Dada v. Brantford Communities Ltd., 2018 ONCA 209
What happens to a purchaser’s deposit when the purchaser fails to close a real estate transaction?
The Ontario Court of Appeal considered this issue in Dada v. Brantford Communities Ltd., and confirmed that a purchaser who is responsible for a failed closing may lose both the deposit and other amounts paid under the transaction.
The Failed Closing
The purchasers entered into an agreement to purchase a property but ultimately failed to complete the transaction. The application Judge found that the failure to close resulted from the negligence of the purchasers and their lawyers.
As a consequence, the purchasers forfeited their deposit and upgrade fees.
There was an additional complication. Before the matter was heard, the Vendors had resold the property for approximately $240,000 more than the original purchase price.
The purchasers argued that, in light of the Vendors’ substantial gain on the resale, retaining their deposit and upgrade fees was unconscionable.
The Court of Appeal’s Decision
The Court of Appeal rejected the appeal.
The Court found no error in the application judge’s conclusion that the purchasers were responsible for the failed transaction. The fact that the Vendors subsequently obtained a significantly higher price on resale did not, by itself, make the forfeiture of the deposit unconscionable.
The Court also noted that the application judge had not expressly referred to the doctrine of unconscionability. Nevertheless, he was aware of the $240,000 increase on resale and, in the circumstances, had concluded that forfeiture was appropriate.
The Importance of the Deposit
A deposit in a real estate transaction serves an important contractual purpose. It demonstrates the purchaser’s commitment to completing the transaction and provides protection to the vendor if the purchaser repudiates the agreement.
The Ontario Court of Appeal has emphasized that relief from forfeiture is exceptional. In Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, the Court identified the relevant considerations, including whether the deposit is grossly disproportionate to the vendor’s damages and whether it would be unconscionable for the vendor to retain it.
The analysis is not simply a mathematical comparison between the deposit and the vendor’s actual damages. The Court considers the entire commercial context, including the circumstances of the transaction, the conduct of the parties, their sophistication and bargaining power, and the nature of the breach.
Considerations for REALTORS®
Dada provides an important reminder that a purchaser cannot assume that a deposit will be returned simply because the vendor ultimately suffers little or no financial loss.
Where a purchaser is responsible for failing to close, the deposit may be forfeited even where the property is subsequently resold at a substantial profit.
For real estate professionals, the case also emphasizes the importance of properly advising clients about the consequences of failing to complete an Agreement of Purchase and Sale.
A failed closing is not simply an opportunity to walk away from the transaction. It can expose the purchaser to:
- loss of the deposit,
- additional damages,
- litigation and
- potentially other remedies available to the vendor.
The Court of Appeal’s decision in Dada demonstrates that the Courts will carefully examine responsibility for the failed transaction before granting relief from the consequences of a forfeited deposit.
Brian Madigan LL.B., Broker
www.OntarioRealEstateSource.com