What Happens When a Real Estate Deal Fails to Close in Canada?

In the world of Canadian real estate, the closing of a deal is the final and most crucial step in the buying and selling process. However, what happens when things don’t go as planned and a deal fails to close? This scenario can lead to significant financial and legal consequences for both buyers and sellers. Here's what you need to know.

Buyer Fails to Close: The Consequences

When a buyer fails to close on a property, the seller is generally entitled to seek damages. These damages typically include:

1. Forfeiture of Deposit: The deposit made by the buyer at the time of the Agreement of Purchase and Sale (APS) is often forfeited if the buyer fails to close. This serves as compensation to the seller for the breach of contract.

2. Financial Damages: If the seller has to resell the property at a lower price than the original deal, the buyer may be liable for the difference. Additionally, the seller can claim for other expenses, such as carrying costs (e.g., mortgage payments, property taxes) and legal fees incurred due to the failed transaction​(

   McMackin Law

   defendit.ca

   ).

   
   

3. Legal Action: The seller may also pursue litigation to recover losses. Canadian courts have generally upheld sellers’ rights to damages when a buyer defaults, emphasizing that market fluctuations are not a valid reason for a buyer to walk away from a deal​(

   Mondaq

   ).

   
   

Seller Fails to Close: Buyer’s Remedies

If the seller fails to close, the buyer has a couple of options:

1. Specific Performance: The buyer may ask the court to enforce the sale if the property is deemed unique and damages would not be a sufficient remedy. Canadian courts, however, typically reserve this for cases where the property has specific qualities that make it irreplaceable​(

   Devry Smith Frank LLP

   ).

   
   

2. Damages: If specific performance is not awarded, the buyer can sue for damages. This might include any difference in price if the buyer has to purchase a comparable property at a higher price, plus any additional expenses incurred due to the breach​(

   REM

   ).

   
   

Missed Closing Deadlines

Sometimes, the issue isn't that a party refuses to close, but rather that the transaction can't close on time. This can happen due to delays in transferring funds, last-minute legal issues, or logistical problems. In such cases:

• Escrow Closings: If both parties have signed the necessary documents and the funds have been transferred by the end of the business day, the deal may close in escrow, meaning the final registration can happen the next business day. This protects both parties but can lead to temporary issues, such as the buyer being unable to move in immediately​(

  REM

  ).

  
  

• Extensions and Compensation: If the deal doesn’t close because of a delay, parties often agree to an extension. However, this may come with conditions, such as the defaulting party covering additional costs like temporary housing or storage​(

  REM

  ).

  
  

The Importance of Legal Guidance

Given the complexities and potential pitfalls when a real estate deal fails to close, it’s crucial to have experienced legal representation. Lawyers can help navigate these situations, ensure your rights are protected, and minimize the financial fallout.

Whether you’re a buyer or a seller, understanding your rights and obligations in these scenarios can save you from significant stress and financial loss. If you find yourself in a situation where a deal might not close, it’s wise to consult with your realtor and legal team to explore your options and take the appropriate steps.

For more detailed guidance on what to do if a real estate deal fails to close, you might want to consult with legal experts who specialize in real estate law.