If a purchaser or seller fails to close a real estate transaction in accordance with the Agreement of Purchase and Sale (“APS”), they may expose themselves to significant liability. The APS is a legally binding contract that provides certainty, obligating the purchaser and seller to complete a real estate transaction. A purchaser who fails to close is likely to forfeit their initial deposit, while a seller who backs out of an APS may face orders to pay damages or transfer the property. Depending on the circumstances, a court may also order additional costs for reliance, punitive, and/or special damages for backing out of a real estate transaction.
Reliance Damages
In real estate disputes, reliance damages measure the wasted expenses a party incurred relying on the performance of an APS or closing. This damage award aims to restore the claimant to the position they would have held if they had never made the contract
To provide a scenario, a purchaser (“Mr. Smith”) signed an APS for an old residential home with the intention of fully renovating the property. All the conditions of the APS have been satisfied. In reliance on the APS, Mr. Smith spent $600,000 on non-refundable construction materials to renovate the property, including but not limited to, granite tiles, hardwood floors, drywall, bricks, and frames. The seller subsequently changed their mind and backed out of the APS. In this case, Mr. Smith will likely receive reliance damages for the amount he spent on construction materials, in addition to other forms of damages.
Punitive or Exemplary Damages
Courts award punitive or exemplary damages in addition to compensation to punish a party for malicious, vindictive, or reprehensible conduct. Punitive damages deter such behavior and send a clear message to the community that these actions will not be tolerated. However, courts only award punitive damages in exceptional cases where a party’s conduct has been malicious, oppressive, and high-handed, requiring clear evidence of intent or recklessness beyond negligence.
In Orr v. Metropolitan Toronto Condominium Corporation No. 1056, the Ontario Court of Appeal upheld a $50,000 punitive damages order against the seller of a condominium townhouse unit. The purchaser believed she was getting a three-storey townhome, but the condominium documentation later showed only two storeys. The seller had illegally built the third floor into the attic space. The trial judge determined that the seller fraudulently misrepresented and intentionally concealed the illegal status of the third floor from the purchaser.
Special Damages
Courts award special damages as monetary compensation for losses that can be easily calculated. These damages consist of the costs to repair and/or replace damaged property, lost income, and housekeeping or home maintenance expenses.
In Friese v Arfa, the purchaser and seller of a Keswick home entered into a non-conditional APS for $599,900. The purchaser backed out on the date of closing, and the seller relisted the property for the same price, eventually reducing it multiple times before selling it for $425,000. The court ordered the purchaser to pay the difference between the contracted sale price and the ultimate sale price, amounting to $165,000. Additionally, the court awarded special damages in the amount of $2,729.29 for legal fees, increased property taxes, increased interest payments, and the seller’s routine transportation costs from North Bay to Keswick for maintaining the property.
Wray Legal’s real estate litigation practice
As experts real estate litigators, we routinely appear at Ontario Superior Court of Justice and Court of Appeal of Ontario for matters relating and potential liabilities arising out of purchase and sales of real property, and assist our clients in securing their win.
Buyers and sellers should carefully review their decisions and circumstances before entering into an APS, as failing to close can expose them to significant liability.
Most importantly, misrepresentations in a real estate transaction can lead to punitive damages, or even reliance damages if the other party incurred expenses relying on the misrepresentation.
Sellers and buyers may contact us at any time regarding their questions on their rights.
