ABORTED REAL ESTATE TRANSACTIONS

A real estate deal may not close for any number of reasons.

Generally, if the seller is at fault, the buyer will be entitled to the return of their deposit and Mutual Releases will be exchanged.

However, in this current climate of rising interest rates, it is more common for a purchaser to not be ready or willing to complete the transaction.

Deposit Forfeited

Normally in this situation, the purchaser will, at minimum, forfeit their deposit.  The reason for this is that the purpose of a deposit is two-fold: it is a part payment towards the ultimate purchase price; but it is also intended to bind the purchaser to the deal.  So the general rule is that the deposit is forfeited if the vendor is at fault for non-completion of the deal, whether or not the purchaser can prove any damages.

That doesn’t mean that the vendor’s damages are limited to receiving the Purchaser’s deposit. Rather, the general formula applies: the innocent vendor is entitled to be paid money to put them in the position they would have been in had the sale been completed.

That generally means that the largest item of potential damages is for a deficit if on resale the property doesn’t fetch the same amount as the original contract price.

However, there can be additional damages for transaction costs, such as additional lawyer’s fees, and additional refinancing charges. As well, the defaulting purchaser may be responsible for other downstream expenses.  If their vendor was in turn going to buy a property and that transaction failed, then the defaulting purchaser may also be responsible for damages suffered by the person who had sold the property to their vendor, if that sale could not close.

If there are additional such losses, the vendor will be entitled to recoup them all.  If they exceed the amount of the deposit, they will be awarded that additional amount as well as being entitled to keep the deposit.

In a rising real estate market, the vendor will perhaps have an incentive to negotiate a settlement with respect to the deposit amount.  That would happen if, for example, there was some legitimate dispute as to whose fault the non-completion was. In those circumstances, the vendor might be prepared to split the deposit.

Similarly, if the vendor can relist the property in a rising market for even more money, and if the deposit was a large one, the purchaser, and their lawyer, may be able to convince a court that under the Courts of Justice Act, the purchaser should be relieved from forfeiting their entire deposit if the court finds that the amount of the deposit was grossly disproportionate to the harm, if any, that the seller suffered.

However, in a falling real estate market, the likelihood is that there will be other significant losses that the seller will have suffered thus generally entitling them to keep the entire deposit plus whatever other damages they may have suffered.