Beware sending a real estate deal off the rails
Be reasonable, get solid legal advice to help minimize damages and avoid an ugly court case
An interesting decision from Toronto’s small claims court last December
provides a useful lesson on the obligations of buyers, sellers and lawyers
when a real estate transaction starts to go off the rails.
In his decision, Justice M. Donald Godfrey wrote that the case came to court
because the parties and their lawyers were unable to work out a “reasonable
compromise” on the closing of a transaction on Mould Ave., in Toronto.
Nuno Barbosa and Paula Boas agreed to buy the house for $516,000 from Helder
and Maria Rodriguez, with a scheduled closing of October 30, 2009. Two days
before closing, the buyers discovered that the property taxes were not $2,300
as indicated on the MLS listing but were in fact almost $4,600. The increase
was the result of a re-assessment of taxes due to an addition to the property
which was completed in early 2008.
The buyers requested a $10,000 price reduction. When the sellers declined the
offer, the buyers refused to close even though their lawyer was holding enough
trust funds to complete the transaction.
After receiving advice from another lawyer, the buyers changed their minds and
told their lawyer that they were willing to close and sue later. But the
request was not made until after the 6 p.m. closing deadline.
The sellers did not agree since they did not know what damages they were
exposed to as a result of two “chain reaction” closings, which depended on the
sale of their Mould Avenue house.
The buyers then sued the sellers for return of their $10,000 deposit, and the
sellers sued the buyers for damages resulting from their refusal to close.
After an unusually long three-day trial, Justice Godfrey ruled that the buyers
should have closed the transaction on time since the breach of contract was
“not material.” However, the judge also decided that the sellers were entitled
to refuse to close 15 minutes after the 6 p.m. deadline because the contract
stated that time was “of the essence.”
The sellers could keep the $10,000 deposit, but were awarded no additional
damages since they did not take reasonable steps to limit their losses.
Although their legal position in refusing a price reduction was technically
correct, they were exposing all parties to the risk of subsequent litigation.
“The vendors knew or ought to have known,” the judge wrote, “that they were
obliged to compensate the purchasers for the misrepresentation on the taxes if
the purchasers were forced to close.” The judge felt that the $10,000
reduction offer “certainly appears to be a reasonable attempt to estimate (the
purchasers’) potential loss,” and the sellers were “negligent in absolutely
refusing the $10,000 abatement.”
They “could and should have at least made a counter offer” to hold back the
money and establish the proper damages after closing.
Three days after the scheduled closing, a further attempt to close failed. The
sellers offered to close if the buyers agreed not to sue them afterward, and
the buyers insisted on retaining their right to sue for damages as a result of
misrepresentation of the taxes.
On this point, “the vendors were not acting reasonably,” the judge wrote,
since “there was no question that the purchasers would be entitled to some
compensation for the misrepresentation of the taxes.”
In the end, “both sides acted unreasonably” in not enabling the transaction to
Even though the purchasers lost their deposit, the sellers were unsuccessful
in recovering their almost $27,000 in losses on their own purchase when they
failed to limit their damages. The sellers also had to pay their realtors
$3,750 in costs when the case against them was dismissed.
The lesson to be learned from this sad case is that any real estate
transaction carries the risk of going off the rails.
If that happens, it is critical that all parties act reasonably and get solid
legal advice on the risks involved, so that damages can be minimized and the
possibility of an ugly court case is avoided.
Often, in litigation, nobody wins.
Bob Aaron is a Toronto real estate lawyer. He can be reached by email at
email@example.com, phone 416-364-9366 or fax 416-364-3818.
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