Buyer fails to prove that property was resold at unconscionable price after aborted transaction – Real Estate

In collapsing real estate markets, buyers who do not complete their purchase may face liability that far exceeds any down payment they paid. In most cases, the seller will be able to claim damages based on the difference between the unpaid purchase price and the amount realized in the subsequent resale of the property. Ontario courts dealt with dozens of these types of market correction claims in 2017, which we discussed in Liability of buyers towards sellers in case of interrupted real estate closings – Part 1 and Part 2.

Due to the market correction in Ontario that began in 2022 and continues at the time of this writing, there will undoubtedly be dozens more cases arising from similar circumstances.

The decision of the Supreme Court of Ontario v Switzerland v. Petrie, 2023 ONSC 5115 (CanLII)arose from a failed transaction in July 2022.

On May 14, 2022, Defendant entered into an Agreement of Purchase and Sale (APS) to purchase Plaintiffs’ residential property for $810,000 with a scheduled completion date of July 14, 2022.

On July 4, 2022, the defendants announced that they would be unable to complete the transaction due to “unforeseen circumstances”. Among other things, they complained that they had not received a survey of the property and that they were concerned about the property’s drainage. However, neither of these issues appear to have been addressed in APS as conditions that would have authorized them to terminate the transaction.

Plaintiffs immediately relisted the property for sale at $699,000 and ultimately accepted an offer from another buyer for $600,000, which closed on August 19, 2022. Defendants sued for the difference and related expenses totaling $212,302.11.

The plaintiffs filed a motion for summary judgment on their claim, which is common in these types of proceedings.

In response, the defendants dropped their claims against the property and took the legal position that the subsequent sale price agreed to by the plaintiffs was a genuine issue requiring trial. In particular, they looked at whether the price reflected the fair market value of the property in August 2022, when it was resold.

Since there was no doubt that the buyers had breached the APS and were liable, the only live issue before the court was damages and the sellers’ potential failure to mitigate.

Neither party submitted any evaluative evidence to support its position on the proposal. Instead, the plaintiffs relied on the fact that they sold the property to the buyer on customary terms and that no other offers were made during the listing period.

The motion judge agreed with the sellers that the claim was subject to summary judgment and did not require a full trial, citing the general principle that unless a buyer closes a real estate transaction and the seller takes reasonable steps to sell the property in an arm’s length sale to a third party to mitigate damages , the difference between the two sales prices will be used to calculate damages: 642947 Ontario Ltd. against. Fleischer (2001), 2001 CanLII 8623 (ON CA), at para 41. In such circumstances, expert evidence will generally not be required: Marshall v. Meirik, 2021 ONSC 1687in the paragraph 30aff’d 2022 ONCA 275.

Defendants pointed to certain facts related to the sale to argue that they were questionable as to its imprudence, particularly the speed with which the property was resold at a much lower price. However, the motion judge held that it was too late for the defendants to participate in the motion for summary judgment without presenting at least some evidence of the property’s value to challenge the arm’s length sale. They had no appraisal or other evidence of market value and did not cross-examine the plaintiffs about the sale process.

In response to the motion for summary judgment, the defendants were required to make their best appearance. On the contrary, according to the judge’s motion, “plaintiffs were entitled to rely on an independent sale to a third party as prima facie determining the fair market value of the property on the date of resale. They were not required to conduct any expert evidence.’

The defendants also failed to prove any breach of duty by the plaintiffs. After being informed by the defendants that they would not close the transaction, the plaintiffs re-registered the property with the realtor and accepted an independent offer on the property. The price was not unreasonable.

As a result, the motion judge concluded that the fair market value of the property at the time of its resale in August 2022 was $600,000 and there was no failure to properly mitigate. Plaintiff’s motion for summary judgment was granted and the court awarded damages in the amount of $212,302.11. A $15,000 bond was credited against the judgment. Plaintiffs will also be entitled to court costs in an amount to be determined.

The case is a fairly typical but certain story for buyers facing a claim for damages after a failed transaction. While there may be circumstances where the buyer is financially unable to complete the purchase, in many situations the consequences of not closing the deal can be significant. The party in violation of the APS assumes the risk of being exposed to damages based on prevailing market conditions. A PDF version is available for download here.

The content of this article is intended to provide a general guide to the issue. Professional advice should be sought regarding your particular situation.

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