Court awards damages to Vendor for Purchaser’s Failure to Complete Real Estate Transaction.
In today’s volatile real estate market, we often hear stories of purchasers not being able to complete an Agreement of Purchase and Sale (“Agreement”) they have entered into. In many cases, the Agreement is “firm,” meaning there are no conditions (e.g. that the transaction is subject to the Purchaser(s) obtaining financing). When real estate values drop and appraisal values come back lower than the purchase price contracted to in the Agreement, lenders may only finance the lower of the two values. When the lender provides financing on the lower appraisal value, purchasers are left scrambling to cover the shortfall by the closing date. In cases where the purchasers are unable to cover the shortfall, litigation often ensues.
Burkshire Holdings Inc. v. Ngadi[1] is a case of a failed real estate transaction and both parties had brought a motion for summary judgment on the issues of damages and deposit reimbursement.
Factual Background
The dispute arises from the failure of the Purchaser, Joseph Nnamdi Ngadi, to close a real estate transaction with the Vendor, Burkshire Holdings Inc.
The undisputed facts were as follows:
- the parties entered into the APS in which the Purchaser agreed to buy, and the Vendor agreed to sell, the Property for $1,635,121.20;
- the Purchaser paid deposits of $160,000.00;
- the Purchaser requested, and the Vendor agreed, to extend the closing date to February 9, 2018 in exchange for the Purchaser paying interest in the amount of $9,133.51 and legal fees in the amount of $395.50;
- The purchaser advised the Vendor of his intention not to close the transaction on February 7, 2018;
- The vendor accepted the Purchaser’s anticipatory breach of the APS on February 7, 2018;
- The vendor resold the Property for $1,242,000.00.
The Vendor’s summary judgment motion sought damages of $272,967.91 for the Purchaser’s failure to close the deal, and prejudgment and post-judgment interest on this amount at 20%, as stated in the Agreement of Purchase and Sale (APS), or alternatively, prejudgment and post-judgment interest in accordance with the Courts of Justice Act.
On the other hand, the Purchaser’s summary judgment motion sought reimbursement of his $160,000.00 deposit.
After applying the deposit paid by the Purchaser, the realized purchase price is $233,121.20 less than the purchase price agreed to by the Purchaser. As well, the Vendor incurred expenses in the amount of $30,317.70, during the time between the closing dates for carrying costs, maintenance costs and higher real estate commission fees. Interest claimed on those amounts is $9,133.51 and legal fees of $395.50, which the Purchaser had agreed to pay in exchange for the extension of the closing date to February 9, 2019.
Legal Issues
The key issues in dispute included:
- The Vendor’s entitlement to damages for the Purchaser’s failure to close the transaction.
- The Purchaser’s entitlement to a return of the deposit.
Legal Arguments
The Vendor argued that the Purchaser’s failure to close the transaction resulted in damages, including the difference in purchase prices, carrying costs, maintenance costs, higher real estate commission fees, interest, and legal fees. The Vendor asserted that the Purchaser’s anticipatory breach of the APS, accepted by the Vendor, terminated the agreement.
In response, the Purchaser claimed that an unforeseen event—the significant decrease in real estate values in the Greater Toronto Area (GTA)—made the performance of the contract impossible or radically different, justifying his non-completion of the transaction.[2] The Purchaser also argued that he did not specifically agree to the pre-printed schedules in the APS.
Court’s Analysis and Decision
The court acknowledged certain facts were not in dispute, including the APS terms, deposits paid, and the Vendor’s acceptance of the Purchaser’s anticipatory breach. It rejected the Purchaser’s reliance on frustration, force majeure, and impossibility, determining that the drop in real estate values in the GTA did not apply to these doctrines.[3]
The court dismissed the Purchaser’s claim of not reading or understanding the APS, stating that the Purchaser’s lawyer had requested an extension, and the Purchaser had agreed to the terms. The court emphasized that the Purchaser’s objections to APS terms were raised only after the summary judgment motion.[4]
Regarding the interest rate claim, the court determined that the 20% interest rate was onerous and unenforceable, awarding interest at the rate prescribed by the Courts of Justice Act.[5]
Conclusion and Key Takeaways
The court granted summary judgment in favor of the Vendor, awarding damages in the amount of $272,967.91, interest at the rate prescribed in the Courts of Justice Act, and legal costs on a partial indemnity basis.
The key takeaways from this case for parties entering into Agreements of Purchase and Sale for real property are:
- the decision reinforced the importance of parties understanding and adhering to contractual terms;
- the Court will not accept the arguments of frustration, force majeure, and impossibility as valid defences for a purchaser that failed to complete a real estate transaction in the above circumstances; and
- how the court will determine and calculate damages and interest rates awarded to a vendor in failed real estate transaction.
Whether you are a purchaser or vendor in a real estate transaction, we encourage you to reach out to Prabhjot Singh Badesha in the Litigation Group at DBS LLP with questions and to receive recommendations tailored to your unique needs.
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[2] 2021 ONSC 2550 at para 20.
[3] 2021 ONSC 2550 at para 22.
[4] 2021 ONSC 2550 at para 24.
[5] 2021 ONSC 2550 at paras 44-46.