July 10th 2021
One of the fundamental terms of your sale contract is the date for closing. So, what happens if a purchaser states that they cannot close on time? This situation is called anticipatory breach and the purpose of this article is to discuss the rights and options available to a seller when a purchaser indicates they require an extension or that they cannot close the transaction at all.
Whenever a party notifies the other side to a transaction that it cannot perform the contract as agreed, such notice may relieve the other side of any further obligations to perform the contract. From the perspective of a seller, this means that if a purchaser confirms they will be unable to close the deal as agreed, this notice of anticipated breach of the closing terms may entitle the seller to terminate the transaction rather than agree to an extension. There are legal and practical reasons why extensions are often agreed to, especially when the purchaser has a credible reason for the extension and the seller can close the transaction fully compensated for the delay. It is advisable to work with your trusted real estate professional to determine if an extension is the appropriate course of action and how you may be protected if an extension is agreed to.
A seller must be certain that the communication of the anticipated breach is serious enough to warrant them walking away from the transaction. This would mean a seller has decided to relist the home for repurchase by a new purchaser. There is risk in treating a contract as terminated. For instance, a seller may wrongly enter a new contract on the incorrect belief that a buyer is in breach of the agreement, and by entering a second contract when the first party was entitled to perform it exposes the seller to damages. It is for this reason that this legal option must be pursued with the guidance of an experienced legal professional. In most instances, a seller is better off treating the agreement as ongoing despite any notice of breach. In this way the seller can then prove to the other side that it is “ready, willing and able to close” on the scheduled closing date in a process that is referred to as tendering. By tendering its closing documents, a seller avoids unintentionally breaching the agreement themselves and is in a better position to show that the purchaser was the only party in breach of the contract. Tendering is even more important for a purchaser if it is the seller who is in breach, as the buyer might seek specific performance of the contract.
If a seller terminates the contract because of anticipatory or actual breach, it is open to the seller to seek damages from the buyer. Damages are measured as the monetary difference between the original contract price and the new sale amount. Where a deposit was given, the seller will be entitled to all the deposit, even if the property is sold for more than the original contract price. However, if the house ultimately sells for less than the original contract price, the deposit is treated as part payment for the damages suffered because of the loss, and the purchaser is liable for the remaining difference. See Azzarello v. Shawqi, 2019 ONCA 820 for a discussion of this principle.
To ensure that you receive an impartial and objective opinion regarding your rights and obligations in a situation of anticipatory breach, be sure to speak to Liddiard Law Professional Corporation today.
Michael Craig Liddiard, BA MA JD | Liddiard Law Professional Corporation | michael@liddiardlaw.ca