Purchasing a property can sometimes come with unexpected challenges. This may raise important questions for buyers regarding what might happen if unexpected circumstances prevent them from going through with the purchase of a property. In Ontario, if a buyer is unable to complete the transaction, they may face legal and financial consequences. Understanding what happens when a transaction fails to close can help buyers better prepare and respond accordingly.
What Does It Mean To Fail To Close?
When a buyer fails to close on a transaction, they are failing to fulfill obligations outlined in their Agreement of Purchase and Sale (APS). The consequences of the breach depend on the terms of the agreement and the circumstances surrounding the breach.
Buyers may risk losing their deposit, being sued for losses, and, in some cases, being required to cover the seller’s legal fees.
What Is The Duty To Mitigate?
The duty to mitigate refers to the steps the plaintiff must take to reduce their losses before demanding full damages from the defendant. In this case, if the buyer breaches the agreement, the seller must take reasonable steps to mitigate losses, including attempting to resell the property before holding the buyer responsible for all losses.
What Usually Causes Buyers To Breach The APS?
There are a variety of reasons that may keep buyers from completing their purchase. Some of which include:
- Last-minute financing issues
- Inability to sell an existing property
- Insufficient closing funds
- Disputes about inspection, misrepresentation, or latent defects
Possible Consequences for the Buyer
There are several consequences that the buyer may face. Common reasons may include:
Forfeiture of the deposit: In some cases, the seller may be entitled to keep the buyer’s deposit, even if they suffer no financial losses. Whether additional damages may be claimed is dependent on the circumstances of the transaction.
Carrying costs: The seller may seek damages related to resale losses, mortgage interest, property taxes, or other costs related to the failed transaction. The scale of the consequences varies depending on the circumstances.
It is important to note that financing difficulties are not always considered a legal justification for failing to close. Even when a buyer breaches the agreement of purchase and sale through no fault of their own, courts may still hold buyers responsible for losses or delays caused by the breach of contract.
What Should I Do If I Am At Risk Of Breaching?
Every transaction is different and must be managed accordingly. Because every failed transaction involves unique legal and financial considerations, speaking with a real estate lawyer can help buyers better understand their rights, obligations, and options.