In a recent Ontario Court of Appeal decision, the court addressed the issue of mitigation in a failed real estate deal.
Buyers Fail to Close Real Estate Purchase
On March 25, 2017, buyers signed an agreement of purchase and sale in relation to a new home to be built by the seller in Ontario. The purchase price was $1,115,490, with an initial deposit of $90,000. The buyers paid a further deposit of $50,312 toward $335,134 in upgrades to the property.
However, the buyers failed to close on the extended closing date of December 17, 2018, and the agreement was terminated by the seller in January 2019.
Lower Court Awards Seller Damages
In February 2019, the seller commenced an action in the Superior Court, claiming damages for breach of contract.
On November 2, 2019, the seller resold the subject property for $985,000, and shortly thereafter moved for summary judgment.
The motion judge granted judgment for $383,636, with prejudgment interest fixed at $90,717, and costs of $20,000. The damages of $383,636 consisted of the difference between the contract price and resale price (less real estate commission) of the home, plus carrying costs and expenses incurred by the seller for the period between the agreement closing date and the resale closing date, and the seller’s 15% administrative fee on such costs and expenses. Additionally, the motion judge fixed the postjudgment interest rate at 4.45% per year.
The buyers appealed to the Ontario Court of Appeal. While they did not dispute their liability for having breached the agreement, they took issue with the amount of the judgment. Specifically, the buyers argued that the seller had not taken reasonable steps to mitigate its damages as the property had not been resold for several months after the agreement was terminated and the seller’s practice of selling directly through its own agents “internally” instead of by listing through an agent and advertising the property on the multiple listing service (“MLS”) was unreasonable. They also contended that the motion judge’s reasons were insufficient because they did not address mitigation.
Court of Appeal Clarifies Mitigation Duties of Seller
The court began by explaining that, as a general rule, a plaintiff is not entitled to recover for losses which could have been avoided by taking reasonable steps. Further, where it is alleged that the plaintiff failed to mitigate damages, the onus is on the defendant to prove both that the plaintiff failed to make reasonable efforts to mitigate, and that mitigation was possible.
In the case of real estate transactions, the court stated:
“Typically damages in respect of a failed real estate transaction are determined based on the difference between the agreed sale price under the parties’ agreement of purchase and sale and the market value of the property at the date set for closing. The court may choose a date for the assessment of damages other than the date set for closing, depending on the context, including the plaintiff’s duty to take reasonable steps to avoid its loss, the nature of the property and the nature of the market.”
Ultimately, the court dismissed the buyers’ mitigation arguments, stating:
“[A]lthough I too am “troubled by” [the seller]’s decision to list the property internally rather than using a listing agent and the MLS, the [buyers] did not pursue the mitigation issue at first instance, nor was there evidence to suggest that a higher price would have been obtained if the property had been listed on the MLS as soon as the [agreement] was terminated. Indeed, the evidence is to the contrary: the uncontradicted appraisal evidence … indicated that the property was worth less in January 2019 (when the [buyers] contend it should have been listed on the MLS) than in October 2019, while it was on the MLS. If the property had been listed earlier, at best [the seller] might have avoided some of the carrying costs of the property (which was not argued before us) and some of the prejudgment interest.”
In the result, the court therefore dismissed the buyers’ appeal.
Whether you are buying your first home, purchasing a cottage or investment property, or selling your home to downsize to a condo, the real estate lawyers at Campbells LLP can guide you through every step of your residential real estate transaction. We will explain your options, review all relevant paperwork and contracts, negotiate on your behalf, and defend your interests in any potential disputes that may arise.
At Campbells LLP, we understand that the majority of real estate transactions occur in the evenings or on weekends. One of our lawyers would be happy to meet with you, by appointment, at a time and date that works best with your schedule. To learn more about how we can make the buying and selling process less stressful, contact us online or at (905) 828-2247. We look forward to speaking with you.