January 13, 2023

By Nick Melchiorre

THE ISSUE

If you are the seller of a house and the buyer fails to close, how do you prove your damages?

If you said that it is simply the difference between the two sale prices if you took reasonable steps to sell the property in an arm’s length sale to a party in mitigation of damages, and there is nothing improvident about the sale, congratulations. You know your well-settled principles of calculating damages for loss of bargain. Despite the growing prevalence of expert evidence, no expert evidence is required to prove your damages.

THE CASE (and the real issue)

The real issue arises from the fact that in Arista Homes (Richmond Hill) Inc. v. Rahnama, the trial judge simply got it wrong. They got confused and failed to apply these well settled principles. As a result, the sellers had to go off to the Ontario Court of Appeal to get their proper damages. This no doubt cost them more money, and delayed recovering what they were entitled to all along.

With home prices falling in many areas, more and more buyers will be willing to walk away from a house that they can no longer afford or perhaps are unable to finance. If the agreement of purchase and sale is binding (for instance there is no financing condition or the financing condition has been waived), the buyer is likely required to pay damages to the seller.

Arista Homes should have been a simple case. The plaintiff’s lawyer took a belt and suspenders approach and proved their damages in two alternative ways. First, they argued the well settled principles and the calculation based on them. Then, just in case the trial judge felt that the sale was improvident, they called an expert valuator to provide an alternative and lower amount of damages.

The trial judge did not mention the first calculation in his reasons but also did not find the sale to be improvident. Despite this contradiction, without considering those well-settled principles, he awarded the damages based on the expert‘s lower calculations.

THE RESULT

The Court of Appeal had no trouble in a very brief sixteen-paragraph judgment saying that the trial judge was wrong. The term “well settled” is taken from paragraph eight of the appeal judgment. The Court of Appeal overturned the trial judge’s decision and substituted the correct amount.

TAKEAWAYS

  • The test for damages for a failed real estate transaction is well settled, even if some judges may get confused.
  • That test does not require expert evidence if you can prove that the sale was not improvident through other evidence.
  • To prove that the sale was not improvident, all you need to have is evidence that the property was well exposed to the market on the resale.
  • One way to do that is to call your realtor, not as an expert on damages, but to explain the second sales process.
  • If you or your lawyer are calling expert evidence to show that the sale was not improvident, you should make it clear to the judge that that is the purpose of the evidence.
  • If you or your lawyer is calling expert evidence as an alternative calculation of damages if the sale is considered improvident, you should also make that very clear.

Part of the problem on the appeal of this case was that even when there is an appeal of a judgment, the submissions of the lawyers are not usually transcribed. This makes it difficult to be confident just what arguments were made at trial.

One way to avoid this is to provide the court with written submissions that parallel your verbal submissions so that there is a written record.

Because not every trial judge is experienced or expert in calculating real estate damages, it is important that you retain a lawyer who is clear about the well settled law, can track down suitable evidence, and is confident about how to present it all to the court.

HOW WEILERS LLP CAN HELP YOU

The real estate section at Weilers LLP carries on our proud tradition of advising clients about the risks and obligations that they are accepting before they sign a contract.

If difficulties arise, we work with our clients and their other advisors to attempt to resolve the problems.

If the problems cannot be resolved on a friendly basis, then our litigation lawyers may be able to assist with damage control. If there is a question about how to calculate or prove damages, we have the benefit of having Brian Babcock as counsel. Brian has taught the course on Remedies, including damages, numerous times at the Bora Laskin School of Law.

We know the law of damages, the rules of evidence, the art of advocacy, and how to blend them together to get your best possible results.

Our litigation team works well with outside real estate lawyers who do not do litigation, as well as with our own clients.

If you find yourself needing advice about your risks or obligations under a real estate contract, it is best to seek the advice early. Feel free to give Weilers LLP a call and see if we are the right lawyers for you.