When a purchaser fails to close a real estate transaction, in addition to showing that the seller was ready, willing and able to close on the scheduled closing date, in order to obtain judgment for any losses the seller may have suffered, the seller is required to show that they took all reasonable steps to minimize their loss. This is known as mitigation.

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In Madison Homes v. Yiman Shi, 2020 ONSC 7810, the Ontario Superior Court of Justice recently considered what a seller must do to show that he/she did all they could to minimize their losses arising from the failed real estate transaction.

The buyers and seller (a developer) had signed an Agreement of Purchase and Sale for a property within the Cornell Rouge subdivision in Markham, Ont. for $1,717,224.57. The agreement was scheduled to close on Oct. 30, 2018. The closing date was then extended to Nov. 9, 2018. It did not close on Nov. 9. After several months, the seller resold the property for $1,242,964.11.

The buyers did not dispute that they were in breach of the agreement. They rested their case on the seller’s failure to get a higher resale price.

The court agreed with the seller and awarded it judgment for $353,582.28.

In outlining the law in this area of mitigation, the court stated that a seller has the initial burden of proving that it has suffered loss from the buyer’s failure to close. Once the seller has proven its loss, the onus then shifts to the buyer to show that the seller’s losses could have been reduced had the seller taken more reasonable steps. But what are the “reasonable steps” that a seller must take?

The answer lies in the market. The price the market will bear at the time of a resale is largely determinative in a seller’s litigation attempts. A seller will rarely be faulted for evaluating and watching the market, over time, to see if it will increase, as long as the length of time is not entirely unreasonable. In this case, the court found that the seller was not required to immediately relist the property when it was told by the buyers that the deal would not close on Nov. 8. In fact, an innocent party (in this case the seller) has options available to it in the face of a default. It can elect to terminate the contract and sue for damages or reject the repudiation and insist on performance of the contract. Here, the seller chose to insist on the closing of the transaction. When that did not occur, the seller weighed its options and listed the property when it felt the timing was right.

A buyer cannot argue with the resale value obtained by the seller, unless:

1. The buyer provides their own market evaluation or expert evidence from a Realtor about the value of the property and that that the seller could have obtained a higher price, whether through exposing the property more widely or taking additional marketing steps; and

2. The buyer can prove, again through professional opinion, that the seller’s delay in listing the property was unreasonable and negatively affected the resale price.

Absent positive proof by a buyer that a seller did not do its best when remarketing and reselling the property, the seller is entitled to be put in the same position it would have been in, had the original contract been performed. That is, the seller is entitled to the difference between the original purchase price bargained for and the price it obtained on resale (in this case, the difference of $350,260.46). In addition, the seller may also be entitled to additional carrying costs between the original closing date and resale closing date as well as any additional costs that should have been foreseeable by the buyer, such as extra interest and legal fees. The key here being foreseeability.

In summary, it is important that any buyer wishing to challenge the reasonableness of a seller’s mitigation efforts must present evidence to the court, from a professional such as an appraiser, real estate salesperson or broker, as to market conditions at the time of the breach and the time of resale, in order to mount a viable mitigation defence.

12 COMMENTS

  1. Okay, so this case went to court, as others do, and the Buyer needs to compensate the Seller a large sum. So, how does the Seller get his money now? I’ve always wondered about that. Great to win, but when does he get the dough? Can the Buyer claim poor? Does the Seller have to sue again to collect damages that are not paid in a timely fashion?

    • So far all that has happened is the seller has gained a positive legal judgement. The buyer can refuse to pay up. The seller would then have to go back to court to secure an order for specific performance (whatever the legal definition is), either by lump sum on a certain date, or via term limit on a monthly payment basis, if agreed upon by all parties. It’s still hard to collect. You can’t get blood from a stone. Liens might have to be registered against personal property etc. I’m not a lawyer, but I’ve been involved in lawsuits from both sides of the equation, and I know from personal experience how sticky these issues can become over time.

      I sued a guy, we went to the court-appointed referee pre trial, and after the referee eye-balled the guy after hearing the evidence I presented, the guy agreed to pay me the three grand…right there on the spot. I wouldn’t accept his cheque, so he forked out the cash. Guess he knew he would lose.

      On another occasion, I was sued for breach of contract, similar to this case; I refused to close an APS. I had good cause. We went before the referee pre trial. He said I had to pay up. I said “No way, no how. I’m not paying anybody anything, Your Honour! Looks like we’re going to trial!” (my exact words…they still ring in mine own ears. Likely his too.). The date was set. I was ready to sock it to them. I had no lawyer. (I’ve been involved in numerous legal disputes, always without the benefit of a lawyer’s representation…and I always prevailed). Just one day before the trial, the real estate broker for the seller called me to his office, whereupon he informed me that he was paying the seller off, and also, he was returning my deposit, which he did. Things aren’t always as cut and dried as many might like to think.

    • Once the Judgement is obtained, hopefully it will be with interest.
      There are a couple of ways to collect, provided the other person has not gone bankrupt in the interim.
      1. Register a lien on any property the person owns (providing there is at least one.)
      2. If you know where the person is employed (again providing they have a job) you can get a
      garnishee of their wages which would give the person have of their wages until debt has
      been paid in full.
      3. There are people that will buy Judgements, however the person would only receive a small
      percentage of the total value.

  2. With respect to the deposit, the court noted that the plaintiff kept it ($100,000) as well as the HST rebate which it is entitled to and it has already credited such amounts against the damages.

  3. $500000 drop in value in under 6 months. Something does not add up for sure. The original deposit is irrelevant here as with a court judgement the deposit is forfeited to the vendor as part of the damages awarded. The article also did not give the reason why the purchaser was unable to close.

  4. This is a good article but vague.
    It would have been good to know what the original deposit was and what happened to that deposit.
    In this case there still is a difference on the original sale price to the second sale price plus the judge’s awarded damages. The numbers do not add up!!

    • The difference of $350,260.46 noted in the article is $124,000 less than what is stated earlier as the original sale price of $1,717,224.57 and the new sales price of $1,242,964.11. I suspect that the difference is the $100,000 and the $24,000 HST credit available at this price range.

    • The court didn’t address the amount of deposit or what happened to it but goes without saying it went to the seller.

      • Correction: the deposit and HST rebate went to the seller, along with other expenses for carrying costs.

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