Buyer beware: Ontario courts punish home purchasers who default on their offers
In the current chaotic residential real estate market, buyers are frequently submitting offers well in excess of either the listing price or the realistic market value.
But transactions like this sometimes go off the rails when the buyers are unable to obtain financing or sell their existing houses. The courts, in an increasing number of recently reported decisions, have shown little empathy for defaulting buyers.
This was the case in a recent decision involving a home on East Humber Dr., in King City, Ont. In March, 2017, Brian and Pamela Prowse decided to list the house for sale.
On the day it was listed for $2.6 million, Samir Noroozi presented an offer at $2.45 million, with staged deposits of $20,000, $80,000 and two final deposits of $50,000 each. The offer was accepted and the first deposit was paid.
But Noroozi breached the agreement when he failed to pay the second deposit.
Between April, 2017, and March, 2019, further negotiations led to what a judge later called a bewildering series of events." Further deposits totalling $120,000 were made. As well, there were numerous extensions of closing and amendments to the agreement.
During this period, according to the court judgment, the buyer breached the revised purchase agreement 10 times. The owners eventually put the house back on the market and sold it to a new purchaser for $1.6 million. The sale closed on April 16, 2020.
The Prowses sued Noroozi for damages of $750,000 representing the difference between the reduced sale price and the ultimate sale price, plus out-of-pocket expenses amounting to almost $126,000.
In April, 2021, the Prowses appeared before Justice John McCarthy by videoconference seeking what is known as summary judgment.
The law is that the measure of general damages a plaintiff can recover is the difference between the contract price and the ultimate sale price. In addition, a plaintiff is entitled to special damages which are the losses flowing from a defendant's breach of contract.
In his defence, Noroozi conceded that he was unable to obtain financing to close the original purchase agreement.
In the court's decision at the end of April, Justice McCarthy wrote that the opinion evidence of Noroozi's own witness, a registered real estate salesperson, supports the proposition that the sale price was not in line with market trends." In other words, Noroozi overpaid for the house.
The judge found that there were no issues to be decided at a trial, and awarded the Prowses general and special damages of $819,571.23.
With the potential for pre-judgment interest on that amount, plus court costs and his own legal fees, this could take the total cost to the unsuccessful defendant to as much as $1 million - if not more.
If this is not a record amount of damages awarded in a failed Ontario residential purchase transaction, it must be in the top handful of similar cases.
The takeaway from the case is a reminder that submitting an unconditional offer at well above the true value of a property carries significant risk.
Bob Aaron is a Toronto real estate lawyer and a contributing columnist for the Star. He can be reached at bob@aaron.ca or on Twitter: @bobaaron2