KPA Lawyers did not represent any of the parties in this case. This article is published for educational purposes only. Here is a link to the full case: Nguyen v. Zaza, 2023 ONCA 34 (CanLII)
In a falling real estate market, it’s natural to see some buyers backing out of real estate deals, despite being legally obligated to close on their deal. After all, the idea of buying a property at a certain price, only to take possession of that property after it has dropped significantly in value, is an unsettling position for buyers. We can’t be sure as to whether such market forces contributed to the breach of contract in this specific case, but we can say that the reason put forth by the buyer for backing out of the following deal was not accepted as a sufficient reason in Court.
A recent decision from the Ontario Court of Appeal clarified that buyers who back out of a signed real estate purchase can’t rely upon a rather creative excuse. When Thi Phuc Nguyen (“Buyer” or “Appellant”) signed an Agreement of Purchase and Sale for a residential property on December 19th, 2019, which had a closing date no later than 6:00 p.m. on November 15, 2021, the property was technically still owned by the father of the vendor who was listed on the Agreement.
On January 18, 2021, the vendor’s father transferred title of the property to his son, and his son’s wife for $2.00. The Buyer was made aware of the change in title to the property and the additional seller prior to closing. With that knowledge, she entered into an amendment to the agreement of purchase and sale which addressed any issues about who held title and whose names were on the agreement of purchase and sale. The amendment corrected the legal description of the property and added the Ms. Truong as a seller. It changed nothing else in the December 19, 2020 agreement of purchase and sale.
After failing to close the deal, the Appellant argued in court that because title to the property was in the name of the Vendor’s father at the time the agreement of purchase and sale was signed, the son was not entitled to require her to complete the agreement of purchase and sale on the closing date. The Appellant also argued that the Vendors were required to obtain her consent for the January 18th, 2021 transfer of title of the property from the father to the son and daughter-in-law.
The Court of Appeal rejected those arguments.
The Court held that in order for a seller to be entitled to the sale price of a property at closing, the seller must be in a position to ensure that good title is conveyed to the purchaser: see 1854329 Ontario Inc. v. Cairo, 2022 ONCA 744, at para. 12. The Court found that the Vendor was in a position to pass legal title to the Appellant on November 15th, 2021, had the appellant tendered the purchase price required on closing.
A case like this offers some takeaways for buyers and sellers of real estate in Ontario.
For sellers, if you aren’t on title to a property when you sign an Agreement of Purchase and Sale (“APS”) to sell that property, this won’t necessarily be fatal to the deal, as long as you are in a position to convey title on the closing date and, to be extra careful, notify the buyer of any transfer of title, and/or necessary amendments to the APS to alert the buyer to the change before the closing date arrives.
For buyers, just because a seller isn’t on title to a particular property at the time that the APS is signed does not automatically mean you will be able to rely solely on that fact to back out of the deal.