Failed home purchase results in a $1.8 million judgment against the buyer

FAST HITS

• An Ontario court ordered a buyer to pay $1.8 million in damages after failing to complete an $8.3 million real estate purchase in Mississauga, rejecting arguments that the seller had failed to limit losses.
• The court found that the seller took reasonable steps to resell the property in a declining market and that the buyer failed to provide evidence, such as an appraisal, to support the mitigation defense.
• The decision underlines the high burden on buyers to prove no mitigation and the significant financial risks associated with canceling a deal.

When a buyer fails to complete a purchase transaction, the seller is generally entitled to keep the deposit and may seek additional damages for the buyer’s breach of the Agreement of Purchase and Sale (APS). The seller has a duty to take reasonable steps to mitigate such damage, usually by selling the property to someone else. During markets where property values ​​are declining, the resale price may be significantly lower than the price the original buyer was willing to pay, making the original buyer legally responsible for the difference. The rationale underlying such damages is that the seller has lost the benefit of the agreement with the buyer who violated the APS.

A buyer seeking to avoid liability for the entire difference in the resale price may attempt to argue that the seller failed to adequately mitigate damages by seeking the best available resale price. The buyer has a heavy burden to provide the judge with convincing evidence in this regard, as is evident from the outcome in Menon v. Simpson.

Background of the failed transaction

The case arose from an aborted transaction for the sale of a property in Mississauga, Ontario, for $8,385,000.

In May 2023, the defendant buyer entered into the APS with the claimant seller for the purchase of the home. The APS provided a deposit upon acceptance and an additional deposit in June 2023.

Although the defendant was unable to complete the transaction on the original closing date, an extension was granted in conjunction with the payment of an additional deposit and per diems. A further extension was subsequently granted until October 16, 2023, but the purchase was never completed.

The plaintiff ultimately resold the property to another buyer for $6,550,000.

Claim for damages and summary proceedings

The plaintiff then sued the defendant for damages resulting from the canceled sale. The amount claimed was $1,835,000, based on the difference between the agreed purchase price with the defendant and the final sales price, plus $550,000 in transportation costs.

The defendant did not dispute the amount calculated for the transportation costs, but argued that the plaintiff had failed to limit the damages claimed for the difference in the resale price.

The plaintiff has filed a motion for summary judgment, which requires a court to rule on the petition filed if there is no genuine issue requiring a full trial and the motion judge is satisfied that he is able to reach a fair and equitable decision on the merits of the case.

To dismiss a motion for summary judgment, a responding party has an obligation to submit evidence showing that there is a genuine issue requiring trial. A party may not rely solely on bare accusations or denials, but must put its best foot forward, as a judge in summary proceedings may assume that the record contains all the evidence that would be available at a full trial: Sweda Farms Ltd. v. Egg Farmers of Ontario2014 ONSC 1200, at par. 27, with 2014 ONCA 878 (CanLII).

Mitigation defense and evidence

Here the buyer’s only defense was that the plaintiff had failed to mitigate damages. In these types of disputes over aborted transactions, a mitigation defense places the onus on the party raising it to demonstrate that the other party failed to use reasonable efforts that were available to mitigate the impact.

The defendant argued, among other things, that the plaintiff should have submitted expert evidence on prevailing market conditions and appropriate marketing strategies for a luxury real estate property. The defendant argued that the property should have been initially listed at a lower price, given the declining market, and that an offer of $7 million with a $2 million mortgage should have been accepted.

In response, the claimant submitted evidence showing that:

• the property was relisted two weeks after the breach at the same offer price as when the defendant signed the APS;
• the claimant repeatedly reduced the price and there was evidence that there were discussions about price reductions;
• the claimant has considered renting out the property; And
• the plaintiff marketed the property on MLS and through other means, including magazines that targeted potential buyers in the area.

Furthermore, while complaining about the resale price, defendant did not submit an appraisal to support the position that the property was sold below market value. Although the request was delayed for several months to allow the defendant to obtain additional evidence in order to respond, no additional evidence was obtained.

Findings and outcome of the Court of Audit

The motion judge explained that while the amount of money in question was substantial, it was not determinative of whether a trial was necessary. On the contrary, this was precisely the kind of case in which a responding party had to ‘lead the trump or risk losing’.

The motion judge found that the defendant failed to establish that the plaintiff had not made reasonable efforts to mitigate the consequences by obtaining the best possible price, and that the resulting price represented the loss of the benefit of the agreement with the defendant.

As a result, the defendant was ordered to pay the plaintiff $1,835,000, representing the difference between the agreed contractual price and the final sales price, together with the transportation costs agreed between the parties ($550,000), as well as pre- and post-judgment interest, and legal costs in the amount of $20,693.85.

The case demonstrates the significant damages that can result from breaching an agreement to purchase a luxury property. Market conditions and the steps taken by the seller to find another buyer after an abandoned transaction will be key factors in calculating damages. Provided the seller can point to reasonable efforts made to market the property and resell the property at the best available price, a buyer may be responsible for the entire difference in the sales price.