Shared from our partners at Escarpment Law Group

Failure to complete a sale can be very expensive!

FYI… Buyers should be reminded that their failure to complete the transaction will result in the loss of their Deposit, even if the Seller is able to re-sell the property at a gain. 

The recent Ontario Superior Court decision heard on May 18th, 2021, offers a good summary of the law in Ontario. In that case, the Seller and the Buyer signed an Agreement on Nov. 25th, 2019 for a purchase price of $1,410,000.00 with a $100,000.00 Deposit, and a Closing Date of Feb. 28, 2020.

On the day before the Closing, the Buyer notified the Seller that the Buyer did not have the money or financing in place to be able to close the deal and wished to terminate the Agreement. The Seller was ready, willing and able to close on the Closing Date. Within 2 weeks, the Seller was able to re-sell for $1,525,000.00. By closing time, under the new agreement, the Seller had incurred expenses of $11,000.00 in increased carrying costs and legal fees thrown away with the original Buyer. 

Overall, the Seller had gained $104,000.00 under the second Agreement. The original Buyer asked for the return of his $100,000.00 Deposit on the basis that the Seller actually gained from the original Buyer’s failure to close, and that the Seller would be benefitting from an “unconscionable windfall” if he was also allowed to keep the original Buyer’s Deposit. The Judge re-stated the law in Ontario which requires the court to consider two factors when deciding whether to grant relief to the Buyer from forfeiture of the Deposit: (1) Would the loss of the Deposit be out of all “proportion” to the damages suffered by the Seller?. (2) Would it be “unconscionable” for the Seller to retain the Deposit? 

The Court ruled that a Deposit of $100,000.00 on a Price of 1,410,000.00 is “not disproportionate” and that it would “not be unconscionable” for the Seller to keep the Deposit because the parties entered into the transaction knowingly and without any inequality in bargaining power, and with all negotiations conducted in good faith and at arm’s length. 

The original Buyer lost his Deposit and the Seller netted an overall gain of $204,000.00 between the forfeiture of the original Buyer’s Deposit and his gain on the resale. 

Source: Escarpment Law Group | Burlington, Ontario

This content is intended as information only and not as legal advice or opinion as neither can be given without reference to specific events and situations. 

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