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Deal Fails to Close: Seller Need Not Accept Buyer’s Lower Price in Mitigation

In a recent decision, the Ontario court confirmed that once an agreement of purchase and sale fails to close, the seller’s legal duty to mitigate his or her losses does not encompass an obligation to accept a lower bid from the same buyer.

The facts involved a seller who had agreed to sell her home to the buyer for $850,000. A closing date was set, and the seller duly delivered the keys and closing documents in anticipation. However, the buyer was repeatedly unable to arrange the financing needed, and twice asked for and received a closing-date extension.

The parties finally settled on October 17, 2017 as the new closing date. In the course of doing so, the buyer’s lawyer wrote to the seller, referencing an additional term to the effect that the transaction “can be closed at any time prior to the amended closing date”, and adding that the property had to be vacant upon closing.

Still prior to the fixed closing date, the buyer assigned the agreement to a third party, who wrote to the seller on October 5, 2017, advising that he now wanted to complete the transaction the very next day – on October 6, 2017.

With only one day’s notice, the seller would be able to move out most of her things, but not all of them.  She advised that she would be unable to offer vacant possession on closing, especially since October 6, 2017 fell on the Friday of the Thanksgiving long weekend. She offered instead to proceed with a Friday closing, but deliver vacant possession by the middle of the following week.

The assignee rejected this compromise. Instead, he refused to close at all, citing a breach of the newly-added contract terms that required vacant possession to be delivered on October 6, 2017 as requested.

Still willing to cooperate, the seller then suggested they close on October 17, 2017 as originally agreed.  Again, the assignee refused, and once again the deal did not close. Had it done so on that date and at the agreed price, the seller would have netted $804,040.

With the contract at an apparent end, the seller took prompt steps to sell the property to someone else, by re-listing it on MLS for $850,000.   Importantly, less than a month later the buyer again offered to purchase the property from the seller, but this time for the lower price of $799,00.

The seller refused; instead, she continued to try to market and sell the property.  Despite her diligent efforts, she eventually had to drop the price to $759,900, and ultimately sold it for $657,000, with her net proceeds being about $623,270.

She then sued the original buyer for the difference between the two net sale proceeds amounts, i.e. $180,775.50 plus additional moving and storage costs, expenses and interest. The buyer counterclaimed for the return of his $50,000 deposit, together with added damages for alleged breach of contract.

The seller was successful on her motion for summary judgment. One of the key issues for the court was whether the seller had fulfilled her duty to mitigate damages after the original deal failed to close on October 17, 2017.  The buyer claimed she had not, since she refused his November offer of $799,000. The court disagreed.

In law, the burden always remained with the buyer to show that: (1) mitigation was possible and (2) the buyer had failed to take reasonable efforts to reduce her damages.  In this regard, Canadian courts require only that the seller act reasonably, rather than perfectly.

The court stated it was not considered a failure to mitigate where an innocent seller refuses the defaulting buyer’s revised terms as part of an offer to purchase the property at a lower price.  The seller may choose to accept such an offer, but in law cannot be obliged to do so.

Here, the seller acted reasonably to try to re-sell her home, at what turned out to be a lower price. The court noted this price differential was sufficiently explained by a steady drop in the housing market around the material time.

Moving on to the tests for summary judgment, the court concluded that the seller had not breached the agreement to close. Neither the buyer nor its assignee had a unilateral right to fix the closing date; as the court put it, this was “a wish not a promise”.   Moreover, the court held that the seller:

“… did not breach the agreement when she declined the fantasy of closing on half-a-business days’ notice before a holiday long weekend.”

The reality was that neither the buyer nor the assignee had financing ready on closing; this was in contrast to the seller who was ready, willing and able to perform her side of the agreement at all times.

Having succeeded in obtaining summary judgment, the seller was awarded damages of almost $145,000, representing the difference between the buyer’s offer and the ultimate sale price, plus interest and carrying costs. See Malatinszky v. Miri, 2020 ONSC 16.