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).
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.
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.