May 13, 2025
A typical Ontario residential agreement of purchase and sale contains a provision that pending closing, the house remains at the risk of the seller, which means that they continue to insure it against fire.
THE ISSUE
So, what happens if there is a fire before closing?
The typical clause provides that in the event of fire, the buyer has the choice between:
- terminating the contract, which means that the seller ends up with the insurance proceeds and retains the property, or
- closing the deal but receiving the insurance proceeds.
THE CASE
McDonald v. Lowrie, a Superior Court of Justice decision, introduces a small twist on the application of the clause if the facts are a bit different.
In McDonald, the buyers were concerned about the fairness of the insurer’s settlement offer. They submitted to the seller an assignment of the insurance proceeds that required the seller to guarantee a minimum amount of insurance proceeds. The seller did not agree. They said that the buyer had terminated the agreement, were in breach of the agreement, and forfeited their deposit.
The buyer sued for specific performance of the agreement, so that they would end up with the property and insurance proceeds.
The judge applied an earlier Supreme Court of Canada decision and ruled that the insurance clause does not guarantee any specific amount of insurance proceeds becoming payable. Therefore, the buyer had repudiated (terminated) the agreement and was not entitled to specific performance or a return of the deposit. By seeking more than they were entitled to, the buyer lost the opportunity to get what they were entitled to.
TAKEAWAYS
- The fine print in your agreement of purchase and sale matters.
- It all matters.
- If your realtor cannot explain the terms to your satisfaction, see a real estate lawyer,
- Unless otherwise agreed, the fine print must be complied with.
- Failing to do so may be costly.
WHAT WEILERS LLP CAN DO FOR YOU
The real estate lawyers at Weilers LLP understanding agreements and will give you sound representation and advice.
In addition, by dealing with a firm that also does both real estate and insurance litigation, you would receive seamless advice and representation if the deal does not close due to fire.
Give us a call BEFORE the fire and see if we are the right lawyers for you.