The Sale of Your House Fails to Close – What Happens Next?
By Matt Mulholland
Selling or buying a home is often one of the largest and most stressful financial transactions that a person will be involved in during his or her life. As a result, it is likely that those involved in the transaction will have taken steps to ensure that they maximize the value of their property and to have the proper representatives in place to help ensure a stress free and smooth transaction.
But what happens when an otherwise straightforward transaction takes a turn for the worse and the buyer is unwilling or unable to close?
This unexpected turn of events is not uncommon in a fluctuating market, such as in Toronto. These sorts of disputes can be devastating for both parties and their subsequent actions can make the situation go from bad to worse, if not handled quickly and properly. It is therefore important for both the buyer and the seller to understand their legal obligations.
In this week’s blog post, we will review a dispute between a purchaser and a seller wherein the buyer was unable to close, which ultimately resulted in litigation. The aborted sale resulted in significant damages for the vendor totaling nearly $57,000 and in this case the buyer was found to be liable for the full amount of the seller’s losses.
Factual Background
In O’Hare v. Wyton, 2018 ONSC 3946, Mr. Wyton (the “Purchaser”) agreed to purchase the O’Hares’ (the “Vendors”) residence in Whitby, Ontario for $760,000. The transaction was set to close on July 21; however, the Purchaser failed to complete the transaction. As a result, the Vendors were forced to re-list their property for sale. Unfortunately for the Vendors (and ultimately the Purchaser), the housing market had cooled dramatically since it was originally listed and had shifted towards what is commonly known as a “buyer’s market”. The Vendors received significantly fewer offers the second time around and eventually sold the property for nearly $50,000 less than the original Purchaser had agreed to pay.
The Vendors sued the Purchaser seeking damages representing the difference in the sale price, as well as other incidental expenses, which totaled approximately $57,000. The Vendors alleged that the Purchaser repudiated a firm agreement to buy their home, and due to that breach, they suffered losses, for which they should be compensated by the Purchaser.
The Purchaser, however, argued that the agreement was not breached and that a verbal discussion had taken place which had the effect of extending the closing date until July 28, 2017. In addition, the Purchaser argued that the Vendors failed to mitigate their damages by reselling their home for an improvident price. The Purchaser further claimed that he had made a second offer on July 27, almost a week after the original closing date of July 21, for $740,000, which the vendor refused to accept. The Purchaser believed that the second offer was valid and that it should have been given consideration when assessing the difference in the sale price, and while assessing the Vendors’ alleged obligation to mitigate the damages suffered. The Purchaser argued that the damages ought to be only the difference between $740,000 and $760,000, rather than the difference between $712,000 (the final sale price) and the initial sale price of $760,000.
In this scenario, the vendors were required to prove the following: 1) that there was a contract, 2) that the purchaser breached the contract, 3) that they suffered damages as a result of the breach of contract and 4) that they took reasonable steps to mitigate the damage.
Legal Framework
Justice Boswell of the Ontario Superior Court presided over the case and was tasked with addressing three issues:
1. Was the closing date extended as alleged by the purchaser or was the contract breached?
2. Did the Vendors fail to mitigate their damages?
3. What was the appropriate measure of damages?
1) Was the closing date extended?
The Purchaser claimed that the scheduled closing date of July 21, 2017, was extended by the Vendors’ agent in discussions they had with the Purchaser’s agent. The Purchaser alleged that the discussion took place prior to the originally scheduled closing date and that there was an agreement to extend that closing date to July 28, 2017. The Vendors real estate agent, Ms. Bryant, swore an affidavit that no such discussion took place. Moreover, the Purchaser failed to provide an affidavit from his agent of the purported discussions with Ms. Bryant. Justice Boswell determined that the Purchaser’s evidence, at best, indicates that the closing date could be extended, but there is no evidence that there was ever an agreement made to actually extend it. Therefore, Justice Boswell determined that the closing date was not extended.
2) Did the O’Hares fail to mitigate damages?
Innocent parties need not demonstrate flawless efforts at mitigation and the onus is on the purchaser to establish, on a balance of probabilities, that the vendor failed to reasonably mitigate damages. Following the aborted closing, the Vendors relisted their house at $725,000, which was the original price they had listed it for back in February 2017. When the house was relisted after the aborted closing, the market had shifted to a “buyer’s market”, and the Vendors were unable to get the influx of offers that they had received earlier. This, unfortunately, led to the house being sold for substantially less than the Purchaser had previously agreed to pay and resulted in a delayed closing.
The Purchaser argued that the Vendors failed to mitigate damages when they had resold the property for $13,000 below the asking price. However, the Purchaser had hired an appraiser to determine the value of the property, prior to aborting the transaction in the first place, and the house was appraised at $710,000. On the Purchaser’s own evidence the Vendors would appear to have sold the property for $2,000 more than the Purchaser’s appraised value. In fact, Justice Boswell found the Purchaser had walked away from the transaction because he felt that he had overpaid for the property.
3) What are the appropriate damages?
The measure of damages is the amount required to put the non-breaching party in the position it would have been in had the contract been performed as agreed (Hadley v. Baxendale [1894] 9 Exch 341).
The Vendors had suffered damages that were relatively straightforward. They included the difference in sale price from $760,000 to $712,000, as well as additional carrying costs that the Vendors incurred between the original closing date of July 21 (the aborted closing date) and October 31, 2017 (the ultimate closing date). Justice Boswell assessed the total damages to be $56,581.90 and held the Purchaser liable for this amount.
Discussion
Although it was determined, in this instance, that the Purchaser was ultimately guilty of breaching the agreement, the case raises some interesting issues that affect both parties of the aborted transaction.
Regardless of the fact that one party may have been guilty of a breach of contract, the other party is not excused from the obligation to act reasonably when making efforts to minimize the potential losses arising from the said breach.
The damages awarded in the case could have been significantly reduced had the judge found that the Vendors had, in fact, failed to mitigate their damages thereby contributing to the value of the loss.
The lawyers at Gill & Mulholland LLP have extensive experience in contract dispute resolution, including in all matters relating to real estate disputes, and we understand that litigation can be a difficult and complicated process.
In the event that you or your clients are faced with a real estate dispute, or if you have any concerns regarding questionable purchaser or vendor behaviour, please don’t hesitate to speak to one of our lawyers to ensure that your interests are properly understood.
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