Real estate breach of contract is becoming increasingly common as the market heats up. As a seller, it is important to know what happens if you choose – or are unable – to complete a contract.
This blog post will review what sellers need to know about real estate contracts and what happens if they fail to comply with a signed contract. Sellers need to keep in mind that different real estate contracts will have different terms and subject clauses, and therefore, different complications may arise depending on the specific contract. If you have questions regarding a real estate contract, consult with an experienced real estate lawyer.
What is a Breach of Contract in Real Estate?
Real estate breach of contract refers to a situation where one or both of the parties to a real estate contract fail to complete a term of their contract and are unable to carry out the agreement.
For buyers, common examples of a breach include:
- failing to secure financing,
- failing to transfer funds,
- failing to complete legal documentation, or
- Cchoosing to breach the contract.
Common examples of real estate breach of contract for sellers will be outlined below.
Real Estate Breach of Contract and Subject Clauses
Subject clauses are often included in real estate contracts allowing the buyer to escape the contract if something goes wrong before the subject removal date. These clauses make the contract conditional (“subject to”) certain things being done.
Some common examples of subject clauses in real estate contracts include the contract being subject to the buyer obtaining financing, selling another property, or obtaining a satisfactory home inspection.
While subject clauses aren’t normally used to protect sellers, sellers must understand the subject clauses in their real estate contracts. It’s also important to note which subject clauses are not in the contract. For example, if the contract does not contain a “subject to financing” clause and the buyers cannot complete the deal because they cannot obtain financing, the deal will collapse, and the buyer will breach the contract.
Common Examples of Real Estate Breach of Contract
There are a variety of reasons why a seller may ultimately breach the terms of their real estate contract, such as:
- Choosing to breach the contract: sellers often breach a real estate contract by choice. For example, the seller may get a better offer on the property after signing a contract with the buyer, or a change in circumstances may otherwise motivate them not to proceed with the deal. Depending on the circumstances, it may be worthwhile for the seller to breach the existing contract.
In these circumstances, the seller’s breach will result in the deal collapsing. It is important to remember that a seller can breach a real estate contract in ways that do not necessarily result in a collapsing deal. Some examples include the following:
- Removing fixtures: “fixtures” (any property that is permanently attached to the property, often including objects like chandeliers, ceiling fans, or other affixed items) are considered to be a part of the property unless the contract specifies otherwise. If a seller removes “fixtures” before providing possession to the buyer, they may have breached a term of the contract.
- Failing to provide vacant possession: standard real estate contracts will typically require the seller to remove all moveable objects (like furniture and waste) and to have all inhabitants vacate the property by a certain date. Failing to vacate or remove moveable objects may result in the seller breaching a term of the contract.
What are the remedies for a breach of a real estate contract?
Unlike a buyer breaching a real estate contract, there is no deposit for the buyer to collect. This means that if a seller breaches a real estate contract, the buyer may bring legal action against them for monetary damages, termination of the contract and return of the deposit, or specific performance requiring the seller to complete the terms of the agreement, depending on the circumstances.
Given the various impacts of a seller’s breach of a real estate contract, the remedies available to the buyer may vary significantly. If you have concerns about the potential impact of a breach, consult with an experienced real estate lawyer for further information.
Final Thoughts on Real Estate Breach of Contract in Ontario
Entering into a real estate contract is a big step, so it is critical to ensure that you are able to fulfill your obligations under the contract.
Unfortunately, it is common for both buyers and sellers to move quickly in a competitive real estate market. However, quick decisions may cause a seller to regret their decision to sign a contract or, simply make errors when vacating the property, which can create a dispute with the buyer.
As a seller, there are additional steps that you can take in an effort to mitigate potential breach of contract issues, such as:
- Taking your time: don’t jump into a real estate contract before critically considering whether you are ready to sell. While life can throw us unexpected curveballs, ensuring you are happy with the contract terms, and that your financial and personal situation aligns with selling your property and moving on, is essential.
- Not overlooking the small details: seemingly insignificant clauses can create disputes down the line if you don’t understand your obligations. Don’t hesitate to ask your realtor or real estate lawyer for clarification if you aren’t sure about what a particular clause covers (for example, what qualifies as a “fixture”), and to work with the buyer to ensure that everyone is on the same page.
- Retaining 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.
Contact the Real Estate Lawyers at Baker & Company in Toronto for Advice on Residential and Commercial Real Estate Matters
The skilled real estate lawyers at Baker & Company work closely with clients to provide tailored, dynamic advice and legal solutions on various real estate disputes, such as residential real estate, real estate development and land title issues. With over 30 years of experience, our real estate team has successfully helped clients navigate and resolve complex property issues. Contact us at 416-777-0100 or contact us online to schedule a confidential consultation.