Collapse of a Real Estate Transaction

While it is not common, from time to time we do see a real estate transaction fall apart in the days and even hours leading up to closing and possession. This can be due to a variety of reasons, but almost always catch our clients off guard. In my career, I have seen where:

1. The Purchaser’s mortgage financing falls through,
2. The parties become aware that one or more of the Sellers is a non-resident of Canada, which has major tax implications; and
3. Damage or destruction occurs to a home which makes the Purchaser reluctant to complete the transaction.

Any one of these scenarios can lead to a breach of the purchase contract, as they usually mean either the Purchaser or the Seller is not ready or able to complete the transaction on the closing date. In all of these circumstances, we have worked with the clients, realtors, and other lawyers, to find solutions to these problems. Often, they can be handled by delaying the transaction and allowing the offending party time to rectify the situation. Particularly with banks and mortgages, it could simply be a matter of a lender error or a mortgage professional sending in the wrong documents. Damage to the property can be dealt with by way of assigning the proceeds of the Seller’s insurance policy to the Purchaser. In most cases, we can come to an understanding that salvages the deal.

There are times, however, where one or more of the parties is not willing to negotiate, or the issue is not easily curable in a short period of time. In this case, the consequences can be severe.

If the transaction is not completed due to a default of the Purchaser (for example, not having their money available on the Closing Date), then the immediate consequence is that they lose their deposit. However, if the Seller has suffered damages above and beyond the deposit amount, they would have the right to sue the Purchaser for failure to perform the contract. These losses could include expenses incurred waiting for another buyer, additional legal and Realtor fees, and loss of profits if they are unable to find another buyer willing to pay the same price.

If the Seller is in default, the Purchaser has several remedies available as well. Apart from financial losses, in certain circumstances the Purchaser can sue for “Specific Performance”. This is a remedy the Court can provide, which forces the Seller to comply with the contract, and complete the transfer of the property to the Purchaser. This is most common where the property in question has specific qualities or characteristics which cannot easily be compensated through monetary damages, or where a similar property is simply not available to the Purchaser.

In most situations, who caused the breach or default of the purchase and sale contract is not so clear-cut, and the actual remedies available will be determined by the specific facts of the case. As a Seller, your best protection for ensuring the transaction will be completed, is by acquiring as large a deposit from the Purchaser as possible. For both parties, skilled Realtors and legal counsel are the best hedge against a major loss.

An Associate Lawyer at Beaumont Church LLP in Calgary, Dan Hawkwood comes from a long line of farmers and ranchers in the Calgary area and brings the experience of his rural upbringing to his practice.

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