In a recent Ontario case, a purchaser learned that a failure to obtain financing after signing a real estate agreement did not excuse his reneging on the deal.
Purchaser Refuses to Close Deal
The vendor and buyer entered into an agreement of purchase and sale for a home in the amount of $1,635,121. The purchaser paid deposits of $160,000.
After both parties initially agreed to extend the closing date, the purchaser subsequently advised the vendor of his intention not to close the transaction on February 7, 2018, stating in an email “I hereby inform you that due to deliberate inflation of the price, we are not closing on Friday.”
The vendor applied to court alleging that the purchaser’s conduct was an anticipatory breach of the agreement. The vendor submitted that the purchaser was obligated to close the transaction on the date scheduled for closing and did not have the right to unilaterally refuse to do so.
In response, the purchaser relied on the doctrines of frustration, force majeure, impossibility, and impracticality, arguing that the doctrines vitiated the agreement and relieved him of his obligations under it.
Further, in his counterclaim, the purchaser sought the return of his $160,000 deposit. He relied on a significant decrease in value in real property in the Greater Toronto Area (“GTA”), which he submitted had caused the agreement to become radically different from the one that the parties entered into.
The purchaser submitted that, as a result of the decrease in value in real property in the GTA, he had been unable to secure financing, which had resulted in making the agreement commercially impractical for him to complete. He argued that such unforeseen events had resulted in the obligations under the agreement of being radically different from those contemplated by the parties, resulting in a frustration of the agreement, which relieved him of his obligations. He emphasized that the drop in the real estate market was outside of his control. Finally, he submitted that the drop in the GTA real estate market had not been anticipated by the parties to the agreements.
Court Rejects Purchaser’s Claims
The court rejected the purchaser’s argument, stating:
“The Purchaser claims for a return of the deposit on the ground that the [agreement] was terminated as a result of the operation of the doctrine of frustration, impossibility, force majeure and impracticality.
The Purchaser’s obligations under the [agreement]did not change, nor did the purpose of the [agreement]. The Purchaser contracted to pay a price for the Property, regardless of whether he could obtain financing. Even if the Purchaser was unable to borrow a sufficient sum of money to close the transaction of purchase and sale, (the Purchaser has not adduced any evidence to support his assertion that he was unable to secure financing), such does not absolve him for his liability pursuant to the [agreement].
The Purchaser did not make financing a condition of his offer to purchase the Property.
I find that as the Vendor accepted the Purchaser’s anticipatory breach of the [agreement], it resulted in the [agreement] being at an end.”
The court therefore held that the vendor was entitled to be put in the financial position that it would have been in had the purchaser not breached the agreement.
As such, in the result, the court ordered the purchaser to pay the vendor $272,967 plus interest, after deducting the deposit amount from the damages.
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