Eyelet Investment Corp. v. Zhou, 2026 ONCA 453
Purchasers who fail to close a real estate transaction often assume they will automatically lose their deposit and be liable for any actual loss suffered by the Seller. While that is frequently true, a recent decision of the Ontario Court of Appeal serves as an important reminder that Sellers also have legal obligations.
In Eyelet Investment Corp. v. Zhou, 2026 ONCA 453, the Court confirmed that a Seller seeking damages following a purchaser’s breach must be able to demonstrate that it took reasonable steps to mitigate its losses. Simply claiming that reasonable efforts were made is not enough, those efforts must be supported by evidence.
The Facts
The purchaser agreed to buy a newly constructed home from the developer, Treasure Hill Homes, for approximately $1.68 million, paying deposits totalling $127,500.
Before the scheduled closing date, the purchaser advised that she would not complete the transaction. The builder accepted the repudiation and later resold the property approximately six months later for $1.3 million, roughly $380,000 less than the original purchase price.
The builder sued for the difference between the contract price and the resale price, together with carrying costs, after crediting the purchaser’s deposit.
The Real Issue: Mitigation
The dispute was not whether the purchaser had breached the Agreement of Purchase and Sale. That was undisputed.
Instead, the case turned on whether the builder had taken reasonable steps to mitigate its damages after learning the purchaser would not close.
Under long-established principles of contract law, an injured party cannot simply allow losses to accumulate.
It must take reasonable steps to reduce those losses. Although the defaulting purchaser bears the burden of proving that the Seller failed to mitigate, the Seller must still produce evidence showing what it actually did.
The Evidence Fell Short
The builder argued that it deliberately chose not to aggressively market the property because placing too many cancelled homes on the market could depress prices throughout the subdivision and negatively affect other pending sales.
The motion judge accepted that such a business strategy could, in some circumstances, be reasonable.
The problem was that the builder produced virtually no evidence demonstrating how this particular property was actually marketed.
Among the deficiencies identified by the Court were:
- the property was never listed on MLS;
- there were no records of advertising or promotional efforts;
- there were no email marketing records;
- there were no records of prospective purchasers;
- there were no records of offers received; and
- the builder’s witness could only describe the company’s general marketing practices rather than what had actually been done for this property.
Because of the absence of documentary evidence, the motion judge drew an adverse inference that the builder had delayed or inadequately marketed the property.
Why the Resale Price Was Not Accepted
Normally, where a purchaser defaults, damages are calculated by comparing:
- the agreed purchase price; and
- the price obtained on a reasonable resale.
In this case, however, the property sold substantially below every appraisal placed before the Court including the builder’s own appraisal.
Combined with the six-month delay in selling the property and the lack of evidence explaining the marketing efforts, the motion judge concluded that the resale price was not a reliable measure of the property’s value.
Instead, damages were assessed using the builder’s own appraisal of the property’s value as of the date the purchaser repudiated the contract.
After crediting the purchaser’s deposit, the Court concluded that the builder had suffered no recoverable damages, and the action was dismissed.
The Court of Appeal Agrees
The Ontario Court of Appeal unanimously upheld the decision.
The Court rejected the builder’s argument that the motion Judge had improperly reversed the burden of proof. Rather, the purchaser had successfully demonstrated, based on the evidentiary record, that the builder failed to establish reasonable mitigation efforts.
The Court also confirmed an important procedural principle applicable to summary judgment motions: parties are expected to “put their best foot forward.”
A litigant cannot later complain that additional evidence might have been available after choosing not to produce it during the motion.
Considerations for Sellers and Builders
This decision contains several practical lessons for developers, builders, lenders exercising power of sale, and other vendors seeking damages after a failed transaction.
If a purchaser defaults:
- keep detailed records of every marketing effort;
- document the reasons for any delay in relisting the property;
- retain copies of advertisements, email campaigns, and inquiries;
- preserve records of all offers received; and
- be prepared to explain why the chosen marketing strategy was reasonable under the circumstances.
Business judgment alone is not enough. Courts expect objective evidence demonstrating that reasonable steps were taken to minimize the loss.
Comment
Eyelet Investment Corp. v. Zhou reinforces a fundamental principle of contract law: while purchasers who breach an agreement may be liable for damages, Sellers must also fulfil their legal duty to mitigate those damages.
Where a Seller cannot demonstrate what was actually done to market the property after a breach, a Court may refuse to rely upon the eventual resale price and may significantly reduce or even eliminate the Seller’s claim.
For builders and vendors alike, careful record-keeping can make the difference between recovering substantial damages and recovering nothing at all.
Brian Madigan LL.B., Broker
www.OntarioRealEstateSource.com