Damages Buyers Face When Failing To Close On An Agreement To Purchase And Sale

In these difficult economic times, many home buyers are looking to avoid closing on their recent real estate purchases. Often buyers have the false belief that the amount of money they will lose is limited to the deposits that they have already paid. However, buyers beware, because failing to close on a real estate deal can result in having to pay damages beyond the initial deposit.

If an APS lacks a valid clause allowing buyers to avoid having to complete their deal, they will be found in default if they refuse to close. If the buyer defaults, the seller has the right to sue for any damages caused by the buyer’s refusal or inability to abide by the APS. A buyer's default also trigger’s the seller’s obligation to mitigate their damages. Mitigation means the seller must relist and attempt to sell the house. The defaulting buyer will then be responsible for the difference between the sale price in the original APS and the new sale price. In a rising market, these damages are often smaller than they would be in a falling market. Given the uncertainty in the real estate market, defaulting buyers may risk having to pay significant damages in the event of a lawsuit.

Beyond the lose income from having to resell a home at a lower value, defaulting buyers are also responsible for other costs associated with their refusal or inability to close. Damages can include, but are not limited to carrying costs, legal fees, financing charges and all costs associated with having to relist and resell the property. These costs can also be significantly higher due to COVID-19 as houses may be on the market for longer and there are more complications associated with closing a deal.

While COVID-19 has added uncertainty to the real estate market, it is not new for buyers to default on their APS. In 2018 case, Bang v. Sebastian, 2018 ONSC 6226, the Ontario Superior Court awarded $122,221.33 plus legal costs to the seller, Bang, after the buyer, Sebastian, refused to close. The costs were the sum of costs associated with a lower resale price ($75,000), extra financing charges (32940.93), carrying costs ($13,325.55) and the lawyer’s fees for attempting to close the deal with Sebastian ($954.85). This case demonstrates the significant costs that can be associated with defaulting on an APS.

Buyers should carefully consider their ability to close on an APS they sign. Moreover, they should consider making their sale conditional on receiving appropriate financing, so buyers are not responsible for damages if they cannot secure a mortgage. If a buyer is considering defaulting on an APS, they should carefully weigh the risks of a lawsuit and be aware of the potential costs of their actions.

Before entering into an APS it is always wise to speak with a lawyer. At Law365 we are happy to help you with the process of buying or selling a home. If you have any questions, call us at (647)-494-9599 or email us at info@law365.ca.