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A buyer of a pre-construction townhouse found out the hard way what can happen if the property is resold before its closing date and without the builder’s permission.
Virtually every Agreement of Purchase and Sale for a pre-built home or condominium contains a prohibition on resale until after the final closing of the transaction and registration of a deed to the purchaser. The reason for the prohibition is so that early purchasers will not compete with the builder’s marketing of unsold units.
In March 2016, Mr W. bought a townhouse in a pre-construction project in Markham, from a builder operating under the name 2426483 Ontario Limited. The contract price was $1,188,800.
Mr W paid the builder deposits totalling $150,000, and in July, 2019, he listed the unfinished home for sale on the Multiple Listing Service (MLS). This was a breach of a clear prohibition in the purchase agreement. The agreement also contained a clause stating that if a purchaser breached the prohibition, the builder could both terminate the agreement and keep the deposit and any other monies paid.
When the buyer was notified by the builder’s sales manager that the MLS listing was a breach of contract, he immediately removed it.
In December, 2019, the buyer requested and was refused permission to resell the property before final closing. Despite this, he again listed the property for sale and subsequently signed an agreement to sell it for $1,290,000 with an April, 2020 closing date.
When the builder saw the listing and sale posted on the MLS website, its lawyer notified Mr W that in light of his contract breach, the builder had terminated the agreement and forfeited the deposit and occupancy fees paid. Mr W was also told to surrender possession of the unit.
Mr W and the new purchaser then terminated their agreement of purchase and sale with an option to revive it if the dispute with the builder was settled.
In June, 2020, in a virtual hearing before Justice Paul Schabas in Toronto, Mr W asked the court for what is known as relief from forfeiture of his deposit. In analyzing the claim, Schabas noted that the court must consider the conduct of the buyer, the gravity of the breach of contract, and the disparity between the value of the forfeited deposit and the damage caused by the breach.
“In this case,” Schabas wrote in his decision, “The buyer knowingly and deliberately breached the agreement when he listed and sold the townhouse in December 2019 and January 2020.”
The judge noted that at the time Mr W resold the unit, the purchaser could have bought one of the builder’s nine unsold townhouses.
Schabas found that Mr W did not come to court with “clean hands” because his conduct did not demonstrate reasonable diligence to comply with the agreement.
Since the deposit was 12.6 per cent of the purchase price in the agreement, the judge found it would not be unconscionable for Wang to forfeit his $150,000 deposit plus all the occupancy fees that had been paid.
Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at email@example.com, phone 416-364-9366 or fax 416-364-3818.