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The volatility of real estate values can cause anxiety among purchasers, sometimes causing them to re-think closing the deal. They might even seek a reduction in the purchase price, known as abatement, at the last minute.

However, purchasers have no right to demand such price abatements or any change to the terms of the purchase agreement any more than they would be expected to pay more for the property if market prices happened to increase, says Rachel Puma, partner with Robins Appleby LLP. 

Puma references the Zoleta v. Singh and RE/MAX Twin City Realty dispute that came before the Ontario Superior Court in 2023. Here the purchaser, armed with an appraisal for a lower value of the property than agreed upon in the purchase agreement, advised the vendor that they “require[d]” abatement for the difference in value. Since the vendor was dependant on the successful closing in order to complete an agreement to purchase another property with the sale proceeds, they refused.

The vendor even offered a closing extension if the purchaser paid an additional $50,000 deposit on top of the $50,000 already held in trust. In the meantime, the vendor advised the purchaser that they had relisted the property but had not entered into any new sale agreement.

The purchaser raised no objections to the relisting. However, at the scheduled closing time, they alleged their original agreement was “null and void” due to the relisting of the property, actions they described as “sabotage” and bad faith on the part of the vendor. In turn, the vendor alleged the purchaser had committed an “anticipatory breach” of the contract.

The deal consequently fell apart. The vendor ultimately sold the property for $350,000 less than that agreed to with the original purchaser.

The court disagreed with the purchaser’s claims, finding “the vendor did not act in bad faith, nor had an obligation to agree to change the terms of the agreement.”

Furthermore, the court determined the purchaser had repudiated the contract by “unequivocally” repudiating its intention not to complete the contract unless it received the “required” abatement.

The result was costly for the purchaser.

As noted by the court, the vendor sought damages of $345,121.98. This included the carrying costs of the property in the amount of $9,962.00, incurred costs of $4,934.98 to extend their scheduled purchase transaction, as well as loss of sale value in the amount of $330,225.00 (net of real estate commission).

It is clear, Puma says, that the courts are not prepared to “rewrite the parties’ bargain” under the contract, despite the potential of a harsh result. A judgment against the defaulting purchaser can include retention of the purchaser’s deposit credited against damages incurred, the difference between the agreed price and a subsequent sale price, along with legal costs, commission, interest and realty taxes.

By taking aggressive positions to negotiate additional or better terms for clients once a purchase agreement is signed, lawyers can put the entire transaction at risk, write Bennet Jones LLP partner Simon Crawford and associate Jordan Oliva.

“If you assert that the other side has done something wrong and then make a statement that can be interpreted as treating the transaction as terminated, then you had better be right. So be careful. Be thoughtful with your words.”

James Cook, partner with Gardiner Roberts LLP, agrees.

“A party seeking to renegotiate the terms of a binding agreement before the closing date should take care to ensure that the request for new terms should not be framed as an absolute demand which would give rise to an anticipatory breach of contract.”

“At the end of the day, purchaser defaults are happening and will continue to happen,” writes Puma. “However, developers are well within their rights to not agree to an abatement of the purchase price, even in a volatile real estate market, and purchasers will be held responsible if they do not comply with the deals they made.”

John Bleasby is a freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.