It’s no secret that the Great Toronto Area housing market is hot. Homes are not only more expensive than ever, but competition between buyers persists. In the race to own a home, many buyers are taking on unconventional contracts to come out on top in the bidding process. But when things don’t roll out as smoothly as expected, it can be costly.
This is why working with a legal professional who can guide you through the process is essential to protecting your assets and ensuring you get what you signed up for. With more and more developments popping up, especially throughout the Greater Toronto Area, Halton Region, and Southwestern Ontario, inexperienced developers are more prevalent. If their plans fall through due to permit and licensing issues and the like, there are losses on all sides.
An Agreement of Purchase and Sale is Required for Real Estate Transactions in Ontario
A formal written contract is required for every real estate transaction in Ontario. The agreement of purchase and sale lays out all the important elements of the contract, including the offer, acceptance, and money to be paid. Each party to this contract has obligations to fulfill, and the agreement of purchase and sale codifies this.
Once an agreement to make a purchase has been made, both the buyer and the seller are bound by a set of terms and conditions. The buyer cannot revoke their offer for a specific period of time during which the seller can accept it, reject it, or issue a counteroffer. If the offer is accepted, there is a legally binding agreement in the form of the agreement of purchase and sale. There is also usually a deposit put down by the buyer as a form of security to ensure they follow through on their end of the agreement. Standard forms for the purchase, sale, and leasing of commercial and residential properties are provided by the Ontario Real Estate Association, although other types of agreements can be used.
Reasons to Purchase Pre-Construction Homes
Throughout Ontario, many homebuyers opt to get into the market by entering agreements of purchase and sale during the pre-construction phase. Purchasing a home in the pre-construction phase allows homebuyers to customize their homes with the features and fixtures of their choosing and avoids the stressful bidding process that often occurs when purchasing a resale home.
Purchasing a home in the pre-construction phase also gives homebuyers more time to save for the down payment without having to pay for any increase in the home’s value during that time. Since the purchase price is agreed to prior to or during construction, the construction period not only gives homebuyers additional time to save for a downpayment, it also increases the value of the home without increasing the price. Additionally, many pre-construction homes offer competitive deposit structures and later closing dates.
Always Ensure Your Deposit Is Secured
Occasionally, one end of a deal is not upheld and the real estate transaction falls through. In the event that something unexpected like this occurs, all deposits on real property must be secured to ensure the homebuyer can get their deposit back. The problem is that sometimes developers may incentivize buyers with large discounts in exchange for larger deposits.
Recently, two cancelled townhouse projects in Richmond Hill have lost buyers a combined $5.7 million in deposits. The projects were cancelled after the Ontario Home Construction Regulatory Authority charged the development company for operating without a license. Their application for a license was later refused. Secured lenders are hoping to sell the development land to get their money back, but buyers were told their unsecured deposits would likely not be paid back after the secured lenders are repaid.
What Happens if the Seller and the Buyer Disagree on the Terms of the Contract?
It is possible that courts could offer some recourse for those facing losses. For example, in The Rousseau Group v 2528061 Ontario Inc, a property was purchased for $10.5 million for its development potential. The buyer planned to have a large residential development with the land. The purchase price was set based on the roughly 30 acres of “net developable acreage.” The buyer paid a $50,000 deposit up-front. An additional $400,000 deposit was to be paid if the buyer waived all conditions, although certain conditions were in place for the buyer to inspect the property prior to acceptance.
On inspection, the buyer wanted to reduce the purchase price as much less of the land was developable than initially represented. The purchase price was reduced to $6,615,000, and the buyer agreed to take on the seller’s existing mortgage. The buyer then waived all conditions in the purchase agreement, but a dispute arose as to whether the buyer had to pay the additional $400,000 deposit. The seller maintained the buyer did, while the buyer maintained that by taking on the mortgage they did not have to.
The seller claimed the agreement was breached when the buyer refused to pay the $400,000 deposit and refused to close the transaction. The buyer started an action to compel the seller to complete the transaction. By the time the action reached court years later, the buyer was no longer interested in purchasing the land and instead sought damages for its losses, including the loss of profits it would have made if the property had been developed.
Courts Potentially Offer Recourse to Buyers in Real Estate Contract Disputes
The court agreed that the buyer did not have to pay the $400,000 deposit in the new deal, so it was the seller who breached the agreement, and the buyer was entitled to damages. The buyer’s conduct during negotiations and the agreement of purchase and sale made it clear they were going to go through with the purchase, which the seller understood. The buyer, through expert evidence, projected its lost profits to be in the range of $10 to $12 million. The damages claim was accepted and the developer had to pay the buyer $11.1 million based on these projected losses. The question remains if this is available for individual purchasers buying pre-construction.
Set the Terms of Your Real Estate Contract with the Real Estate Lawyers at Campbells LLP
The experienced lawyers at Campbells LLP in Oakville have been servicing clients in real estate matters since 1999. We have experience addressing all aspects of a real estate transaction, from residential to commercial. We are thorough, efficient, and focused on delivering the best possible outcome for every single client. Contact us online or at (905) 828-2247.