Buyer Liability in Failed Property Deals

When a buyer backs out of a property deal, the seller is usually entitled to keep the deposit and may pursue additional compensation for the breach of the purchase agreement. The seller is obligated to take reasonable steps to reduce their losses, typically by attempting to resell the property. If the market is experiencing a downturn, the resale price could be much lower than the original agreed-upon amount, and the buyer may be held liable for covering the difference. This principle is rooted in the idea that the seller has lost the benefit of the original contract due to the buyer’s failure to complete the transaction.

In cases like this, the buyer might attempt to argue that the seller did not take sufficient steps to mitigate their losses by failing to secure the best resale price. However, the burden of proof is on the buyer to provide compelling evidence to support this claim.

This issue was highlighted in a legal case involving a property transaction in Ontario, where the buyer entered into an agreement to purchase a property for a substantial sum. The buyer was unable to complete the transaction by the agreed date, and after several extensions and additional deposits, the purchase still didn’t go through. The seller eventually sold the property at a much lower price, leading to a claim for damages, including the difference between the original and resale prices.

The buyer contested the damages, arguing that the seller had not properly mitigated their losses by failing to relist the property at a lower price, among other things. The buyer also suggested the seller should have accepted a lower offer that included a vendor-financed mortgage. However, the seller provided evidence showing that they had relisted the property at the same price, reduced the price multiple times, and marketed it through various channels. Crucially, the buyer did not present any evidence, such as an appraisal, to show that the property had been sold for less than its market value.

In response to the seller's motion for summary judgment, which sought to have the court rule without a full trial, the judge emphasized that the buyer had to provide strong evidence to contest the seller's efforts to mitigate damages. Ultimately, the judge found that the seller had made reasonable efforts to market the property and sell it for the best available price. As a result, the court ruled in favor of the seller, awarding damages that included the price difference, carrying costs, interest, and litigation costs.

This case underscores the importance of both parties' actions in the event of a failed real estate transaction. Sellers must show that they took reasonable steps to minimize their losses, such as relisting the property promptly, reducing the price when necessary, and employing effective marketing strategies. On the other hand, buyers seeking to avoid liability for the difference in the resale price face a heavy burden in proving that the seller did not take adequate steps to mitigate the damages. In this case, the buyer was held liable for the full difference in the sale price, highlighting the significant financial consequences of breaching a high-value property transaction.