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Breach of Real Estate Deal By Sellers

We represent defaulting and non-defaulting sellers and buyers in breach of contract claims relating to real estate agreements of purchase and sale.  We have found that a number of sellers will sign an Agreement of Purchase and Sale, and later decide to change their mind and not sell.  If the prospective purchaser does not agree to sign a Mutual Release, which releases all parties from future claims and actions against one another, the seller could be exposed to a claim for breach of contract.

Sellers may wish to terminate an Agreement of Purchase and Sale if they have entered into the agreement prior to a general price increase in the market.  In such a scenario, the sale price of the property may be below the current market value of the home.  As such, the seller will not wish to sell their property at a price lower than the market. Accordingly, the seller will attempt to default on their agreement, hoping that the buyer does not seek recourse. Buyers of these properties, intending to close the transaction and experience an immediate capital appreciation, will pursue sellers for all losses that are a reasonable and natural consequence flowing from the breach of contract.

With a recent downturn in the Toronto residential housing market, buyers are now walking away from their deposits after they have entered into Agreements of Purchase and Sale, and they may be unable to recoup the same unless through a Mutual Release, Court Order, or the closing of the home.  When you are embroiled in a real estate dispute, it is advisable to call a lawyer that understands the standard form documentation that governs real estate transactions in Ontario, and how to protect your rights.

Breach of Real Estate Agreement by Buyer

Breach of Contract by Buyers

Oftentimes, unwitting buyers and sellers enter into Agreements of Purchase and Sale in an unprepared manner; with one side to the transaction unable to close for any number of reasons. Buyers typically do not include conditional financing arrangements in their offers, for fear that they will not be successful in attaining an accepted offer and binding agreement with the seller as the GTA real estate market has been fierce over the past few years; however, this often comes back to haunt them.

Buyers entering into binding agreements with a seller, who are unable to subsequently obtain financing, and thereby default on the agreement, will subject themselves to potentially significant damages for breach of contract. The non-defaulting seller will be entitled to retain the deposit or more of the total purchase price of the property), and any other costs that are a natural consequence of the breach (i.e., if they are able to re-sell the home at a lower price), the defaulting buyer will be on the hook for the shortfall.

We have negotiated with numerous buyers and sellers for extensions to Agreements of Purchase and Sale. Buyers are most typically requiring extensions to purchase agreements due to their inability to obtain financing to close transactions.  With the recent softening of the GTA housing market, many purchase agreements that were entered into several months back are at purchase prices above the market price of the property at closing. Accordingly, tier one banks are appraising the value of the home at a price lower than the purchase price, and accordingly, are not willing to provide mortgage loans sufficient to cover the balance of the purchase (above the equity down payment).

In the circumstances, buyers are seeking out alternate financing from secondary lenders, which can often come at prohibitive interest rates, to finance the difference between the value as appraised by the banks at closing and the purchase price of the property according to the Agreement of Purchase and Sale.

Rather than take on high-interest financing, many buyers opt to forego the deal altogether, thereby forfeiting their initial deposit and subject themselves to future claims from non-defaulting sellers for damages. If you are involved in a real estate dispute, whether as a buyer or seller, it is advisable to consult with an experienced lawyer in Toronto prior to signing any further documents.  Goldstein Law is available for a free consultation today.

Breach of Real Estate Agreement of Purchase and Sale

Goldstein Law has experience working with residential and commercial purchasers, vendors, landlords, tenants, real estate agents, and insurers with respect to a wide variety of real estate issues. Our real estate dispute lawyers employ a business-minded approach to obtain efficient and cost-effective results for clients in connection with their real estate issue.  We have specific expertise in handling aborted or defaulted transactions.

Breaches of Contract by Purchasers 

When a buyer and seller enter into an Agreement of Purchase and Sale (OREA Standard Form 100) both parties are bound by the terms and conditions set out in the contract and any Schedule “A” thereto. In a hot real estate market such as Toronto, where properties are sold in bidding wars, buyers often avoid including conditions in their offers to purchase. A condition permits a buyer to abort the transaction without penalty if it cannot be satisfied. If the agreement does not contain a condition, the buyer is bound by its terms and must perform the contract.

Making Your Agreement Conditional on Financing

One of the most common reasons that buyers are unable to close on transactions is an inability to secure financing. Without an agreement conditional on financing (see information and examples of financing conditions here), the buyer cannot abort the contract due to the failure to obtain mortgage financing. As such, they will be bound by the terms of the agreement, and if the contract is breached, will be liable for any damages resulting therefrom.  A financing condition will permit the purchaser to cancel the transaction if they cannot obtain financing satisfactory to the buyer at their sole and absolute discretion. As such, if you cannot obtain the amount of financing at the interest rate, term, or amortization period that you require, you will have the right to terminate the contract without penalty, but only if the agreement is conditional on financing.

Agreements Without Conditions 

If you enter an Agreement without any conditions, financing or otherwise, and you are unable to carry out the transaction, you may be liable for damages.  When a property is canceled with no justifiable reason,  the non-defaulting party (i.e., the seller in this case) will be entitled to retain the deposit (i.e., the buyer forfeits the deposit) and additional damages that naturally arise out of the breach of contract. However, in certain cases (as discussed Redstone Enterprises Ltd. v. Simple Technology Inc.), a Court may order relief from forfeiture if the amount of deposit is disproportionately high as compared to the purchase price of the property; and it would be unconscionable for the deposit to be forfeited to the seller.  This only happens in extreme scenarios.  Typically, the deposit is to be forfeited by the defaulting buyer to the non-defaulting seller, even if the seller does not demonstrate that any damages have been suffered). 

Calculating Damages

Typical damages include extra expenses that incurred, that would have been avoided had the property been sold at the closing date (i.e., additional mortgage interest payments, utility bills, property tax, and insurance premiums). In addition, if the non-defaulting party re-lists the property and is unable to obtain the equivalent purchase price (i.e., suffers a loss in purchase price), the defaulting party may be liable for such shortfall.

Forfeiting Deposits

It is important to note that when a deposit is provided by a purchaser to a vendor in connection with a real estate transaction, that deposit is held in the listing real estate brokerages trust account. The deposit cannot be released in the event of a breach of contract without the consent of the vendor and purchaser as diarized on a Mutual Release Form. Though the Mutual Release form contains signature lines for the real estate brokerage, the signatures of the brokerages are not actually required to release the funds.  If the buyer and seller cannot agree to a distribution of the deposit, litigation may commence and the real estate brokerage will be required to retain the deposit funds in trust until a Court Order is issued. For more information on handling deposits, refer to the Real Estate Council of Ontario bulletin here. 

If you have been involved in an aborted real estate transaction in Ontario, it is best to obtain the insights of an experienced real estate dispute lawyer to advise you of your rights. Contact Goldstein Law Firm for a free consultation around your breach of contract.