Real Estate Contract Breaches in Ontario| Nava Wilson Blog

Articles & Resources

Understanding Breach of Real Estate Contracts in Ontario: Rights and Remedies

In the complex world of real estate transactions, agreements are vital for outlining the terms and conditions between buyers and sellers. When one party fails to uphold their obligations, it results in a breach of contract. This blog post will explore the key components of a real estate agreement of purchase and sale, the implications of breaching the contract, and the rights and remedies available to both buyers and sellers in Ontario.

Agreement of Purchase and Sale

An Agreement of Purchase and Sale is a written contract between a seller and a buyer for the purchase and sale of a particular property. In the Agreement, the buyer agrees to purchase the property for a certain price, provided that a number of terms and conditions are satisfied. The process begins when either the purchaser or the seller makes an offer, which is irrevocable for a certain time period.  However, in most cases, it is the purchaser who makes the offer. 

Breach of Contract by Buyer: Failure to Provide the Deposit

A buyer’s most important obligation under the agreement of purchase and sale is to provide the required funds for the purchase of the property. That means the initial deposit and the remainder of the purchase price on the closing date.

One of the most common breaches by a buyer is the failure to provide the required deposit within the stipulated time frame, usually 24 hours after the acceptance of the offer. This breach constitutes an immediate breach of the Agreement of Purchase and Sale (APS) and the seller can deem that transaction at an end.

Although the buyer breached the contract shortly after signing, the seller is still entitled to the deposit. That means the seller could re-list the property and enter into an agreement to sell to someone else for a higher price and still go after the purchaser for the deposit. In some instances where the deposit is substantial compared to the purchase price, exceptions may apply.

Breach of Contract by Buyer: Failure to Obtain the Required Closing Funds

Another breach by a buyer can occur when they fail to obtain the necessary closing funds, often in the form of a mortgage. This can happen due to various reasons, such as insufficient income or a low property appraisal value.

In such cases, the buyer breaches their most important obligation under the APS, and the transaction will not close.

Remedies for Seller: Recovering Damages

When a buyer breaches the contract, the seller is entitled to recover damages as a result of the breach of the APS. The principle is to put the seller in the position they would have been in had the breach not occurred.

For example: if the breach did not occur and the transaction was completed, the seller would no longer need to pay for their mortgage, home insurance, utilities etc.

The most common damages a seller has been entitled to:

  1. The difference in the purchase price
  2. Mortgage Interest
  3. Utilities
  4. Home Insurance
  5. Any additional commission
  6. Subsequent home staging
  7. Home maintenance

Breach of Contract by Seller: Failure to Provide Vacant Possession

On the other hand, a breach by a seller occurs most often when they fail to provide vacant possession of the property at the agreed-upon closing date. Vacant possession means that the property is free from furniture, personal belongings, garbage and tenants.

When the issue is furniture, personal belongings or garbage, the lawyers or realtors will often negotiate some form of compensation for the buyer or alternatively will arrange for the seller to pick up what was left behind.

However, when the issue is tenants that have not vacated, this constitutes a much more significant breach and often results in the transaction not being completed.

Remedies for Buyer: Recovering Damages

Upon a breach by a seller, a buyer can make a claim for damages. This means any financial loss they have suffered as a result of not being able to purchase the seller’s property. The principal remains the same: put the buyer in the position they would have been in had the breach not occurred.

Understanding the components of a real estate agreement and the potential consequences of a breach is crucial for both buyers and sellers in Ontario. In case of a breach, parties should seek legal advice immediately to resolve the issue effectively. Engaging a professional real estate lawyer is essential to ensure a smooth and legally sound real estate transaction process.