The following article was written in early May 2017. That’s the last time that we saw a measurable market decline. If we have one again, the same legal principles will apply.
At the present time we have a rather strange situation. The market started to accelerate in January, but due to a shortage of Winter listings, prices rose and appear to have peaked in some markets in March. Following that peak we have somewhat of a decline. The differences in January, March and May prices can be hundreds of thousands of dollars.
So, what do we have right now:
- January Sellers, who want out of their contracts because they sold for too little,
- March Buyers who want out of their contracts because they paid too much.
What happens if these parties want out of their deals and refuse to close?
At the very least, it would be best if the “other party” knew as soon as possible. This way they could protect themselves and minimize their losses.
If the innocent party knows of the non-compliance then the law provides certain rights to that party.
The Ontario Court of Appeal dealt with the matter of an anticipatory breach of contract in Spirent Communications of Ottawa Limited v. Quake Technologies (Canada) Inc., (2008) a case involving a Lease of commercial office space.
In that case, two important legal concepts were discussed:
- Fundamental breach of contract, and
- Anticipatory breach of contract.
We will simply deal with anticipatory breach. Here are some comments made by Gillesse J:
- An anticipatory breach sufficient to justify the termination of a contract occurs when one party, whether by express language or conduct, repudiates the contract or evinces an intention not to be bound by the contract before performance is due.
- To assess whether the party in breach has evinced such an intention, the court is to ask whether a reasonable person would conclude that the breaching party no longer intends to be bound by it.
- Having said that, when determining whether such an intention has been evinced, the courts rely on much the same analysis as they do in respect of claims of fundamental breach.
- That is, in determining whether the party in breach had repudiated or shown an intention not to be bound by the contract before performance is due, the court asks whether the breach deprives the innocent party of substantially the whole benefit of the contract.
If the Seller or the Buyer, as the case may be, clearly and unmistakenly indicates that they will not complete the transaction, this will constitute repudiation of the contract. In many cases, the party in breach, wishes to provide the innocent party with some alternatives.
There are some important principles, according to Gillesse J.:
- Repudiation does not automatically bring a contract to an end.
- Rather, it gives the innocent party the right to elect to treat the contract as at an end.
- If that election is made, the parties are relieved from further performance and the innocent party may sue for damages.
- As a general rule, the innocent party must make the election and communicate it to the repudiating party within a reasonable time.
This property was a good deal, that’s why the Seller wants out. In some cases, rather than wait around until the June 30th closing date to see what is going to happen, mitigate your losses and see if you can find something else to buy now. The sooner the better.
This property was a good deal for you, that’s why the Buyer wants out. In some cases, rather than wait around until the June 30th closing date to see what is going to happen, mitigate your losses and see if you can find another buyer now. The sooner the better.
Deal with the Breach NOW
That’s the fundamental principle under “anticipatory breach”, otherwise, the damages just run higher and the losses suffered all around are magnified.
Consequential Losses and Damages
In addition to the other party to the agreement, there may be other parties who contributed to the “bad deal”, including, a bank manager, loans officer, mortgage broker, real estate agent, home inspector, financial advisor or lawyer. If their conduct amounts to professional negligence, then you may have a claim against them for their “bad advice”.
A property which sold at the peak of the 2017 market in April for $900.000.00, would have declined from $900.000.00 to $700,000.00 by August 2017.
It would have taken until June of 2020 to break even.
Brian Madigan LL.B., Broker