Written by Jacob Poole | HGR Graham Partners LLP
When selling or purchasing a property, the parties will enter into an Agreement of Purchase and Sale which governs the terms and conditions of the transaction. Once the agreement is signed, both parties are legally bound by the Agreement of Purchase and Sale. If a party is unable to complete the transaction, they may be in breach of the Agreement of Purchase and Sale which may trigger certain rights and entitlements of the non-breaching party. This article highlights the risks to buyers and sellers associated with their failure to complete the transaction.
Buyer Withdrawal
There are several reasons why a buyer would fail to close on a deal, including but not limited to:
- Mortgage Approval: When applying for a mortgage, the lender ordinarily conducts an analysis of the purchaser’s borrowing capacity. In some circumstances, buyers are not approved for financing after the Agreement of Purchase and Sale is firm.
- Change of Circumstances: In some cases, purchasers may experience “buyer’s remorse” after the Agreement of Purchase and Sale is executed.
Buyer Consequences
Lost Deposit: When the buyer fails to close on the purchase, subject to the Agreement of Purchase and Sale, the buyer may be required to forfeit their deposit.
Liability for Damages: In addition to the forfeiture of the deposit, the seller of the property will be entitled to re-list and re-sell the property. If the buyer subsequently re-sells the property for less than the agreed upon purchase price for the failed transaction, the purchaser of the failed transaction may be liable to the seller in damages for the difference between the originally agreed upon purchase price and the subsequent sale price, together with all costs incurred by the seller in carrying the property until its subsequent sale. These costs can be significant.
Vendor Withdrawal
Similarly, there are several reasons why a seller may be unable or unwilling to complete the transaction, including but not limited to: “seller’s remorse”, receipt of a subsequent more favorable offer, or having not found an alternative living arrangement post-sale. Subject to the Agreement of Purchase and sale, the innocent buyer may be entitled to remedies based on the specific details of the transaction.
Forfeiture of Deposit
In some instances, the seller may be required to forfeit the deposit back to the purchaser.
Liability for Damages
As we saw above, the breaching party (in this case the vendor) may be required to provide monetary compensation to the innocent party for any costs directly related to the failure to complete the transaction. One common example is if the buyer sold their previous home in preparation to move into the new home and, as a result of the failed transaction, may incurs temporary accommodation costs.
In other instances, the buyer may be entitled to damages for, among other things, loss of economic opportunity.
Specific Performance
Another possible remedy for a breach by the seller is a court order for specific performance. In this case, the court may order the selling party to fulfill their side of the contract and to complete the transaction. Though this is a rare remedy, the court will look at the following factors, among others, to determine if the remedy is appropriate:
- Uniqueness: The property must be unique to the buyer’s intended use with comparable alternatives not being reasonably available to the purchaser.
- Adequacy of Payment: Monetary compensation does not adequately compensate the buyer for the loss of acquiring the unique property.
- Behavior of the Parties: If the seller is acting in bad faith, there may be a claim for specific performance.
Closing Remarks
Failed real estate transactions are common. The breaching party may be at the risk of significant consequences, including monetary damages. For help navigating your legal dispute, please reach out to one of our litigation lawyers.
Please note that this article is intended for general information purposes only and is not considered legal advice.