Backing Out of a Purchase Agreement

Toronto has experienced the fastest growing market on record. Buyers have been participating in bidding wars, fighting hard to lock themselves into a contract on a new home. So while it may be rare for a buyer to want to back out of a purchase agreement in this day and age, it does happen. Sometimes circumstances change, jobs relocate, budgets decrease, life happens, and when it does, a house may no longer be the right fit.

Buyers may not find walking away from a contract as easy as they thought. There are specific points along the purchase timeline when a buyer has the opportunity to withdraw, but there is also a ‘point of no return.’

Offer

Starting when a buyer makes an offer, they have officially created a contract. Once the offer is sent to the seller, usually, the buyer cannot withdraw their offer unless the seller has not received it. Once the seller has the offer in hand, the buyer cannot withdraw during the disclosed period on the contract. Should the seller not accept the offer but submit a counteroffer, the buyer can choose to back out of the contract at that time. Alternatively, they can accept the seller’s counteroffer or submit another counteroffer.

Pre-construction

If a buyer submits an offer on a pre-construction property (meaning that they are purchasing based on an approved plan), they enter a 10-day cooling-off period upon signing. This is often called the ‘buyer’s remorse period.’ However, when a property is established, they do not benefit from a cooling-off period, so buyers should be confident in their choice upon signing.

Inspection

Most contracts will have conditions such as a finance or inspection clause. A property inspection must be carried out during the specified due diligence period on the purchase agreement. When the buyer receives the inspection report, there will almost always be defects listed. Many buyers think that these defects give them the option to withdraw from the contract, and that simply is not the case.

Buyers can only withdraw from a purchase agreement after an inspection is conducted and there is at least one major issue listed on the report. In addition, the repair cost of the disclosed problem has to be high. For example, if the property needs a new roof or has a foundation problem, this could be grounds to cancel a purchase agreement.

Mutual Agreement

Should both a buyer and seller decide to cancel the purchase agreement, the contract can be cancelled. But here is where it gets complicated. If either or both parties were working with a real estate broker, the cancellation might impact their commissions. The buyer or seller may then be obligated to pay the commissions even though a sale hasn’t proceeded. This is because the broker has completed their work as detailed in the listing agreement.

What is most important to remember is that when you are making an offer on a property, you are entering a promise to purchase. Therefore, except under these few situations, you are legally required to follow through with the contract. Otherwise, you may face a penalty (i.e. loss of deposit).

Do you need assistance backing out of a purchase agreement? Engaging a lawyer who can help guide you through this process will help you know your rights and obligations. Contact Levy Zavet Lawyers today.