In Contract Law, when a breach of a contract occurs a general principle which is applied to the breach is that the aggrieved or injured party is only compensated to the amount that the party can prove they have suffered damages due to the breach. This is known as the presumption against the enforcement of penalties. In other words, only damages and no additional penalties are generally awarded. Such is not necessarily the case where a real estate contract to purchase or sell real property is breached. Where the buyer breaches such a contract the deposit is generally forfeited to the seller.
Nevertheless, at times the seller, too, may waiver in closing the deal of purchase and sale for real property. This may be due to a non-exhaustive list of reasons; such as the seller, nearing the closing date realizes that they may have accepted too low a price for the sale of their property and perhaps could have sold it for more, or maybe the seller has overtime grown emotionally or sentimentally attached to the home and refuse to turn over the keys once the cheque arrives. In any case where the seller backs out the buyer is not without recourse under the law. The buyer in cases where the seller has breached the contract for purchase or sale may sue the seller for damages.
In the real estate market it is not unknown that the prices of real property such as homes may fluctuate. In a marker where the price for real estate is on a rise, and the seller has backed out without lawful reason and in breach of a purchase and sale agreement, the buyer or purchaser may then be required to pay more for similar real estate. Where such a situation occurs, the purchaser would now be able to sue the seller for damages arising from the breach of the contract. The amount of damages which is generally awarded is the difference between the purchase price the buyer and seller contracted upon and the amount the purchaser then had to pay for a similar property in the rising market.
Nevertheless, it is admitted that overall the seller under real estate law still remains in a more advantageous position than the buyer in situations of breach. This is asserted due to the fact that generally where there is no rise in the real estate market and the purchaser cannot prove that they have suffered any damages they cannot claim damages, whereas if the purchaser breaches the agreement the deposit money is generally forfeited without the seller needing to prove any damages suffered.
Specific Performance as a Remedy when the Seller Breaches the Contract
In cases where the seller backs out of a stable real estate market the buyer would no longer be able to prove any damages suffered due to the seller backing out. Generally the only things suffered in such an instance by the purchaser is inconvenience, delay and perhaps mental distress; the purchaser may still nevertheless purchase a different property for the same price. Theoretically it can be argued and it is possible that the seller may be susceptible to a claim for damages based on mental distress, but generally this would a very difficult endeavour for the purchaser to prove and the reward in the form of damages would be minimal even if proven.
Prior to 1996, an application requiring “specific performance” of an agreement would have been a lawful avenue that the buyer could have taken in order to bring effect to the agreement of purchase and sale. A successful application would end with a Court ordering the seller to comply with the terms of the agreement and turn over the deed for the price agreed upon in the agreement of purchase and sale. Nevertheless in Semelhago v Paramadevan  the Supreme Court of Canada would limit the applicability of such a measure (of “specific performance”) to the purchaser being able to prove the property is “unique”. This is an exceedingly hard thing to prove by the purchaser in the real estate market these days due to the fact that it is very subjective and many real estate developments in todays market are done in a method known as “cookie cutter” ; that is to say homes in a locality are more or less similar in a lot of ways. For more information please contact one of our experienced Real Estate Lawyers at MEHDI AU LLP.
Disclaimer: Use of this site and sending or receiving information through it does not establish a solicitor / client relationship. The views expressed and the content provided on this blog is for non-profit educational purposes. It is not, and is not intended to be, legal advice on any specific set of facts. The use of this website does not create a solicitor-client (attorney-client) relationship. If you require legal advice, you should contact a lawyer directly.Back