February 17th 2025
Our last article focused on situations where a property is damaged before a deal closes, such as events of water damage. We considered how in situations of fundamental breach, a purchaser may be entitled to terminate the agreement or else take the proceeds of insurance and complete the purchase. However, this “take it or leave it” scenario is rarely the full picture. Most events of damage fall short of fundamental breach. This article focuses on the strategies and options that may be available to home buyers when they are notified that a property has experienced some damage or alteration before closing.
Purchasers must remain vigilant during the interim period between contract and closing. With the assistance of a knowledgeable lawyer, buyers can safeguard their interests, ensuring they acquire the property under fair and equitable terms, regardless of intervening events. An experienced lawyer is essential in helping purchasers mitigate the risks and liabilities associated with intervening events of damage to a home. There are several ways legal counsel can offer protection to you, and we will review two options now. Importantly, legal advice specific to your situation is recommended.
First, let's consider holdbacks. A holdback is a request that the seller place a portion of the sale proceeds in escrow pending a resolution of the matter. This way a transaction can still close while the parties deal with compensation to the buyer. Often, it means that parties are given time to obtain quotes for the repair of the issue. Importantly, a purchaser cannot refuse to close a 
transaction if the damage is considered less than substantial, meaning the request for a holdback is a voluntary arrangement between the buyer and seller. A well-crafted holdback is often preferred to litigation since the buyer and seller can reasonably settle on the matter without the need for additional legal fees or stress that litigation would require. However, if a seller refuses a holdback in a situation where it is reasonable to do so, a purchaser may need to consider litigation. Litigation adds to the potential costs for sellers who otherwise may have negotiated compensation without needing to file a legal defence, meaning requests for holdbacks should be taken seriously.
Next, lets consider a credit on the statement of adjustments. For minor issues, lawyers can request that sellers compensate the purchaser a fixed amount for issues discovered on a final walkthrough. This can be especially useful when a purchaser has an obvious claim in damages, such as if a seller leaves the home with significant debris. This typically does not change the purchase price, meaning land transfer tax and title insurance remain unaffected. A request for credit can be appropriate for adjustments that are typically under $10,000 and would not trigger a lawyer’s obligation to disclose to the purchaser’s lender or title insurer. A request for credit can be a fast and convenient way for a purchase and seller to settle a matter without the need for dispute or negotiations post-closing.
Last, if you are a seller, you may feel that a purchaser’s claim is exaggerated or unlawful. Note that a purchaser cannot refuse to close a deal for frivolous reasons and demand excessive compensation in exchange. However, it is important to speak to your lawyer about whether an event of damage is considered substantial. If so, additional obligations may arise, including providing the opportunity for the purchaser to properly determine the scope of such damage, especially in the cases of fire or flooding. For lesser events, a seller may determine whether their insurer is prepared to provide a cash payout to perform the repair. Negotiations with the purchaser to alleviate the concerns of such damage is an essential task for your real estate lawyer.
For all of your real estate needs, do not hesitate to contact Liddiard Law today!
michael@liddiardlaw.ca
Michael Liddiard
Liddiard Law Professional Corporation