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When a vendor or purchaser breach an agreement of purchase and sale by not completing the sale transaction, the innocent party may suffer damages and should consider recovering their losses from the defaulting party.  This article will discuss both the vendor and the purchaser’s damages relating to the breach of contract in a real estate transaction.

Generally in contract law, damages are awarded to the innocent party in order to put them in the same financial position as if the contract was performed.  In some special cases, the court can also order specific performance, meaning forcing the parties to complete the contract if possible.

Vendor’s Damages

The party that suffers a loss has a duty to mitigate their damages. For a vendor in a real estate transaction this means the vendor should re-list their property as soon as possible.  If the vendor re-sells the property for less than the original agreement, the vendor can recover the difference as well as legal fees and other carrying expenses such as property taxes, maintenance and mortgage payments which would have been paid on the scheduled closing date.

One of the worst case scenarios is when a vendor is relying on its sale in order to purchase another property.  The vendor will need to arrange for a bridge loan until their current property sells, if they can, or the vendor may be put in the onerous position of having to breach their agreement to purchase the new property.  These damages can be recoverable from the purchasers if the vendor can demonstrate that the defaulting purchaser knew or ought to have known that the vendors were intending to use the proceeds from the sale for a subsequent purchase.

With regards to the deposit given by the purchaser to the vendor, the general rule is that the deposit is forfeited, however, the factors to consider is the amount of deposit (generally should not exceed ten percent (10%)), and whether there were mitigating reasons for the failure to perform the contract.  Deposits are typically held by either the realtor’s brokerage in trust and are not released unless both parties consent to the release by way of a mutual release or a court order.

Purchaser’s Damages

A purchaser’s damages are trickier to quantify.  The general rule is that the purchaser can recover the difference in the price of the property from the time the agreement became binding to the market price of the property on the day of trial.  The Purchaser may also recover consequential damages.  Specific performance in real estate is an extraordinary remedy that may be available to both vendor and purchaser.  Basically specific performance is just that, it is when a court orders the performance of the agreement. It is only done if there is no uncertainty as to what was bargained for, the contract must be capable of being enforced, and the enforcement would not be unconscionable.  In order for purchasers to receive an order for specific performance, the property would have to be very unique and extremely difficult to purchase another one of its kind.

There are many factors to consider when a real estate transaction goes sours, for example, at what point did the party give notice of the breach, the circumstances of the breach, the nature of the property, the conduct of the parties etc.  If your real estate agreement was breached and the transaction looks to be at an end, the lawyers of Levy Zavet PC can assist you in determining your damages, the best strategies and remedies to pursue.