Lou Pesta, Q.C., writes: A number of large condominium projects are nearing completion in Calgary and elsewhere in the province. With the current economic downturn, both REALTORS® and buyers are asking about the consequences of not completing a new condominium purchase. Since this is a complicated area of law and several remedies including specific performance, forfeiture of deposits and damages may be available to the developer, you are strongly urged to refer these types of questions to a solicitor.
For the purposes of dispelling some common misconceptions only, this article is going to address some of the consequences of a buyer reneging on a binding contract of this type. First of all, it should be noted that condominium construction/purchase agreements are typically tailor-made by the developer’s solicitors to represent the best interests of the developer. As such, they rarely allow the buyer not to complete the purchase even if, in the buyer’s opinion, there have been excessive delays in the construction of the project or if the buyer believes there have been some other breaches of the developer’s obligations.
If the buyer unilaterally elects not to complete the transaction, then some of the agreements will allow the developer to “accelerate” the payment of the balance of the purchase price and/or keep any and all funds paid by the buyer to the date of default. Moreover, the developer is rarely limited by the agreement to accepting the forfeited deposits as a genuine pre-estimate of the damages. Usually a cause of action for additional losses (damages) is available against the buyer. These losses can be quite substantial in a buyer’s market, such as we are experiencing presently, where prices are declining. It may take the developer some time to resell the property to another buyer for a reasonable price.
The recoverable damages could include any or all of the following:
- loss of resale value (provided that the builder acts reasonably to “mitigate” the loss)
- extra advertising expenses
- legal costs incurred by the developer arising from the default
- extra real estate commissions paid
- all carrying costs for the time period from the original closing date to the ultimate re-sale date
In conclusion, a buyer should never be advised that they can walk away from a construction agreement and simply lose the deposits paid on the transaction to date. In most instances, where possible, it will be better for the buyer to complete the purchase and either rent or re-sell the property themselves in order to minimize the financial losses suffered.
If it is not possible for the buyer to complete the purchase due to circumstances beyond the buyer’s control, such as the revocation of the mortgage commitment due to declining market values or loss of the buyer’s employment, then the buyer should attempt to negotiate a settlement with the builder. Although not obligated to do so, the builder might reduce the purchase price to allow the transaction to close or agree to fixed compensation for the loss of the sale.
Lubos K. Pesta, Q.C.
Walsh Wilkins Creighton LLP
Phone: 403.267.8432 Fax: 403.264.9400
lpesta@wwclawyers.com
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