Rabinowitz v. 2528061 Ontario Inc., 2026 ONCA 21
A recent Ontario Court of Appeal decision offers a trio of lessons that transactional real estate lawyers cannot afford to overlook: the limits of specific performance, the dangers of failing to plead damages as an alternative remedy, and a cautionary tale about mortgage interest clauses. Although the case was litigated, the core problems arose at the drafting table or, more precisely, from what was left off it.
The Background
The appellant buyer, Naftali Rabinowitz, entered into a commercial agreement of purchase and sale with the numbered company respondent. To facilitate the deal and allow time for due diligence, the appellant advanced $600,000 to the respondent structured as a six-month interest-free mortgage. The mortgage was to be deducted from the purchase price on closing. If the deal closed, the mortgage would simply be absorbed. If it didn’t, the mortgage would stand on its own.
It didn’t close. The trial judge found that the respondent had repudiated the agreement. And then things got complicated.
Lesson One: Specific Performance Is Harder to Get Than You Think
When transactional lawyers document a commercial real estate deal, they often assume that if something goes wrong, a court can simply order the other party to close. That assumption deserves scrutiny.
Specific performance is an equitable, discretionary remedy, not an automatic right. To obtain it, a buyer must demonstrate that the property or the agreement itself is unique in a way that makes monetary damages insufficient. For residential properties, uniqueness is often presumed. For commercial investment properties, it is not.
In this case, the trial judge and appellate court agreed that the appellant had not demonstrated that the property was subjectively or objectively unique, nor that damages would be an inadequate remedy. The property was purchased as a potential investment opportunity. That characterization, while commercially sensible, worked against the claim for specific performance. A property bought purely for investment is, by definition, replaceable by another investment yielding equivalent returns.
The takeaway for transactional counsel: when acting for a buyer of commercial property, document the specific reasons the property is unique to your client. Is there an irreplaceable location advantage? A particular zoning feature? A relationship with a tenant or an adjacent owner? Build the record early, because by the time you are in a courtroom, it may be too late.
Lesson Two: Always Plead Damages in the Alternative
This is perhaps the most striking aspect of the case for transactional lawyers who occasionally assist clients through disputes. The appellant’s litigation counsel chose not to claim damages as an alternative remedy. In closing submissions, counsel confirmed to the trial judge that no damages were being sought.
When the claim for specific performance failed, the appellant tried to go back and amend his pleading to add a damages claim. The trial judge refused, and the Court of Appeal agreed. Allowing the amendment would have prejudiced the respondent, who had conducted its entire defence on the basis that no damages were at issue. Reopening the trial to permit new evidence on damages did not meet the legal test. The appellant was left without a remedy for the repudiation.
The practical implication is straightforward. If you are ever involved in advising a client whose transaction has broken down, even if you are the transactional lawyer handing off to litigators, flag this issue clearly. Always plead damages in the alternative. The failure to do so here cost the appellant his entire remedy in the purchase and sale action, despite the other side having repudiated the agreement.
Lesson Three: Mortgage Interest Clauses Need Precise Drafting
The one area where the appellant succeeded on appeal involved the mortgage interest clause, and it is a valuable drafting lesson.
The mortgage stipulated that the interest rate would be 0% until the balance due date of July 10, 2018, and 12% per annum calculated monthly thereafter, until repaid in full. There was no reference to default. The rate simply stepped up on a fixed calendar date.
The trial judge interpreted this as a default interest provision, reasoning that the 12% rate kicked in on the first day of default, and therefore found that it violated s. 8 of the Interest Act, which prohibits charging higher interest on arrears than on the principal amount prior to default.
The Court of Appeal reversed this finding. The plain language of the mortgage tied the rate increase to a date, not to a default. Because the interest rate increase was not contingent on default, s. 8 of the Interest Act simply did not apply. The mortgage was interest-free during the deal period because it was part of the purchase transaction. Once the deal was off, the rationale for the interest-free period disappeared, and the 12% rate applied from July 10, 2018.
The drafting lesson: if your intent is for an interest rate to step up on a fixed date, regardless of whether the borrower is in default, say so explicitly and unambiguously. Tie the rate change to a calendar event, not to any language that could be read as default-related. Had the clause been even slightly ambiguous, this outcome may not have been salvageable.
The Bottom Line
Rabinowitz is a useful reminder that the documentation produced at the transactional stage shapes the legal remedies available years later. Establishing the uniqueness of a commercial property, ensuring claims are fully pleaded, and drafting mortgage interest provisions with precision are not just litigation concerns, but also drafting concerns. The time to get them right is before the deal breaks down.
