The Sellers Say They Won’t Close: Will the Courts Make Them?

By Eric Lay of Merovitz Potechin LLP on Monday October 5, 2020.

Rising real estate prices create incentives for sellers to try to get the most out of their agreements. The hot markets in most of Ontario since the initial pandemic restrictions were loosened are no exception, and we have seen an increase in sellers walking away from their deals looking for better offers.

Because of the 1996 Supreme Court of Canada case Semelhago v. Paramadevan, there is still a view among many lawyers that specific performance – a legal term for an order that the other party do what they agreed to do — is an exceptional remedy, granted only in cases where a buyer can demonstrate that the property in question has unique qualities.  

It is time to move beyond that view.  Courts in Ontario have gradually refined the rules in Semelhago and are increasingly prepared to hold home sellers to their bargains.  The Courts seem receptive to three kinds of arguments in particular.

Uniqueness is in the Eye of the Beholder

First, Courts are taking a generous review of uniqueness, and looking at uniqueness from the subjective position of the buyer.  To be unique and support an order for specific performance, a property does not need to have universal, transcendent qualities.  A property may be unique because it is affordable and close to a subway station; because of a lack of similar homes on the market; because a pie-shaped lot is suitable for gardening; or because it is suitable for an extended family.

Money is no Substitute

Second, damages often don’t do justice to buyers. 

Semelhago is based on the idea that for many transactions, an order paying damages can be a sufficient remedy for a wronged party.  In rising real estate markets, however, an award of damages can significantly undercompensate a buyer.  In a rising market, the damages a buyer can be awarded for a seller’s breach will usually be based on difference between the deal price, and the value of the home at some future date.  The litigation process is slow, and the interval between the date of an appraisal for damages purposes and the date damages are actually paid can easily be six month or a year or longer.  In the meantime, the home could go up in value significantly, and the buyer will have spent additional time and money.

Courts are increasingly willing to find that in rising markets, specific performance is the better remedy because damages will generally fall short.

Bad Faith Sellers

Specific performance is considered an equitable remedy, which means that Courts will pay attention to the conduct of the parties.  There has been a string of recent decisions calling out sellers who walk away from deals to look for better offers, and taking that behaviour into account in ordering specific performance.

Hold Sellers to their Bargains

If your seller walks away, it doesn’t mean you have to.  The goal of contract law is to put parties in the position they would have been if a contract had been completed. In residential real estate deals, Courts increasingly recognize that the best way to do that is to hold sellers to their bargains. If you have signed an agreement of purchase and sale, and the seller backs out, or if you have questions about your rights as a home buyer, contact our real estate litigation lawyers at Merovitz Potechin LLP.