Civil litigation
Failure to Close Real Estate Transactions
Civil litigation
Failure to Close Real Estate Transactions
When buying or selling a property, it is important to thoroughly review your agreement of purchase and sale to understand your rights and obligations under that agreement. If you are buying, it is particularly important to understand what you will need to pay to purchase the property and when payment must be made. If you are selling, you must understand and ensure you can provide the buyer with everything set out in the agreement of purchase and sale. It is best to consult our civil litigation lawyers before you proceed in such cases.
If circumstances prevent you from closing on time (i.e. by the closing date), the non-breaching party may agree, but is not obligated to, extend the closing date to allow for more time to satisfy the terms of the agreement of purchase and sale. Absent an agreement to extend, the non-breaching party can sue for breach of contract.
The consequences of failing to close for the Buyer are:
- Your deposit is forfeited to the Seller: This is true even if the Seller subsequently sells the property to someone else at a higher price.
- The Seller may have a claim for damages occurring as a result of your breach which may include: Costs thrown away, the difference between the agreed upon price and the price achieved through a subsequent sale (if less) and any other claims, costs or damages the Seller incurs as a result of the Buyers’ failure to close.
The consequences of failing to close for the Seller are:
- The Buyer may have a claim for damages, including costs thrown away, costs of paying for temporary accommodation if the Buyers must move from an existing property, and any increase in purchase price for a subsequent purchase.
If the matter is not resolved through negotiations with their civil litigation lawyers, then the courts will have to rule on this matter, and such rulings, in most cases, are issued in favour of the non-breaching party.
What is the duty to mitigate?
The duty to mitigate one’s damages is one of the common arguments raised by the defaulting party in such cases. The duty to mitigate refers to the reasonable steps the plaintiff must take to reduce his loss before demanding full damages from the defendant. For example, if a buyer fails to close the deal, the seller must look for alternate buyers before suing the aborted buyer for the full damages. This ensures that the final compensation awarded is fair to both parties involved. If a Vendor fails to close the transaction, the Buyer must find a comparable property if they intend to sue for an increased purchase price.
How does the duty to mitigate apply in a real estate transaction?
This rule applies to both parties. When the buyer fails to close the deal, the seller must relist the property for sale in the market and try to recoup his losses. Similarly, when the seller breaches the agreement, the buyer must look for alternative property options in the market and take reasonable steps to mitigate his losses. The courts will look at the following factors when deciding on such matters:
- Has the non-breaching party taken reasonable steps to mitigate the damages?
- Have the market conditions thwarted the steps taken to mitigate the damages?
- Is there a valid argument to reduce the damages claimed by the aggrieved party?
The burden of proof is on the defaulting party.
In the event of a lawsuit for damages, it is worth noting that:
- The burden of proof falls on the defaulting party when they argue that the innocent party did not take steps to mitigate.
- The mitigation efforts only have to be reasonable and need not be perfect to meet the standards under the law.
- Also, if either party makes an alternate offer to the other, the other party is under no obligation to accept this new offer. Both the Buyer and Seller will be held to the terms of the agreement they made.
What must a buyer do when facing difficulties to close?
It is worth noting here that the court only requires the aggrieved party to make reasonable efforts to mitigate the damages. This means that while circumstances such as financial difficulties or job loss might force the buyer to back out of a real estate purchase, it can lead to serious consequences, including a lawsuit for breach of contract and damages. As much as possible, the buyer must adhere to the agreement by exploring some of the options mentioned below.
- Try to close by bridging the financing gap with help from friends and family.
- Request for a seller take-back mortgage. This involves the buyer borrowing money from the seller to close the deal. Some sellers might be willing to consider this option rather than go through an expensive legal process to win damages.
- Explore alternative options for financing the transaction.
- Negotiate a mutual release with the seller. In some cases, it might be possible for both parties to negotiate through their civil litigation lawyers and agree to a settlement to terminate the agreement. This will release them from their mutual obligations and liabilities. They also need to decide on who will retain the deposit amount or how it will be divided between the two.
What must a seller do when facing difficulties to close?
If a Seller is faced with difficulties providing a clear title or satisfying a requisition made by the Buyer, they may consider:
- Requesting to extend the closing date: This option should be pursued if it is possible for the Seller to satisfy their obligations with the benefit of more time.
- Negotiate a mutual release with the buyer: Through negotiations, it is also possible for both parties to come to an understanding on the termination of the agreement and on the division of the deposit amount and other claims for compensation.
How can a civil litigation lawyer help you?
Legal advice:
An experienced civil litigation lawyer will carefully study the terms and conditions mentioned in the agreement of purchase and sale and suggest the best possible course of action. They can also provide invaluable assistance in negotiating an extension or terms of a mutual release.
Communicating with the defaulting party:
It is best to channel all the communications and negotiations for the extension, additional deposit payment, or compensation for the incurred costs through your lawyers. This will leave less room for disputes later on.
Advice on whether to extend the closing date:
A qualified litigation lawyer will study the documents and financial statements submitted by the buyer and confirm whether the buyer does have the ability to close if granted an extension.
Legal support in retaining the deposit:
If the buyer has failed to close the deal, the seller’s lawyer will ensure that the deposit is forfeited in favour of the seller. If the seller has failed to close the deal due to some issues such as a title defect, a lawyer can help the buyer in recovering the deposit amount.
Advice on how to mitigate the damages:
The law requires parties to take reasonable steps to mitigate the damages from the aborted transaction. This means that once the buyer has failed to close the deal, the seller must initiate the necessary steps to relist the property on the market for sale. Similarly, the buyer is expected to look for alternative options in the market if the seller fails to close. Your lawyer will advise you on how to proceed in the matter.
Legal representation:
In the event of a dispute between the two parties, especially in a lawsuit for damages, your lawyer will represent you in court and ensure that the deposit is forfeited in your favour and you receive damages for the additional costs and difference in the sales price incurred.
We can Help
Such issues demonstrate the importance of adhering to the agreement’s terms and conditions and closing the transaction within the specified deadline. If you are facing issues with a real estate transaction, you need to get legal guidance from our civil litigation lawyer at the earliest to protect your interests. A knowledgeable litigation lawyer will warn you about the legal consequences of failing to close the deal in time and protect you from any costly mistakes. Reach out to our legal team today for counsel in any real estate disputes to safeguard your rights.
Frequently Asked Questions
In most cases, if the seller fails to close the deal, then the deposit amount will be released back to the buyer. If the buyer fails to close the deal, then the seller gains the right to the deposit amount. In the event of a dispute between the two parties, the court will decide who gets to keep it.
No. No grace period is applicable once the closing date has expired. However, you may approach the seller and negotiate an extension to the closing date. If both parties agree, then the closing date can be extended multiple times if necessary. However, the seller is likely to demand a further deposit and an additional payment towards expenses incurred by this delay from the buyer.