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Unlimited liability in residential real estate transactions — why?

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2 days ago

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Unlimited liability in residential real estate transactions — why?

Who knows.

It’s not the case in commercial real estate deals and it’s not the case in most other contractual relationships. In just about every other contract, there is a limitation on the liability of the contracting partners.

But this is the way it’s been for a century or more, so why not continue? On the other hand, why not limit the liability in the present deal for your client?

Assume you are acting for the buyer. Make sure that if the deal goes south, your buyer just owes their deposit. That certainly would have been a very helpful clause in a pre-construction contract. So many buyers are getting sued right now because they are unable to close. The price dropped. They can’t get a mortgage.

Yes, I do appreciate that the pre-construction contract is often 100 pages, written to protect the builder. In fact, one builder included a clause that if the builder defaults on the deal, the only remedy the buyer has is the return of their deposit. That was the case in Shiralian v. Wyldewood Creek Inc., 2026 ONCA 163. The Ontario Court of Appeal agreed.

Don’t you think a similar clause might be helpful for a buyer?

Can liability actually be limited in a residential deal?

Can a liability-limiting clause be added to a standard APS?
Yes. The most logical place for it is in Schedule A. If the clause were designed for the protection of the seller, it would more likely appear in Schedule B.

Should agents raise this issue with their clients?
They should. Limiting liability takes place in commercial contracts, but the issue is very rarely addressed in residential contracts. Agents should be raising the issue with their clients and obtaining their informed consent.

Are these clauses enforceable in residential transactions?
Yes. They do exist, and they have been used before.

Would sellers realistically accept this term?
With some reluctance, until it becomes standard practice.

What about a seller who is overextended, hoping to sell and pay everyone off, but one of their debtors refuses to go along with the deal? On top of the existing mess they are in, should they have to pay an additional $100,000 to the buyer? No. You just get your deposit back, nothing more.

And there are plenty of stacked deals. Not only is the buyer responsible for the deal they didn’t complete, but also the seller’s loss on the deal they were going to buy. Why not just have the damages restricted to the one deal in front of them? Remember, the first buyer in the chain has the least amount of money of everyone. Why should it be all their fault, and no one else’s?

Any big players entering into any kind of transaction will place a cap on their potential liability. So wouldn’t that be a good approach for residential buyers?

Commercial buyers will incorporate numbered companies to purchase properties. That means the damages are limited to the deposit. In a defaulted transaction, that’s all the seller gets.

Sometimes there’s an assignment clause without liability. Again, damages are limited to the deposit only for the first buyer — the initial assignor.

What about a residential transaction? Let’s go completely with no limitations on liability whatsoever — the sky is the limit. Certainly, that’s the way it’s been.

In fact, just in order to increase liability in a family, both the husband and the wife will sign the offer, boosting the exposure to everyone in the family except the kids. Why not go with one name, and if it looks like the deal is going to close, then add the other spouse on title right before closing?

So, do agents face any exposure themselves if they fail to bring any solutions to the attention of a potential purchaser? If that were the case, then maybe they would pay a little more attention to the risks.