Buyers Lose Right To Recover Deposit After Seller Breaches Agreement

• Published date: 03 August 2021
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Contracts and Commercial Law, Construction & Planning, Real Estate
• Law Firm: Gardiner Roberts LLP
• Author: Mr James R.G. Cook

After an Agreement of Purchase and Sale (APS) is signed and a deposit is paid it may be weeks or months before the scheduled completion date. In the case of new properties under construction, it could be years. During that time, the APS generally remains a binding legal agreement and a buyer is not entitled to the return of the deposit unless the seller breaches the APS. One way the APS may be breached by the seller is by extending the completion date without a contractual right to do so.

A buyer who wishes to take advantage of a seller's breach of the APS and seek the return of the deposit must indicate that they intend to do so within a reasonable time, or else they will remain bound to complete the transaction.

In Ching v. Pier 27 Toronto Inc., 2021 ONCA 551 (CanLII), the buyers entered into an APS in 2008 for the purchase of a condominium under construction in Toronto and paid a deposit totalling $214,238.85. The APS provided that time was of the essence. The original completion date was going to be in 2010 but the seller extended the date eight times between 2010 and 2014 for various reasons including construction delays, strikes and bad weather. None of these reasons were permitted under the APS. However, the buyers never complained.

In December 2013, the buyers' intended lender cancelled their mortgage approval and they unsuccessfully attempted to assign the APS to another buyer.

On June 27, 2014, the seller once again changed the completion date from July 30 to August 20, 2014. The buyers did not complain and July 30 came and went.

On August 7, 2014, however, the buyers' lawyer wrote to the seller's lawyer and stated that it was incumbent on the seller to permit rescission of the APS due to the numerous unpermitted extensions of the completion date. The seller's lawyer replied that the buyers did not have the right to terminate the APS.

The buyers did not take possession of the property on August 20, 2014, and the transaction did not close. Without mortgage financing, the buyers had no funds to complete the purchase of the unit.

The seller was ultimately able to re-sell the unit for a profit of $93,000 over the amount the buyers had agreed to pay. However, litigation ensued between the buyers and the seller over whether the seller was entitled to retain the deposit.

In July 2021, the Ontario Court of Appeal confirmed that it was.

A breach or "repudiation" of an APS before the scheduled completion date does not, in itself, terminate the contract. If...