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WEB EXCLUSIVE: Know When to Hold ‘Em, Know When To Fold ‘Em


When a real estate deal collapses, the vendor may feel pressure to act quickly in exercising its available remedies. In many cases, if the purchaser is unable or unwilling to complete the transaction, and is in breach of its obligations under the contract, the vendor’s first instinct will be to terminate the contract, relist the property for sale and seek an order allowing it to keep the deposit and obtain an award of damages. However, this is not the only remedy, and it is not necessarily appropriate for every case.

The Vendor’s Remedies in the Face of a Collapsing Deal

Case law indicates that a vendor really has two options when faced with a collapsing deal. It can accept the purchaser’s repudiation, claim the deposit and damages or seek specific performance of the contract. In Westwood Plateau Partnership v. WSP Construction Ltd., the British Columbia Supreme Court noted that in normal circumstances, the vendor would relist the property for sale, claim the deposit and seek damages. However, specific performance may be available in special circumstances. For example, where the contract was party executed or the purchaser had made changes to the lands in question, an order for specific performance may be appropriate.

The decision to elect to accept a purchaser’s repudiation, claim the deposit and seek damages or, alternatively, seek specific performance is not one that has to be immediately made and communicated. In fact, as the British Columbia Supreme Court recently confirmed in Dosanjh v. Liang, that the innocent party is allowed a reasonable opportunity to assess the circumstances, consider its options, and explore ways of resolving the situation, before making its election. All that is required is that the innocent party act reasonably in communicating his or her course of action so as not to prejudice the other party.

In Dosanjh, the fact that the innocent party to the transaction had indicated its desire to proceed and attempted to remove subject clauses, among other things, was found not to be determinative as to whether it elected to affirm the contract. Rather, the Court concluded that such steps were taken to ensure that the innocent party was ready, willing and able to complete, thereby keeping its options open.

The importance of being ready, willing and able to complete cannot be overstated, and the case of Malek v. Tanbakookar is a good example of why this is so. In Malek, the prospective purchaser was unable to obtain the requisite financing and the sale did not complete. On the day the sale was supposed to close, the purchaser’s lawyer wrote to the vendors’ lawyer and told him the purchaser was not in a financial position to go through with the purchase. The very next day, the vendors’ lawyer wrote back, advising that the vendors would be relisting the property for sale and that they would hold the purchaser accountable for any loss or damage they incurred in relation to his failure to complete the transaction. About a month later, the vendors commenced an action against the purchaser claiming the deposit and seeking damages for breach of contract.

Unfortunately, in Malek the vendors were not ready, willing and able to complete the sale of the property when they terminated the contract. At the time of closing, the vendors were travelling outside the country and were relying on their lawyer to sign the transfer documents pursuant to a power of attorney. However, the power of attorney was defective, and as a result, the contract remained “alive” and binding on both parties. The Court found that the vendors had “jumped the gun” in electing to terminate the contract. Accordingly, the purchaser was entitled to the return of its deposit and the vendors were left empty handed.

Key Takeaways

When faced with a purchaser who will not complete, vendors must proceed cautiously and should carefully consider their options. They have a choice of two alternative remedies: they can either accept the other party’s repudiation of the contract and claim the deposit and possibly damages; or affirm the contract and try to enforce it by seeking an order for specific performance. Provided the vendor is ready, willing and able to complete the transaction, and there are special circumstances that would make an order for specific performance appropriate, such relief may be available to a vendor. Vendors facing this decision should seek legal advice at an early stage.

 


Matthew G. Swanson is a partner at the law firm of Borden Ladner Gervais LLP.  Eric C. Little is an associate at the firm. They both practice in the area of commercial litigation with an emphasis on contract and real estate disputes.

This article is provided for general information only and may not be relied upon as legal advice.




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