Canada: What Happens When A Party To A Real Estate Transaction Fails To Close?

Last Updated: August 7 2019
Article by Christopher W. Statham and Steven Huryn

The Agreement of Purchase and Sale (APS) has been signed and any conditions waived or fulfilled. All that remains is for the closing itself to take place. What happens when a party to a firm APS fails to close the deal? This may happen, for example, if the buyers find out that they are unable to obtain financing for the property, as was common around the Greater Toronto Area (GTA) two years ago during the market correction. The answer will obviously depend on the particular circumstances, however case law provides us with some generalizations:

1) Seller fails to close

If the buyer is ready to close, and for whatever reason the seller has a last minute change of mind and refuses to close, the buyer may be entitled to damages and/or specific performance forcing the seller to close. In Semelhago v Paramadevan [1996] 2 SCR 415, the Supreme Court of Canada held that whether or not a buyer is entitled to specific performance depends on how "unique" the property in question is. Courts will take into account both objective and subjective factors when determining whether the test for uniqueness is met (see, for example, Marvost v Stokes, 2011 ONSC 4827, aff'd 2012 ONCA 74).

2) Buyer fails to close

This was a common situation following the market correction in areas around the GTA that resulted from the introduction of Ontario's Fair Housing Plan (Ontario Ministry of Finance, 20 April 2017). Unless the seller can sell the property for an amount greater or equal to what the buyer had agreed to pay, the seller will be entitled to damages, amounting to the difference between the agreed upon price for the property in the failed APS and the amount that the seller ultimately sold the property for.

3) Realtor Liability

Occasionally we are asked whether a realtor can be held liable for a failed APS, particularly if, for example, a realtor did not advise an inexperienced buyer to make an offer conditional on financing. Case law on this topic is somewhat mixed. There is a line of cases in which buyers were successful in third party claims against realtors who failed to advise the buyers about the risks of not making their offers conditional on financing or another event taking place, such as a satisfactory home inspection (see, for example, Krawchuk v Scherbak, 2011 ONCA 352 and Pitter v Ha, 2005 CarswellOnt 10310 (Sup Ct J), aff'd 2007 CarswellOnt 4271 (Sup Ct J (Div Ct)). On the other hand, there are cases in which courts have determined that the parties to an APS were experienced in trading in real estate and should have been aware of the risks of making an unconditional offer to purchase a property, and therefore third party claims against the realtors did not succeed (see, for example, Shields v Broderick, 1984 CarswellOnt 1251 (H Ct J).

4) Return of Deposit

One final item to consider regarding a failed APS is what happens with the buyer's deposit. A deposit will only be refunded if the buyer and seller agree to execute a mutual release or if one of the parties obtains a court order.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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