Sevidal v. Chopra, which establish that dangers, even if extrinsic, can qualify as latent defects affecting the subject property.
Issue 3: Court Ordered Remedy of Rescission
The Court found the Plaintiff now owns a property in which its principals do not wish to reside, and incurred damages in the form of mortgage payments (over $75,000), property taxes, utilities, insurance, and maintenance and repair expenses.
In response to the gravity of the misrepresentation and latent defect, the court deemed rescission as the appropriate remedy. This equitable remedy aims to put the contracting parties back in their pre-contractual positions, acknowledging the serious impact of the Defendants’ misconduct on the Plaintiff.
Should rescission prove impractical, the Court ordered an alternative remedy of equitable damages. This would involve the sale of the Property on the open market, with damages covering the difference between the purchase and sale prices, land transfer tax, and relevant payments made by the Plaintiff.
Conclusion
This case highlights the importance of transparency in real estate transactions and the severe consequences that can arise from a Seller’s material misrepresentation and failure to disclose latent defects. If you are unsure of your disclosure obligations or if you believe a party has made a material representation and/or failed to disclose a latent defect in your real estate transaction, you may contact Prabhjot Singh Badesha in the Litigation Group at DBS LLP.