Can you sue a purchaser for failing to close a residential real estate transaction in Ontario?

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KPA Lawyers - February 21, 2019

To quote the Court in Gamoff v. Hu, 2018 ONSC 2172, “when the residential real estate market is a rising market, most people – perhaps with the exception of first time buyers, are happy homeowners and investors. When the market turns and drops, it is not for the faint of heart.”

The General Rule                                                                                                                                                      As a general rule, in a falling market the court will award the vendor damages equal to the difference between the contract price and the “highest price obtainable within a reasonable time after the contractual date for completion following the making of reasonable efforts to sell the property commencing on that date”[1]

The general rule applies when the Agreement of Purchase and Sale was signed unconditionally. On the other hand, if the parties agreed to a financing condition or other condition was included in the Agreement, then the purchaser will almost surely rely on any such conditions (whether or not true) to justify the breach.

Summary Judgment                                                                                                                                        Beyond the above-mentioned entitlement, plaintiffs may also rejoice that such cases are often dealt with by the courts without the need for a trial. Specifically, a number of decisions from courts in Ontario have granted summary judgment in favour of vendors who sued purchasers that failed to close a transaction after an Agreement of Purchase and Sale had been executed. Summary judgment is intended to expedite cases that don’t require a trial.

The Supreme Court of Canada has said that Courts should consider if summary judgment would be a timely, affordable and proportionate procedure. The Court specifically found that summary judgment rules are to be interpreted broadly and that the focus must be on providing access to justice in a timely manner.[2]

It’s not uncommon for defendants to attempt to make allegations against their own real estate brokers, or suggest that the plaintiffs failed to obtain the highest price obtainable after breached contract (this is the plaintiff’s duty to “mitigate damages”).

In deciding in favour of the plaintiffs in the case of Gamoff, the Court stated,

“The real issue that this court has to grapple with is whether or not the full forensic machinery of a trial is required to determine whether the Plaintiffs acted reasonably in their efforts to mitigate their damages. In my view there is no genuine issue that does require a trial, either with respect to whether or not the Defendants breached the agreement, or any genuine issue as to whether the Plaintiffs properly mitigated their damages.”

Red Flags                                                                                                                                                              Although it’s not unusual for real estate transactions to require brief extensions to the closing date, you should be very suspicious of a purchaser who repeatedly asks for long extensions. This is an indication that they’ve changed their mind about the contract, but don’t want to admit to actually being in breach of the Agreement of Purchase and Sale.

Another issue for vendors to keep in mind is the names that appear on the Agreement of Purchase and Sale. For example, if a husband and wife intend to sell their home to another couple, seeing only one name or signature from the side of the purchasers should be a huge red flag. The reason this is a red flag is because you can’t sue someone for breaching a contract with you if you never had a contract with that person. Our office has seen examples of husbands who surreptitiously placed only their wife’s name on the Agreement of Purchase of Sale but held the majority of the family’s assets in shell corporations. These types of schemes don’t work out in the long wrong for the dishonest purchaser, but it can a headache for the plaintiffs in Court.

Vendors should consider collecting as large a deposit as possible, and ensuring that there are no unreasonable conditions in the Agreement of Purchase and Sale. In fact, if the vendor is enjoying the proverbial “seller’s market”, requiring that the Agreement have no financing condition or other condition will ensure a much better legal position.

[1] 642947 Ontario Ltd. v. Fleischer, 2001 CarswellOnt 4296, [2001] O.J. No. 4771 at para 41(5)

[2] Sinha v. Shabestari 2018 ONSC 298, 2018 CarswellOnt 369 at para 7, Book of Authorities, Tab 5; Hryniak v. Mauldin, [2014] S.C.J. No. 7, 2014 SCC 7 (S.C.C.) at para. 50

#realestate #vendor #purchaser #agreementofpurchaseandsale #failtoclose

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