Negotiating the purchase of a property is complicated and can fall through for various reasons. However, few buyers contemplate the possibility of the seller backing out of a sale at the eleventh hour, even after the paperwork has been executed. In volatile real estate markets, such as Toronto’s post-COVID market, cancelling real estate transactions is not common.
This blog will provide an overview of agreements of purchase and sale, as well as the options available to the buyer if a seller breaches this agreement.
Agreement of Purchase and Sale: The Basics
As its name implies, an Agreement of Purchase and Sale is a legal document outlining the terms and conditions of a real estate transaction between a buyer and a seller. In Ontario, it is a standardized document called an Ontario Real Estate Association (“OREA”) form, an example of which can be found here.
An OREA form includes the following information and terms:
- Identification: The form identifies the parties involved in the transaction, including the buyer, seller, and their respective real estate agents.
- Property Description: Details about the property, including its address, legal description, along with any included or excluded items are included in the form.
- Terms and Conditions: This section outlines the terms of the agreement, such as the purchase price, deposit amount, financing details, and any conditions that must be met for the sale to proceed.
- Legal Protections: OREA forms are designed to protect the interests of both buyers and sellers, ensuring that the transaction is fair and legally binding.
If a seller cannot meet their obligations under the Agreement of Purchase in Sale, they may be in breach. The seller may also back out of the transaction, possibly due to another higher offer or seller’s remorse. In that case, the buyer may be able to rely on any specific clauses in the Agreement of Purchase and Sale that require the seller to rectify the situation, or the buyer may choose litigation. The latter will be discussed further.
Certificate of Pending Litigation
A Certificate of Pending Litigation is a legal document that is filed to indicate that a lawsuit affecting a property is pending. It serves as a notice to potential buyers or lenders that there is a legal claim against the property. The Certificate of Pending Litigation can effectively restrict the property owner from selling or refinancing the property without addressing the pending lawsuit. Once the lawsuit is resolved, it can be discharged to clear the property title.
The Certificate of Pending Litigation is often used to protect the buyer’s rights and prevent the property owner from disposing of the property while the dispute is ongoing. This is most relevant if the buyer wants the courts to force the seller to proceed with the transaction, which can be achieved through specific performance, as outlined below.
However, as noted in Berthault v. Green Urban, registering a Certificate of Pending Litigation on the property requires a buyer to demonstrate that the losses incurred by the failed transaction cannot be compensated for by damages (i.e. money). The court’s discretion is highly dependent on the facts of the case and the damages the failed transaction causes to the buyer. The judge will examine whether restricting the right of the seller to dispose of the property to a third party against the damages caused to the buyer.
Although difficult to obtain, a buyer should always consider registering a Certificate of Pending Litigation if they seek to enforce the Agreement of Purchase and Sale.
Specific Performance to Force a Sale
Specific performance is a legal remedy where a court orders a party in breach to fulfill their contractual obligations. The remedy is typically used in real estate cases where monetary compensation would be insufficient. If one party breaches the contract, the other can sue for specific performance, asking the court to compel the breaching party to fulfill the contract’s terms. This would be the primary option for the buyer if they wanted to compel the seller to complete the transaction.
Despite its availability, this remedy is discretionary and granted if it’s feasible and fair to enforce. As stated in Semelhago v. Paramadevan, this remedy is available in cases where the buyer can demonstrate that the property is unique, and they cannot find anything else like it on the market. This may be difficult to prove in court despite a buyer’s subjective opinion of a property, which is why breaches of Agreements of Purchase and Sale are typically compensated for in damages.
Nevertheless, it is always best to speak to a lawyer when buying and selling property to ensure options are known and interests are protected.
Contact Mississauga Real Estate Lawyers at Bader Law for Commercial and Residential Real Estate Advice
Bader Law represents individual and corporate buyers in real estate transactions throughout Mississauga and the Greater Toronto Area. Our experienced real estate lawyers take quick and strategic action to help clients navigate the uncertainties that can accompany real estate transactions. From reviewing an Agreement of Purchase and Sale, to resolving title insurance matters, our property team is ready to help. To speak with one of our real estate team members regarding your real estate matter, contact us online or call us at 289-652-9092.