Can a contract providing for an option to purchase land be disclaimed?
Bryton entered into an Option Agreement with CIM and Bayview, pursuant to which it had an irrevocable option to purchase the subject Property for a purchase price of $41,720,000. On October 29, 2020, CIM filed a Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency Act. On December 7, 2020, CIM issued a s. 65.11 notice to disclaim the Option Agreement. Its trustee approved the disclaimer. Bryton delivered notice of its election to exercise its option to purchase the Property.
CIM subsequently sought an order for a declaration that its notice to disclaim the option in the Option Agreement was valid and effective. Bryton sought a declaration that it not be restrained from exercising the option and an order directing CIM and Bayview to comply with the terms of the Option Agreement and complete the sale of the Property to Bryton.
Section 65.11(1) of the BIA provides that a debtor in respect of whom a notice of intention was filed may disclaim or resiliate any agreement to which the debtor is a party on the day on which the notice of intention was filed. A party to the agreement may apply for an order that the agreement is not to be disclaimed or resiliated. In deciding whether to make an order, the court is to consider:
- whether the trustee approved the proposed disclaimer or resiliation;
- whether the disclaimer or resiliation would enhance the prospects of a viable proposal being made in respect of the debtor; and
- whether the disclaimer or resiliation would likely cause significant hardship to a party to the agreement.
CIM argued that the Option Agreement was an executory contract which did not create an interest in land and could be disclaimed. According to it, Bryton had contractual rights but not specifically enforceable proprietary rights that would render it immune from disclaimer.
The Court noted that options to purchase create immediate interests in land and are specifically enforceable. In this case, it held that the Option Agreement created an immediate interest in the Property. The disclaimer by CIM, if effective, would amount to an expropriation of Bryton’s proprietary interest in the Property. The court was not able to authorize CIM to disclaim and thereby terminate the interest of Bryton in the Property pursuant to s. 65.11 of the BIA.
The Court ordered that s. 69(1) of the BIA no longer operated in respect of Bryton and its contractual rights under the Option Agreement. It declined to declare the disclaimer as valid and effective, and declared that Bryton was at liberty to exercise its rights under the Option Agreement.
Counsel: David Ward, Erin Craddock and Tamie Dolny of Miller Thomson for CIM Bayview Creek Inc.; John Birch and Jeremy Bornstein of Cassels for Grant Thornton Limited as proposal trustee; and Robert Choi of Owens Wright for Bryton Capital Corp. GP Ltd. and Bayview Creek Residence Inc.
Judge: Cavanagh J.