1. Extension

When an extension of the completion date is agreed upon, care should be taken to maintain time as being of the essence. If time is not reaffirmed as being of the essence, you may lose control over when the transaction completes, as either party may set the completion date with reasonable notice. Depending on the length of the extension sought, it may be worth considering a reduction in the sales price.

 

2. Escrow

“Closing in escrow” describes a situation where the seller cannot complete on the completion date but is willing to give possession of the property to the buyer if certain safeguards ensure the transaction's completion once the particular obstacle is removed. While more common in other jurisdictions, closing a transaction in escrow is less common in British Columbia and carries risks. Before agreeing to complete a transaction in escrow, carefully consider the risks with your solicitor. As a buyer, your risks are less than those faced by the seller, but ensure proper insurance coverage is in place during the escrow period and exercise caution with any additions or renovations before completion and the transfer of title to you.

 

3. Price Change or Holdback

Another consideration is whether a holdback or a price change will facilitate completion of the deal. If the seller has failed, or is unable, to fulfill their contractual obligations before the transaction's completion, you may negotiate a holdback to ensure they meet their obligations or a reduction in the price to compensate for the seller’s inability or unwillingness to fulfill their obligations. Generally, negotiating a price change is preferable to a holdback to avoid debates over the holdback's release terms.

 

4. Preserving your Contractual Rights

When faced with a collapsing deal, carefully review the contract to ensure strict compliance with its terms leading up to the completion date if you wish to enforce the contract. Most standard real estate contracts stipulate that time is of the essence. Monitor and adhere to timelines closely. Unless the seller expressly repudiates the contract before the completion date, making it clear they will not complete the contract, you should take the necessary steps to complete the transaction, including tendering funds, to show you are ready, willing, and able to complete. Your solicitor will likely send a “ready, willing, and able letter” to the seller’s lawyer.  

Option 2: Walking Away from the Deal – Initiating the Collapse

1. Change in Buyer’s Circumstances

Alternatively, if your situation has changed drastically since making the offer or removing the last subject clause, or condition precedent, and you want to find a way out, review the contract to determine if there are any problems or weaknesses you can exploit to collapse the deal. Most standard real estate contracts contain time-tested “boilerplate” clauses revised over the years in response to litigation. However, custom terms added to the contract or Addendum can often present problems. Review these terms carefully for weaknesses. Problems often arise in contracts due to uncertainty regarding a fundamental term—one that goes to the contract's root or heart (e.g., parties involved, price, property, or timing). Are all these terms in your contract certain? Simply ignoring or refusing to waive conditions precedent or subject clauses may not help you exit the contract. Case law imposes a positive obligation on the buyer to take reasonable steps to fulfill conditions precedent. Carefully consider what steps need to be taken before deciding not to waive a condition precedent.

 

1. Accept the Collapse

If you choose Option 1, you will want the deposit returned as soon as possible because you may need the funds for a new property deposit. If the seller has indicated they will not complete the sale and you decide not to sue for specific performance, your solicitor should ensure the deposit is promptly released to you without conditions. This should be straightforward, but occasionally, an aggressive seller may request the buyer sign a release of claims before agreeing to release the deposit. Consider with your counsel whether this request is appropriate, as it will prevent you from suing for damages you may suffer.

 

2. Sue for Specific Performance

When setting the remedy for a breach of contract, the Court aims to put the innocent party in the same position as if the breach had not occurred. Specific performance is based on the idea that in some cases, damages will not be adequate for the particular breach of contract. In real estate, where the property is unique, it allows a party to enforce the contract and complete the transaction. For a time, specific performance was presumed in real estate, but with the increasing standardization of housing, obtaining an order for specific performance has become rare. To get specific performance, the plaintiff must prove the property has unique characteristics that are not readily replaceable, a significant hurdle for enforcing a contract for an apartment, condominium, or townhome. Damages may still be available even if the claim for specific performance fails; however, without a reasonable basis for claiming specific performance, a plaintiff must mitigate their damages.

 

3. Sue for Damages

When calculating damages, the Court tries to put the party in the position they would have been in if the breach had not occurred. Often, the main component of damages is the difference in the property's value from the contract price. The loss is typically assessed at the breach date. However, courts may use different dates to assess the loss of property value if the breach date is unjust. Other components in calculating damages may include losses and expenses the plaintiff has suffered, such as closing costs for the collapsed transaction, moving and storage costs, additional property or rental costs, interest, and professional fees due or lost from the breach. Regardless of how damages are calculated, a non-defaulting buyer must mitigate their losses when contemplating litigation. If the Court finds the plaintiff hasn’t properly mitigated their losses, they may not receive full indemnification.  

 

4. Obtain Proper Legal Advice

Despite the remedies available to the non-defaulting party in a transaction that does not complete, navigating the Court process can be stressful. To minimize stress and frustration, engage a lawyer with experience in collapsing real estate transactions early to handle the process efficiently and strategically.