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Builder Chooses Not to List on MLS for Re-Sale After Buyer Fails to Close – Is It Sufficient Mitigation?

In Tribute (Springwater) Limited v. Atif the question for the Court of Appeal was whether a new home builder was unreasonable in using its "inside" sales team, rather than an agent or MLS listing, when trying for several months to re-sell a home, after its deal with the buyers fell through.

The buyers had signed an agreement to buy the home for about $1,115,000, with another $345,000 in upgrades. When they failed to close in late 2018, the builder formally terminated the deal soon after.

Rather than immediately list the home on the Multiple Listing Service (MLS) or with a real estate agent, the builder opted to use its own sales team that was currently selling other homes in the same development. They managed to sell the house only about nine months later, at a price of $985,000. The builder then sued the buyers for the difference, and obtained a summary judgment order for $384,000, including carrying costs.

The buyers conceded they had breached the agreement and were liable for that amount. However, they objected to the added $91,000 in pre-judgment interest they were also ordered to pay. Most of that amount had accumulated during the nine months of effort by the builder's own sales team. The buyers complained that the builder's sales approach and delay was unreasonable, and amounted to a failure in its duty to mitigate.

In defense of its strategy, the builder provided evidence from is V.P. of Sales and Marketing, who testified that all the newly-built homes in the development were dropping in value at the relevant time. The decision to internally market this particular property was aimed at avoiding a reduction in the value of those other new homes, and at eliminating the commission on any sale. An appraiser also gave a retrospective opinion that the home would have been worth only about $890,000 at the relevant point in time.

The Ontario Court of Appeal assessed the builder's mitigation efforts. It conceded that as a general rule, the buyers were not liable to the builder for those losses it could have avoided by taking reasonable steps. However, the onus was on the buyers show that, in the particular circumstances, the builder did not make reasonable efforts to mitigate.

Unfortunately in this case, the buyers failed to meet that onus. They did not offer proof that the builder had acted unreasonably or that the home would have sold for a higher price if it had been listed immediately on MLS. They also did not challenge the builder's evidence about its sales strategy or appraisal value. Most importantly, the buyers failed to raise the mitigation issue at the earlier summary judgment hearing. While the Appeal Court admitted it was "troubled by" the builder's decisions around mitigation, it was too late for the buyers to raise the issue now.

With that said, the builder's decision not to list on MLS likely prolonged the eventual sale, and was relevant to the proper interest rate used in calculating its pre- judgment interest entitlement. This was an issue validly raised on appeal, as the builder argued that the motion judge had wrongly deviated from the pre-judgment interest rate set in the agreement itself, and that the correct amount of interest was $138,000, not the $91,000 awarded.

The Appeal Court disagreed. Even though the agreement provided for a set interest rate that accrued on the full purchase price, the judge possessed inherent discretion to raise or lower the contractual rate if there were "special circumstances." Here, that threshold was met in view of the builder's marketing choices. The judge properly applied her discretion in deciding to lower the applicable rate. The Court dismissed both appeals. See Tribute (Springwater) Limited v. Atif, 2021 ONCA 463.