Written by Miguel Fernandez Morales | Published on October 7, 2024
When buying or selling a property, the involved parties enter into an Agreement of Purchase and Sale, which outlines the terms and conditions of the transaction. Once signed, both parties are legally bound by this agreement. If either party fails to complete the transaction, they may be in breach of contract, triggering certain rights and entitlements for the non-breaching party. This article highlights the risks for both buyers and sellers if they fail to complete the transaction.
Buyer Withdrawal
There are several reasons a buyer might fail to close a deal, including:
- Mortgage Approval: The lender typically evaluates the buyer's borrowing capacity when applying for a mortgage. In some cases, financing may be denied after the agreement is finalized.
- Change of Circumstances: Buyers might experience "buyer's remorse" after the agreement is signed.
Buyer Consequences
- Lost Deposit: If the buyer fails to close, they may have to forfeit their deposit according to the agreement.
- Liability for Damages: Beyond forfeiting the deposit, the seller can re-list and sell the property. If the property sells for less than the original agreed-upon price, the buyer may be liable for the difference, plus any costs incurred by the seller in maintaining the property until it is sold. These costs can be substantial.
Vendor Withdrawal
A seller may also be unable or unwilling to complete the transaction for various reasons, such as "seller's remorse," receiving a more favorable offer, or failing to secure alternative living arrangements. Depending on the specifics of the agreement, the innocent buyer may be entitled to certain remedies.
- Forfeiture of Deposit: The seller might be required to return the deposit to the buyer.
- Liability for Damages: If the buyer has sold their previous home in preparation for the new one, the seller might have to compensate the buyer for temporary accommodation costs and other losses resulting from the failed transaction. Damages could include loss of economic opportunity as well.
- Specific Performance: A court might also order specific performance, requiring the seller to fulfill their contractual obligations and complete the transaction. This remedy is rare and depends on several factors, including: the property must be unique to the buyer's needs, monetary compensation is inadequate to cover the loss, and if the seller acted in bad faith, specific performance might be warranted.
Closing Remarks
Failed real estate transactions are not uncommon, and the breaching party could face significant consequences, including monetary damages. For help navigating your legal dispute, contact one of our litigation lawyers.
Please note that this article is for general information purposes only and is not intended as legal advice.
For more information about real estate in the Greater Toronto Area, contact Miguel Fernandez Morales at 647-894-0553 or visit www.yourfamily.incomrealestate.com.