In Rosehaven Homes Limited v. Aluko,, the Ontario Court of Appeal considered an appeal relating to a buyer’s failure to close on an Ontario residential real estate deal. This case serves as a reminder of the importance of addressing conditions in an agreement of purchase and sale long before the closing date to avoid a collapsed deal. In this blog post, we will review the particulars of this case and provide some helpful tips for addressing conditions in a contract before the closing date. 

What Amounts to a Failure to Close a Real Estate Deal in Ontario? 

Buyers and sellers in real estate transactions are contractually bound to an agreement of purchase and sale. Typically, these agreements will include specific conditions the parties must meet before the deal is finalized on the closing date. Ideally, each party fulfills their obligations, and the transaction is “closed” on the closing date. 

For example, an agreement might be made subject to the buyer obtaining financing for the purchase. If the buyer cannot fund the purchase by the closing date, and the seller is unwilling to extend the closing date, then the buyer will fail to close the real estate deal. 

If a buyer fails to close, they will forfeit any deposits they have made to the seller. However, in some circumstances, such as those present in the case below, more than just a deposit may be at stake. 

The Contract Was Signed, But the Buyers Failed to Close 

In Rosehaven Homes Limited v. Aluko, the appellant buyers entered into an agreement of purchase and sale with respondent Rosehaven Homes Limited to purchase a new home. The purchase price was over $1.5 million. 

The buyers paid an initial deposit and later paid additional deposits based on a schedule set out in the contract. 

The closing date for the purchase was November 6, 2018. However, the buyers could not close on that appointed date because they could not obtain financing. The buyers received two extensions for which they paid an additional $20,000 deposit for each extension. 

Ultimately, the buyers failed to close the deal.    

The Seller Resold the Property Months Later and Sued the Buyers

On July 10, 2019, Rosehaven sold the property to a different buyer for $1,060,000. 

After reselling the property, Rosehaven brought an action against the original buyers and was awarded the difference between the original sale price of $1,523,162 and the resale price, less the deposits paid by the buyers. 

The Buyers Appealed the Court’s Decision

The buyers appealed the decision, arguing that it should be overturned for the following reasons: 

• the judge erred in admitting and relying on Rosehaven’s expert report concerning the value of the property; and
• the judge erred in law by failing to appropriately consider Rosehaven’s mitigation efforts in the quantification of damages. 

Alleged Issues Regarding Rosehaven’s Expert Report

The buyers’ arguments regarding Rosehaven’s expert report were largely technical. Namely, that the expert failed to sign a Form 53 Acknowledgement of Expert’s Duty and failed to include the instructions they received from Rosehaven for preparing a report. 

The Court of Appeal dismissed the buyers’ argument, noting that the report did not perfectly comply with the requirements of Ontario’s Rules of Civil Procedure, but the compliance issues were not material. 

Further, the buyers failed to object to the report or its contents, raise the alleged deficiencies on cross-examination, or file competing expert evidence at trial. Essentially, the buyers failed to raise issues regarding the alleged deficiencies of Rosehaven’s expert report at the appropriate time. 

Rosehaven’s Alleged Failure to Mitigate Their Damages

The buyers’ second argument related to Rosehaven’s mitigation efforts. The buyers’ alleged that Rosehaven failed to appropriately mitigate their damages concerning the collapsed deal and that the motion judge failed to take this failure into account when awarding damages to Rosehaven. 

The buyers noted that Rosehaven waited several months before reselling the property and did not list the property on the Multiple Listing Service (“MLS”), choosing instead to advertise the property in-house. 

The Court dismissed this argument, noting that while the motion judge had grappled with Rosehaven’s delay in reselling the property and failing to list it on MLS, no evidence was put forward to suggest that Rosehaven would have received a better offer had they listed sooner or used MLS. 

The Court Upheld the Lower Court’s Award and Ordered Costs

The Court of Appeal upheld the lower court’s decision and Rosehaven was awarded the difference between the original sale price of $1,523,162 and the resale price, less the deposits paid by the buyers. 

Additionally, the Court of Appeal awarded $10,000 in costs to Rosehaven. 

Additional Thoughts on Failing to Close a Real Estate Deal in Ontario

In a volatile real estate market, buyers who fail to close a deal risk losing more than their deposit. In cases where a seller has difficulty selling their property after the deal collapses or is required to accept a lower offer, they may be entitled to pursue additional damages in court. These instances highlight the importance of understanding your rights and obligations before entering a real estate contract. 

One of the best steps buyers can take to ensure they can meet the conditions of a contract of purchase and sale is extensive preparation. Below are just a few tips for home buyers to consider long before signing a contract: 

• Confirm financing well in advance. Financing issues are a common cause of collapsing deals. If you are financing your purchase, conduct your due diligence long before you sign a contract to ensure you will be able to secure funding for your deal. 
• Stick within your budget. While a competitive market can easily push you into a bidding war, never lose sight of your budget or financing limit. 
• Get on top of your obligations. Buyers often include the condition that they will obtain a satisfactory property inspection. Likewise, sellers often require a condition that the buyer obtains property insurance. These small obligations can add up and create complications if they are not quickly addressed. 
• Retain a lawyer as soon as possible. Retaining an experienced real estate lawyer early is critical. They will be able to advise you on your obligations, gather documents, and get ahead of any issues or disputes that might arise before the closing date.  

Oakville Real Estate Lawyers Representing Buyers, Sellers, and Professionals

The real estate lawyers at Campbells LLP will guide you through every step of your residential real estate transaction. Whether you are a first-time homebuyer or are well-versed in real estate transactions, obtaining legal advice for each transaction is imperative. Our lawyers take the time to ensure that you understand your options, we review all relevant paperwork and contracts, negotiate on your behalf and defend your interests in any potential disputes that may arise. 

We are here to meet your real estate law needs. To speak with one of our experienced real estate lawyers, contact us online or call us at 905-828-2247.