QUICK HITS

 

• Anticipatory breach risk: Buyers requesting changes to a purchase agreement, such as a reduced price, may be seen as committing an “anticipatory breach,” allowing sellers to back out and even sue for damages.
• Court sides with sellers: A buyer’s demand for a $355,000 price reduction was viewed as an unwillingness to complete the deal, leading the court to rule in favour of the sellers, who remained committed to the original agreement.
• Financial consequences: The buyer was held liable for $345,121.98 in damages after failing to close the deal, illustrating the importance of framing renegotiation requests carefully to avoid breaching contracts.

When purchasing a property, buyers sometimes realize they might not be able to meet the agreed-upon terms, such as the completion date. In such cases, they may seek to extend the deadline, reduce the purchase price or make other changes to the agreement. However, buyers must be careful, as making certain demands could be seen as an “anticipatory breach,” which may allow the sellers to back out of the deal and even sue for damages.

The case of Zoleta v. Singh and Re/Max Twin City Realty illustrates this point clearly. In February 2022, a buyer agreed to purchase a home in Kitchener, Ontario, for $1,150,000, with a completion date set for June 30, 2022, and payment of a $50,000 deposit.  The Agreement of Purchase and Sale (APS) didn’t include any conditions.

Buyer requests reduced purchase price; sellers relist home for sale

Just a week before the completion date, the buyer’s lawyer informed the seller’s lawyer that the property had been appraised for $355,000 less than the agreed price and that the buyer “required” this amount to be reduced from the purchase price. The sellers refused this demand and their lawyer warned that failing to complete the purchase would breach the agreement.

Concerned about the buyer’s ability to finalize the deal, especially since they needed the sale proceeds to fund their own property purchase, the sellers relisted the home for sale. To be transparent, they informed the buyer’s real estate agent of this via text message. The buyer’s agent didn’t respond.

Nonetheless, the sellers didn’t enter into any new sale agreements before June 30, and they still showed up at their lawyer’s office on June 30, ready to close the sale if the buyer proceeded.

Buyer claims APS null and void, walks away

On the completion date, the sellers agreed to an extension if the buyer made a further non-refundable deposit of $50,000. Instead, the buyer claimed that the APS was void because the sellers had relisted the property, and he refused to finalize the purchase.

The sellers ended up reselling the property for $350,000 less than the buyer had agreed to pay (market conditions had changed). They sued the buyer for damages and moved for summary judgment.

Court rules in favour of sellers as they remained committed to completing sale

The buyer’s defense was that the sellers had “sabotaged” the transaction and his ability to get financing due to the relisting of the property before his completion date. The sellers argued that the buyer had committed anticipatory breach of the APS by demanding a $350,000 abatement.

The court ruled in favour of the sellers, stating that the buyer’s demand (by using the word “require”) for a $355,000 reduction was a clear sign they were unwilling to complete the purchase unless the price was lowered — it was not seen as a request.

The court found that the sellers remained committed to the original agreement and had not breached the contract: They gave notice to the buyer about wanting to close on the completion date but relisting the property for sale in the event that he wouldn’t close. They also agreed to an extension on terms that were not accepted.

Only once those negotiations failed, the buyer took the position that relisting the property made the APS null and void. The judge found that the sellers remained committed to completing the sale to the buyer as scheduled.

As a result, the buyer was held liable for damages, including the difference in the resale price of the property. The sellers sought damages of $345,121.98, which includes the carrying cost of the property ($9,962), costs they incurred to extend their scheduled purchase transaction ($4,934.98) and loss of sale value, net of real estate commission ($330,225).

This case serves as a warning: if your client needs to renegotiate the terms of their deal, the request can’t come across as a non-negotiable demand. Otherwise, they risk being seen as breaking the contract and facing significant financial consequences.