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Failed home purchase leads to $1.8M judgment against buyer

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1 month ago

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  • An Ontario court ordered a buyer to pay $1.8 million in damages after failing to complete an $8.3-million property purchase in Mississauga, rejecting arguments that the seller failed to mitigate losses.
  • The court found the seller took reasonable steps to resell the property in a declining market and that the buyer failed to provide evidence, such as an appraisal, to support the mitigation defence.
  • The decision underscores the high burden on buyers to prove a lack of mitigation and the significant financial risks of walking away from a deal.

When a buyer fails to complete a purchase transaction, the seller is generally entitled to keep the deposit and may seek additional damages for the buyer’s breach of the agreement of purchase and sale (APS). The seller has an obligation to take reasonable steps to mitigate such damages, usually by reselling the property to someone else. During markets when property values are decreasing, the resale price may be substantially lower than the price the original buyer agreed to pay, thereby making the original buyer legally responsible for the difference. The rationale underlying such damages is that the seller lost the benefit of the bargain with the buyer who breached the APS.

A buyer seeking to avoid liability for the full difference in the resale price may attempt to argue that the seller failed to mitigate properly by seeking the best available price for the resale. There is a heavy burden on the buyer to provide the court with persuasive evidence in that regard, as demonstrated by the result in Menon v. Simpson.


Background of the failed transaction

The case arose from an aborted transaction for the sale of a property in Mississauga, Ont., for $8,385,000.

In May 2023, the defendant buyer entered into the APS with the plaintiff seller for the purchase of the property. The APS provided for deposits to be paid on acceptance, and an additional deposit to be paid in June 2023.

Although the defendant was unable to complete the transaction on the initial closing date, an extension was granted in conjunction with the payment of an additional deposit and per diem payments. A further extension was then granted to Oct. 16, 2023, but the purchase was never completed.

The plaintiff eventually resold the property to another buyer for $6,550,000.

Damages claim and summary judgment motion

The plaintiff then sued the defendant for damages arising out of the aborted sale. The amount claimed was $1,835,000, based on the difference between the agreed-upon purchase price with the defendant and the ultimate sale price, plus $550,000 in carrying costs.

The defendant did not challenge the amount calculated for carrying costs but argued that the plaintiff had failed to mitigate the damages claimed for the difference in the resale price.

The plaintiff brought a motion for summary judgment, which requires a court to grant judgment based on the motion material filed if there is no genuine issue requiring a full trial and the motion judge is satisfied they are able to reach a fair and just determination on the merits.

In order to defeat a motion for summary judgment, a responding party has an obligation to file evidence showing that there is a genuine issue requiring a trial. A party may not rest solely on bare allegations or denials but must put its best foot forward, as a summary judgment motion judge may assume the motion record contains all the evidence that would be available at a full trial: Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, at para. 27, aff’d 2014 ONCA 878 (CanLII).


Mitigation defence and evidence

Here, the sole defence raised by the buyer was that the plaintiff had failed to mitigate damages. In these types of aborted transaction disputes, a mitigation defence places the onus on the party raising it to show that the other party failed to make reasonable efforts that were available to mitigate.

Among other things, the defendant argued that the plaintiff should have filed expert opinion evidence concerning prevailing market conditions and appropriate marketing strategies for a high-end property. The defendant argued the property ought to have been listed for a lower price initially, given the declining market, and that an offer of $7 million with a $2-million vendor takeback mortgage ought to have been accepted.

In response, the plaintiff provided evidence that:

  • the property was relisted two weeks after the breach for the same listing price as when the defendant signed the APS;
  • the plaintiff reduced the price on several occasions and there was evidence of discussions surrounding price reductions;
  • the plaintiff considered leasing the property; and
  • the plaintiff marketed the property on MLS and through other means, including magazines targeting potential buyers in the area.

Further, while the defendant complained about the resale price, the defendant did not file an appraisal in support of the position that the property was sold below market value. Notwithstanding that the motion had been adjourned for several months to allow the defendant to obtain additional evidence to respond, no additional evidence was obtained.


Court’s findings and outcome

The motion judge explained that while the monetary amount in issue was substantial, this was not determinative of whether a trial was required. Rather, this was precisely the kind of case in which a responding party was required to “lead trump or risk losing.”

The motion judge found that the defendant failed to establish that the plaintiff did not make reasonable efforts to mitigate by obtaining the best price possible, and that the resulting price represented the plaintiff’s loss of the benefit of the bargain with the defendant.

In the result, the defendant was ordered to pay the plaintiff $1,835,000, representing the difference between the agreed-upon contractual price and the ultimate sale price, together with the carrying costs agreed to between the parties ($550,000), as well as prejudgment and post-judgment interest, and litigation costs of $20,693.85.

The case demonstrates the significant damage awards that may result from a breach of an agreement to purchase a high-end property. Market conditions and the steps taken by the seller to find another buyer following an aborted transaction will be key factors in the calculation of damages. Provided the seller can point to reasonable efforts taken to market and resell the property for the best available price, a buyer may be responsible for the entire difference in the sale price.