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In this article, we’re going to be answering the question “Can a seller walk away from a real estate deal in Ontario?”
Now there’s a lot of commentary out there on this topic, especially in this hot real estate market we’re seeing in Ontario right now, but I cannot stress enough the importance of making sure that you cut through the noise and make sure you’re getting your answers from an actual licensed lawyer in Ontario.
The reason for this is when real estate deals go bad, it often results in litigation lawyers getting involved and people ending up in civil court. That kind of thing is way outside the scope of what a real estate lawyer, real estate agent or mortgage broker is trained for.
In my opinion, the best way to get reliable information about real estate lawsuits in Ontario is to talk to a civil litigation lawyer who actually practices in that area of law.
Alright let’s get into it.
So you sign an Agreement of Purchase and Sale for a piece of real estate in Ontario, and as far as you’re concerned, the deal is done, the ink is on the paper and that house is as good as sold.
Okay, let’s assume the deal was on an unconditional basis, meaning that the parties committed to closing the deal no matter what.
After an unconditional APS is signed by both parties, if either side tries to walk away, this can result in a lawsuit, depending on certain factors.
Sellers might do this for all kinds of reasons, especially if they don’t know they could get sued. So for example, a seller might think that they could get even more money from another Buyer because of sharp increases in the price of housing, or perhaps a Seller might get cold feet and realize that they’re still very emotionally attached to their home, and they might decide that they just don’t want to leave. At the end of the day, whatever the reason, the Seller will likely end up in a lot of legal trouble.
The most obvious outcome here is that the Buyer sues the Seller for breach of contract. Usually the Buyer is going to be asking the Judge for one of two things to make things right, or in other words, the Buyer will be seeking a remedy for the injustice that has been done to them.
The two main remedies for compensating a Buyer when a Seller breaches an APS are as follows:
The first remedy is simply money, or what lawyers call “compensation for liquidated damages”. This makes sense for a lot of reasons. As you can imagine, Buyers might end up being harmed financially if a Seller refuses to close the deal. A Buyer might have already sold their previous house in anticipation of moving into their new one, or the market might have become more expensive, and now the Buyer has to pay even more money for a house similar to the one that they were expecting to receive. There’s all kinds of logical reasons why the Seller might have to pay money to the Buyer due to the financial harm that the Seller caused the Buyer.
Okay let’s look at the second remedy that Buyers will look for when suing a Seller. This is something that lawyers call “Specific Performance”. In other words, this is where the court will order the Seller to perform their obligations under the contract, meaning that the Judge could actually force the deal to be completed and for the title to the real estate to pass to the Buyer, as agreed upon in the APS.
Now, if you’re a Buyer who has or will be suing a Seller for breaching an APS, then Specific Performance sounds like a pretty great outcome. After all, you’re ultimately getting the real estate that you purchased, and the Seller can’t do anything to stop you from moving in and taking possession of the land.
If the Seller refuses to comply with the court order, then the Seller could be held in contempt of court, and then have to spend some time in jail. So that usually gets people to cooperate.
But like many things in the law, it gets a little bit more complicated.
The truth is courts will not look at Specific Performance as a first solution, meaning that they will generally prefer to compensate the Buyer by requiring the Seller to pay money to the Buyer, and that doesn’t involve the Buyer getting the house they purchased.
Now, the Buyer will still get a chance to make their case as to why they should receive the remedy of Specific Performance rather than money, but the Buyer’s lawyer really has to make sure they know what they’re doing here.
In considering whether or not Specific Performance is appropriate, Judges will look at the following three factors:
Okay let’s look at each of those factors one at a time. The reason that the nature of the property has to be considered is because Judges will want to know if there was something unique about the property.
So this includes things like (a) the property’s physical attributes; (b) the Buyer’s subjective interests, or (c) the circumstances of the underlying transaction.
The word “uniqueness” in this context means that the property has one or more qualities making it especially suitable for the intended use that cannot be readily duplicated elsewhere. For example, in a rising real estate market like the one we’re seeing in Ontario right now, the Court will consider the fact that the Buyer’s deposit was tied up by the vendor for some time, and by the time the Buyer gets their deposit back, prices might have changed in the market to the point where the Buyer can’t afford a similar property in that same price range anymore. All of that would mean that the deal the Buyer entered into was sufficiently unique, in the sense that the specific economic conditions at the time of the deal no longer exist, and it would be difficult to calculate how much money would need to be given to the Buyer to duplicate those exact same economic conditions. Simply giving the Buyer the house that they intended to Buy would remove all economic uncertainty from the process of making a fair and just decision.
Okay now let’s look at the second major factor the Buyer will have to address which is the inadequacy of money as a remedy. This could go either way.
For instance, courts will be reluctant to choose the Specific Performance where the property was purchased solely as an investment-property, since money would be well-suited to satisfy purely financial interests of the Buyer. After all, if the Buyer isn’t going to be living in the property themselves, it’s kind of hard for the Buyer to make the argument that money isn’t a good solution.
On the other hand, even for investment-properties, if calculating a correct and reliable amount of money would be time-consuming, difficult, or too complex, there could be an argument in favour of Specific Performance.
Okay so moving on to the third and final factor as to whether or not Specific Performance is appropriate, Judges will look at the behaviour of the parties involved. Courts have said that a Seller’s bad faith attempt to terminate a valid APS may support an order of specific performance against that party. Now whether or not certain behaviour was in bad faith is something that a Judge is going to have to decide based on common sense and the facts of the case. But the main takeaway here is a Seller never wants to come across as acting unfairly or maliciously after signing an APS because that kind of bad faith behaviour could be used against them in Court.
So that pretty much sums up the three factors that Courts will look at when deciding whether or not Specific Performance is an appropriate remedy for a Buyer.
And even if a Buyer can’t make the case that Specific Performance is appropriate, then remember, all is not lost, the Buyer can still make an argument as to why they should receive money for all their trouble.
As always, it’s important to remember that this article is not intended as legal advice, and you should always speak with a qualified lawyer if you have questions about real estate lawsuits in Ontario.
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