An interesting decision from Toronto’s small claims court last December provides a useful lesson on the obligations of buyers, sellers and lawyers when a real estate transaction starts to go off the rails.
In his decision, Justice M. Donald Godfrey wrote that the case came to court because the parties and their lawyers were unable to work out a “reasonable compromise” on the closing of a transaction on Mould Ave., in Toronto.
Nuno Barbosa and Paula Boas agreed to buy the house for $516,000 from Helder and Maria Rodriguez, with a scheduled closing of October 30, 2009. Two days before closing, the buyers discovered that the property taxes were not $2,300 as indicated on the MLS listing but were in fact almost $4,600. The increase was the result of a re-assessment of taxes due to an addition to the property which was completed in early 2008.
The buyers requested a $10,000 price reduction. When the sellers declined the offer, the buyers refused to close even though their lawyer was holding enough trust funds to complete the transaction.
After receiving advice from another lawyer, the buyers changed their minds and told their lawyer that they were willing to close and sue later. But the request was not made until after the 6 p.m. closing deadline.
The sellers did not agree since they did not know what damages they were exposed to as a result of two “chain reaction” closings, which depended on the sale of their Mould Avenue house.
The buyers then sued the sellers for return of their $10,000 deposit, and the sellers sued the buyers for damages resulting from their refusal to close.
After an unusually long three-day trial, Justice Godfrey ruled that the buyers should have closed the transaction on time since the breach of contract was “not material.” However, the judge also decided that the sellers were entitled to refuse to close 15 minutes after the 6 p.m. deadline because the contract stated that time was “of the essence.”