Many times, parties treat their obligations in real estate transitions as an afterthought, and then fail to close on transactions. These failed transactions emphasize the role and responsibility of the court in determining whether a party has violated the agreement, and to hold that party accountable.

In a recent case, Tega Homes (Attika) Inc. v. Spencedale Properties Limited et al., the Superior Court of Ontario considered how the quantum of damages should be calculated when a seller willfully disregards their contractual obligations in an agreement of purchase and sale and pulls out of the agreement last minute.

The Plaintiff, Tega Homes (Attika) Inc. ("Tega"), is a corporation in the business of developing residential condominiums. The Defendants, Spencedale Properties Limited and Markton Properties Limited own two buildings located in Ottawa, that were primarily used for commercial tenancies (the "Properties").

In 2011, the parties decided to enter into a joint venture to redevelop the Properties into residential units. Eventually, Tega was not able to obtain the necessary approvals for the project and the joint venture expired. In 2013, the parties entered into a new agreement, which was effectively an agreement of purchase and sale ("APS"). When it came time to close, the Defendants pulled out of the agreement last minute.

At summary judgment, the Judge found that there was no legal basis for the Defendants to refuse to close on the transaction. The matter proceeded to trial to answer the question of the amount of money that is owing to the Plaintiff.

In its decision, the Trial Judge acknowledged that the purchaser should be compensated for its losses given the seller's willful disregard of the contract. The Court found that the seller knew that purchaser would suffer a significant financial loss if the transaction did not close. The cost awarded Tega $323,000, which was the difference between the purchase price and the value of the land when the transaction was supposed to close, and reimbursed Tega for 90% of its costs spent redeveloping the land.

Lawsuits such as this serve as a costly reminder to understand whether you can meet and are happy with the terms of a contract before entering into one.

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