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Defaulter Under Purchase agreement Escapes Damage claim ("DUPED")
Posted in Real Estate

Imagine being faced with attempting to sell a piece of real estate in a soft market.  You eventually obtain the price you are willing to accept and therefore you enter into a binding contract.  Unfortunately, the deal does not close because the purchaser is either not able to secure financing or is delayed in obtaining financing (perhaps because the banks are worried about the soft market and are not convinced that value in the deal is present).  The deal is cancelled and you are once again left with a property which you still wish to dispose of and the market is now even softer than when you entered the deal which ultimately failed.

Despite the apparent dire circumstances noted above, all is not lost as you ought to be able to resell the property with the comfort that if the prices have dropped, you should be able to sue the defaulting purchaser for the difference and therefore you can still come out even – correct?  According to a recent decision from the B.C. Supreme Court, the answer to that question is “no - incorrect”.  The court in that case held that the seller had a duty to mitigate its damages, meaning that it had to take reasonable steps to minimize the loss arising from the failed deal.  By reselling the property in a relatively quick timeframe at a significant loss, the court held the original purchaser was off the hook and was therefore not liable to the seller for any damages whatsoever. 

The result, although somewhat surprising, could be defended on the basis that an aggrieved seller can’t simply sell the property for the next offer that comes along and then look to the original purchaser for the difference.  There ought to be some accountability on the part of the seller.  However, the circumstances are complicated by the falling market because if the seller had waited any longer, the market could have fallen even further meaning the seller would have sustained even more damages.  The B.C. Real Estate Association, in its monthly publication, has published a very good case commentary on the decision.  The aggrieved seller has appealed to the BC Court of Appeal.  We, along with the hopes and dreams of an abundance of aggrieved sellers in today’s still very soft real estate market, will await with anticipation the result of the appeal.

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