Collapsing Real Estate Deals: Your Rights and Remedies in Case of Breach of Contract in Real Estate
The Contract of Purchase and Sale in a real estate transaction is a legally binding document that outlines the duties and expectations for both the buyer and the seller. But what happens if one party fails to uphold their end of the bargain? Whether you are the buyer or the seller, when a real estate deal goes wrong, you want to make sure you understand your rights and the available remedies.
What is a Breach of Contract?
A breach of contract in real estate occurs when one party to a binding Contract of Purchase and Sale (“CPS”) fails to fulfil their obligations without a lawful reason. The CPS will often set out terms such as the purchase price, closing date and various conditions to the sale. Both the buyer and the seller could potentially breach the CPS and both parties have certain remedies available to them in the event there is a breach.
A common breach is failure to close on the completion date. As the buyer, this could mean you cannot secure financing and do not have the funds to complete. The seller may also refuse to transfer title to the buyer. If the buyer or seller declares their intention to not fulfill the contract before the completion date, this is called an anticipatory breach.
Buyer Remedies
As the buyer, if the seller breaches the contract and does not complete the transaction as stipulated in the contract, the most common remedy will be a demand for the return of the deposit. If the seller does not return the deposit, the buyer may choose to commence a claim against them for its return.
In addition to the return of the deposit, a buyer may choose to commence a claim for one for the following:
- Specific performance and damages;
- Damages in lieu of specific performance; or
- Common-law damages.
Specific performance is a remedy wherein the court can force the seller to honour the CPS and transfer the property to the buyer. Specific performance is often sought when the property in dispute is unique to the extent that its substitute would not be readily available.
Monetary damages can be sought to put the buyer in the position the would be in had the breach not occurred. Examples of damages a buyer may claim could include:
- Costs for accommodation in the event they sold their property in anticipation of completing on the sale;
- Additional moving costs;
- The deposit in cases where the seller does not willingly return it to the buyer; and
- Additional funds spent on purchasing a substitute property, if that property cost more than the original property the buyer was looking to purchase before the breach occurred.
Seller Remedies
If the buyer fails to complete the purchase, the seller’s first recourse is often retaining the buyer’s deposit. Most CPS will state that if the buyer defaults, the seller is entitled to keep the deposit as liquidated damages. Retaining the deposit will provide the seller with immediate partial compensation for the breach, however the seller may also choose to pursue a claim for damages if they expect their total damages will exceed the deposit amount. A seller may claim damages for:
- Any additional expenses incurred as a result of the buyer’s breach including necessary moving costs etc.
- The difference between what they would have sold the property for had the buyer not breached the contract versus what they ended up selling the property for in the event they sold the property for less than the previous purchase price.
A seller may also pursue a claim for specific performance when the property is unique and when the seller has invested considerable time and money in developing the property for the benefit of the buyer.
Whether you are a buyer or a seller, in the event the other party breaches the contract, you have the obligation to mitigate your losses. In other words, you must be able to show that you took reasonable steps to prevent further harm or loss from occurring after the breach.
This information is general in nature only. You should consult a lawyer before acting on any of this information. This information should not be considered as legal advice. To learn more about your legal needs, please contact our office at (250)448-2637 or any of our lawyers practicing in the area of residential real estate and real estate disputes.