Deposit Not Forfeited if Builder Can’t Close

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In a recent case, the Ontario Court of Appeal concluded that if the Builder has not reached substantial completion on the date of closing, then, it cannot keep the Buyer’s deposit (2174372 Ontario Ltd. v. Dharamshi, 2022 ONCA 648).

Builder:                2174372 Ontario Ltd

Buyer                    Dharamshi

Price                     $869,445.64

Deposit                 $55,000

Closing Date         November 8, 2018

On July 17, 2018, the Buyers first advised the Builder through a telephone conversation with its sales representative that they “might” not be able to close due to difficulty obtaining financing.

On August 21, 2018, the Buyers repeated in writing that they would be unable to close unless the appellant was willing to grant a price reduction with an extended closing period.

Of course, the first comment really has no meaning, but the second statement could be accepted by the Builder as an anticipatory breach, but, it wasn’t.

On October 29, 2018, the Buyers repeated that they were financially unable to proceed with the transaction and made a proposal (redacted in the record), which the Builder declined.

On October 30, 2022, the  Buyers again asked the Builder to reconsider, but they maintained its position that it would close the transaction on the scheduled closing date.

Unknown to the Builder Galib N.N. Dharamshi, visited the premises on November 5 and 7, 2018. He discovered that the building was, as he described it in his affidavit on the motion, no more than a “shell”, not ready for occupancy, and not substantially completed.

On November 8, 2018, the articling student attended and purported to tender on the Buyers’ real estate lawyer by providing the closing documents.

The documents included the appellant’s representation in the Vendor’s Certificate that “provisional or temporary occupancy of the home has been authorized under the … Building Code.”

The Buyers’ real estate lawyer delivered the closing documents signed by the respondents and a copy of but not the actual certified cheque for the entire amount of the necessary closing funds.

He advised that because the house was not substantially completed, the respondents would not close the transaction.

The motion judge’s foundational findings were that:

(1) the Builder elected not to accept the Buyers’ earlier repudiation of the contract and terminate the agreement of purchase and sale, but insisted on its continued performance;

(2) the agreement of purchase and sale required the Builder to provide vacant possession of a substantially completed house on the scheduled closing date of November 8, 2018;

(3) on the date of closing, the house was not substantially completed; and

(4) the Builder was not in a position to close on November 8, 2018.

The respondents’ uncontested evidence was that in the late afternoon of November 7, 2018, they finally managed to obtain financing from a family friend that enabled them to close the transaction. The mortgage was not a sham.

The respondents had to enter into mortgage commitment documents and the mortgage would have been registered on title if the purchase had closed.

The closing funds were deposited into the trust account of the respondents’ real estate lawyer, from which a certified cheque was drawn for the entire amount of the closing funds.

Importantly, the respondents were required to pay a $25,000 penalty to the mortgagee in order to obtain an early discharge of the mortgage when the transaction did not close.

The Court dismissed the appeal and awarded $15,000.00 in costs for the appeal.

COMMENT

It is important that:

  1. The Builder did not accept the anticipatory breach,
  2. The Buyers had the closing funds available to close, on the closing date.

In such a case, the Buyers get their deposit back.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com

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