Think twice before suing real estate sellers for lost profits. We answer your 7 most common questions about lost profits when the agreement of purchase and sale gets cancelled. (In a hurry? Go straight to our FAQs.)
Coming out ahead of a cancelled real estate sale takes finesse. Sunk costs and lost profits can nag at your conscience. They did for a European real estate investment company that pursued suing real estate sellers for unrealized profits and sunk costs.
The Ontario courts declined their claim against the Toronto owner, and they could reject yours too.
Why Suing Real Estate Sellers Can Fail
Akelius Canada Ltd. offered $228,958,320 in 2015 to buy seven apartment buildings in Toronto’s Parkdale neighborhood. The seller pulled out in 2016, but resold the properties two years later for a 25% profit. With sunk costs for its offer, and potential lost profits from Toronto’s booming real estate market, Akelius took the sellers to court.
But suing real estate sellers for lost capital gains can be a losing strategy.
Buying commercial property in Ontario.
While Akelius’ business model was based on renting the investment properties, made clear during negotiations, its legal claim was for unrealized profits (the 25% capital gain) and expenses.
The court disagreed.
The company was speculating on a rosy future the contract didn’t contemplate and Akelius couldn’t predict. Capital gains weren’t on the table in 2015, and the $775,855.46 judgment for sunk legal and professional fees acknowledged that. The date of the company’s loss, t\he Court of Appeal for Ontario ruled, was when the initial contract breach occurred, not two years later. Read the appeal court’s decision.
FAQs on Termination of Real Estate Contracts by Sellers (Ontario)
The decision raises some interesting questions if you’re planning on suing real estate sellers.
When can a seller cancel a purchase and sale agreement?
A seller can cancel with your mutual consent, or use a 48-hour escape clause to force you to make a firm offer or withdraw. Your sales contract is void if you fail to meet terms and conditions like making a good faith deposit, or miss the deadlines. 48-hour escape clause explained.
Do you lose the deposit if financing falls through?
You could unless your offer to purchase is conditional on financing, and gives you sole and absolute discretion to decide if a lender’s terms are acceptable. Instead of suing real estate sellers, state who keeps the deposit if the deal collapses, and include a mutual consent clause that allows you to negotiate.
What happens to your deposit while you’re suing real estate sellers?
If your lawyer agrees on suing the real estate sellers, your deposit will stay in a trust account until the dispute is settled.
Can sellers sue you for lost profits and sunk costs?
They can, if you cancel your offer and the property sells for less. That’s because “the award of damages should put the injured party as nearly as possible in the position it would have been in had the contract been performed” (Akelius Canada Inc v. 2436196 Ontario Inc., 22(1)). Besides being sued for lost profits (the difference between your offer and the final price), you could be liable for sunk costs like restaging, moving, storage, or interest expenses on temporary financing for a seller’s new home.
Can you sue sellers for sunk costs?
You may be able to sue for sunk costs if the seller breached a term or condition in the agreement of purchase and sale, or disputes returning your good faith deposit. Talk to a lawyer before suing real estate sellers to see if it is worth the expense.
Can you sue a previous homeowner for non-disclosure in Canada?
Maybe, if the failure to disclose created a health or safety hazard. The seller property information sheet (SPIS) is voluntary in Ontario. You could still be successful suing real estate sellers if they, or the realtor, knew about latent defects like hidden asbestos, a sinkhole that endangers your safety, or toxic mould. Talk to a lawyer experienced in civil lawsuits (torts) before you make any decision on suing real estate sellers. What to do about mould and moisture in your home.
Pointers on buying an investment property in Ontario.
Can you include realtors when suing real estate sellers?
You can, and besides minor offences like advertising errors, misunderstandings between parties are the most common complaint filed against realtors in Ontario. Most are resolved by RECO talking to the realtor, issuing warnings, or asking the realtor to fix the problem. Few cases get as far as including realtors in suing real estate sellers. That’s because RECO can discipline, suspend, or prosecute realtors, or revoke their licence. Check with RECO first before you agree to costly legal action. Go to I want to file a complaint.
Hiring lawyers when buying an investment property.
Why You Need a Real Estate Lawyer
Before you sign that agreement of purchase and sale, let Axess Law review the terms and conditions. We protect your buyer’s or seller’s right to cancel, and keep the real estate deposit if conditions are just not right for the sale.
Draft a legally binding offer to purchase.
Your Axess Law real estate lawyer liaises with realtors and mortgage lenders to complete real estate transactions on time. We can amend agreements, if the other party agrees, to extend closing dates, waive or add conditions, or renegotiate the price if a professional home inspection finds problems you want a seller to repair.
When the negotiations are done, Axess Law searches title to the property for legal claims or construction liens, and transfers it to your name.
Remove financial liens on property before you buy.
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