Buying and Selling in a Volatile Market

Since Kathleen Wynne’s housing plan announcement on April 20, 2017, we have seen an increase in buyers walking away from transactions and real estate litigation has increased.

The law in Ontario is that if a transaction does not close on the closing date, the buyers will then be in breach. An Agreement of Purchase and Sale (“APS”) is a contract. The Buyers have an obligation to purchase, and the Sellers have an obligation to sell, the property by the closing date. If either side fails to fulfill their obligations, that party is in breach.

In real estate a Buyer may be in “anticipatory breach” if at any point between the signing of the Agreement of Purchase and Sale and the closing date, they advise the Sellers that they will not be able to close.

In this housing market, there are many reasons why a Buyer will not be able to, or refuses to, close on a property, i.e. they cannot secure financing for the property since the value of the property dropped, they have not been able to sell their own house, or they do not think the value of the property is worth the amount in their APS.

These are not good enough reasons. Buyers cannot simply walk away from the transaction. Some may think that the only amount they will lose out on if they do walk away is their deposit. This is not true.

If a Buyer anticipatorily breaches, or is in breach of the APS, a Seller must mitigate their damages. This means, the Seller must do everything they can to minimize their damages. Usually this means re-listing the property and selling it for fair market value.

A Seller can also re-negotiate with the Buyer. The upside to renegotiating with the Buyers are: the renegotiated price may be less than the drop in the property value since the APS was signed, you do not have to have any other open houses, you do not have to re-list the property and try to sell the now stale property, potential buyers will not use the aborted sale as a bargaining tool to lower the price of your property, and you do not have to incur the legal costs of suing the Buyers for your damages.

However, re-negotiating with the Buyers is not always practical, especially where they are requesting an open closing date, the reduction they are requesting is too high, or where there is no confidence they will close at some future date.

A Seller who has a Buyer walk away from an APS can sue the Buyer for the following:

1. The difference in price between what the APS was for, and what the home actually sold for;
2. Their real estate legal fees which were thrown away;
3. All carriage fees for the property, including mortgage(s), interest on any bridge loans, hydro, gas, insurance, even landscaping, or snow removal;
4. Interest on all of the above, and
5. Legal fees.

If you are a buyer who is in this situation, you should have counsel attempt to negotiate on your behalf. You want to make it very difficult for the Seller to turn down your reasonable offers of negotiation, so if they do try and sue you for the above, you can use the defence that they failed to mitigate.

If you are the Seller, you want to obtain legal advice as to how far your duty to mitigate extends, what your options are, and how to go about minimizing your damages. You also want to know what your damages are before you agree to sign a Release so as to obtain the deposit. We can review your documents, your facts, and provide you with an analysis as to what your damages are likely to be. We can also review any proposed settlement documents and provide you with advice on those too.

 

The foregoing should not be considered to be legal advice and should not be relied upon as such. Please consult a lawyer to get advice and an opinion on your unique circumstances.