How much risk can you afford?

How much risk can you afford?

August 23, 2021

By Brian Babcock

A financing condition is common in a residential agreement of purchase and sale. It exists to protect the buyers if they cannot get the necessary loan to buy the property. If not waived, it allows them to walk away and the sellers then must remarket the property, with no risk to the buyers.

In Spiridakis v. Li, the Ontario Court of Appeal confirms that buyers are at risk when they fail to close after waiving the financing condition.

Although the case is mostly about the technical requirements of a summary judgment motion and what damages are payable, the significant warning to buyers to start with is: do not waive financing unless you have financing, or are prepared to take a very risky and potentially expensive gamble.

In this case, the real problem that the buyers faced was that the market cooled, and they we unable to sell their own home for enough to buy the new home. The financing condition may have protected them, because without the down payment from selling their own home, financing was unavailable.

They must have really wanted the house, because after waiving the condition, the buyers extended closing several times while they tried to sell.

Finally, the sellers ran out of patience and refused to extend further. The sellers remarketed the property, selling for less than the buyer’s agreed price. The sellers sued for the difference, plus carrying costs.

The buyers raised technical defences, and added a claim against their lawyer and real estate agent for not preventing them from waiving the condition.

The sellers then moved for summary judgment. The motions judge found that the technical defences did not require a trial, finding in favour of the sellers. Even though the buyers had limited education, and limited English, they understood the terms of the contract, and their only mistake was as to the consequences of not closing – which is not enough to avoid those consequences.

Also, the failure of the sellers to “tender” or attempt to close was not a defence, as “the law is quite clear that an innocent party need not go through the meaningless exercise of tendering in circumstances of anticipatory breach”.

The buyer’s lawyer had sent a letter indicating the buyers were unable to close, which is the “anticipatory breach” required.

The seller also did not have to await the trial of the issue between the buyers and their lawyer or realtor to obtain judgment, because those issues were not overlapping with the seller’s claim.

However, the judge ordered a partial stay of enforcement of the judgment for six months, pending the determination of the claim against the lawyers or agent, or to allow the parties to return with better evidence about the balance of prejudice if immediate enforcement was permitted.

The damages include the loss in selling at a lower price, plus the cost of bridge financing for the sellers to close their own purchase, and carrying costs such as utilities and taxes. In this case, they totalled almost $300,000.00 – a lot to pay NOT to buy a home.

The Court of Appeal agreed with the motions judge, calling his reasons “a model of clarity.”

There is a lot to unpack here. Even though the Court of Appeal’s reasons are brief, that is because the motion judge was thorough.

Takeaways include:

  • Waiving conditions on a residential real estate deal is a serious matter with serious consequences
  • Those consequences should be carefully considered before waiving conditions – how much risk can you afford?
  • The sellers may not need to attempt to close where it would be pointless and the buyers (or their lawyer) has already stated that the buyers are unable to close
  • Failure to understand these consequences is not a defence
  • A claim over against professional advisors may not delay judgment, and will only delay enforcement of judgment if the balance of prejudice favours the buyers.

Do not let your enthusiasm to buy a dream home turn into a nightmare.