What If You Can’t Close Your Real Estate Transaction?

Written by Sukhman Sandhu

Sukhman Sandhu is the Founder & Managing Director of Sukh Law. Sukhman's practice focuses upon complex real estate and commercial law transactions and related litigation. Licensed to practice law in the Province of Ontario, Sukhman currently represents individuals, small businesses and large institutions and maintains a great track record of obtaining successful results.

April 16, 2024

As a buyer in the real estate market, the prospect of not being able to close on a property can be daunting. The implications of such a scenario are significant, affecting not only the immediate transaction but potentially having long-term financial and legal consequences. Understanding these implications is crucial for anyone navigating the Ontario real estate market.

Immediate Consequences: Forfeiture of Deposit

The forfeiture of the deposit is the most immediate and palpable consequence of failing to close a real estate transaction. In Ontario, the law is clear: if a buyer cannot complete the purchase as agreed, the deposit is forfeited to the seller. This principle is intended to compensate the seller for the time the property was off the market and serves as a deterrent against non-serious buyers.

Financial Liabilities Beyond the Deposit

However, the financial repercussions can extend far beyond the loss of the deposit. Buyers may find themselves liable for the difference if the property sells for less than the original agreed-upon price. Additionally, sellers can recover costs such as utilities, taxes, and interest incurred while the property remained unsold due to the failed transaction. Legal fees, real estate commission and other losses related to the buyer’s inability to close can also fall on the buyer’s shoulders, potentially adding up to significant amounts.

Navigating Legal Actions and Judgments

Legal precedents in Ontario have shown that courts can order substantial payments from buyers who fail to close, beyond the forfeiture of the deposit. These judgments reflect the courts’ view that agreements must be honored and that sellers should be compensated for their losses. However, the courts also recognize the principle of relief from forfeiture under certain conditions, aiming to prevent unduly harsh outcomes for buyers who default due to unforeseen circumstances.

Strategies for Buyers Facing Challenges

For buyers who find themselves unable to close, there are several strategies to consider. Attempting to close the deal, perhaps through alternative financing or negotiating extensions, is advisable. Negotiating a mutual release with the seller can also be a viable option, though it often involves the forfeiture of the deposit. Above all, seeking the advice of an experienced real estate lawyer is crucial. Legal professionals can provide guidance tailored to the specific circumstances of the transaction and help navigate the complex landscape of real estate law.

In the last year, the volatility of the real estate market, exacerbated by the COVID-19 pandemic and subsequent economic fluctuations, has led to an increase in transactions failing to close. As a real estate lawyer, I’ve seen the distress and financial strain this can cause buyers. While some builders and sellers may be willing to negotiate extensions, often with steep penalties, the legal landscape remains challenging for buyers who default.

If you require legal advice or representation with your real estate property purchase or refinancing, or have questions about residential or commercial real estate law in general, contact us at Sukh Law.

Sukh Law publishes articles for information purposes only and is not intended to constitute legal advice.

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