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When do buyers lose the right to recover deposits?

The simple answer is please ask for the return of the deposit within a reasonable time.

A buyer may take advantage of a seller’s breach of the Agreement and seek the return of the deposit. however, he must indicate that he intends to do so within a reasonable time, or else they will remain bound to complete the transaction.

In Ching v. Pier 27 Toronto Inc., 2021 ONCA 551 (CanLII), the buyers entered into an APS in 2008 for the purchase of a condominium under construction in Toronto and paid a deposit of $214,238.85. The time was of the essence. The original completion date was in 2010 but the seller extended the date eight times between 2010 and 2014 for various reasons including construction delays, strikes, and bad weather. These reasons were permitted under the APS. But buyers never complained.

On August 7, 2014, the buyers’ lawyer wrote to the seller’s lawyer and stated that it was incumbent on the seller to permit the rescission of the APS due to the numerous unpermitted extensions of the completion date. The seller’s lawyer replied that the buyers did not have the right to terminate the APS.

The buyers did not take possession of the property on August 20, 2014, and the transaction did not close. Without mortgage financing, the buyers had no funds to complete the purchase of the unit.

The seller resold the unit for a profit of $93,000 over the amount the buyers had agreed to pay.

In July 2021, the Ontario Court of Appeal confirmed that it was.
A breach or “repudiation” of an APS before the scheduled completion date does not, in itself, terminate the contract. If the innocent (non-repudiating) party does not accept the repudiation, then the repudiation has no legal effect: para. 32, citing Brown v. Belleville (City), 2013 ONCA 148 (CanLII), at para. 42.

The election to disaffirm the contract must be clearly and unequivocally communicated to the repudiating party within a reasonable time. Communication of the election to disaffirm or terminate the contract may be accomplished directly, by either oral or written words, or may be inferred from the conduct of the innocent party in the particular circumstances of the case.

The Court of Appeal found that the buyers “did nothing for too long,” and that they had thereby affirmed the seller’s breach of the APS. The buyers were accordingly obliged to complete the purchase on August 20, 2014, and their failure to do so entitled the seller to retain the deposit notwithstanding that the property was re-sold at a profit.

As demonstrated by the decision, parties to an APS should carefully monitor the status of their legal obligations during the time before the completion date. If there are grounds to take the position that the other side has breached or repudiated the APS, then an election must be quickly made to accept the repudiation and terminate the transaction, or carry on notwithstanding the breach. Even doing nothing—for too long—may amount to taking a legally binding position that cannot be changed thereafter. A PDF version is available to download here.

Buyer Beware!! [ Caveat Emptor]

The basic law is simply “buyer beware” (caveat emptor). The general rule is that it is for the purchaser to make whatever inquiries about a property may be material and to satisfy himself or herself that the property is suitable.

Not Always !!

In Issa v.Wilson 2020 ONCA 756 the Ontario Court of Appeal unanimously noted that the principle of Caveat Emptor relied upon by the appellants is not to be applied where there exists “a constellation of facts that would make a strict application of the principle unfair in the circumstances,” and that rescission may be obtained where the defendant made a false statement that was material and which induced the plaintiff to enter into the contract. In this case, the Court found no difficulty concluding that representations as to the size of the home were made, that the size of the home was material, and that Mr. Issa relied on those representations in entering into an agreement of purchase and sale with respect to the property. Futher the Court concluded that it was not an error for the trial judge to reference Mr. Issa’s age and inexperience, as these can in appropriate cases be relevant contextual factors. Accordingly, Mr. Jarrah and Keller Williams’ appeal was dismissed.

Importance of the Decision
This decision highlights the interplay between the rule of caveat emptor and the equitable remedy of rescission where a contract is entered into based on a material misrepresentation.

I was going through some case laws regarding Real Estate deposits.
Benedetto v. 2453912 Ontario Inc.[2019] ONCA 149 (CanLII) is a recent decision out of the Ontario Court of Appeal that provides a helpful summary of the rules regarding deposits in real estate transactions and applies those rules in the context of pre-incorporation contracts.
The Ontario Court of Appeal summarized the law with respect to real estate deposits as follows (paras 5-7):
Where a buyer provides a deposit to secure the performance of a sale agreement, the deposit is forfeit if the buyer refuses to close the transaction, unless the parties bargained to the contrary.
A deposit is security for the buyer’s performance of the contract in that its potential forfeiture acts as an incentive for the buyer to complete the transaction and can compensate the seller for lost opportunity and bargaining power.
A deposit does not form part of the sale agreement but stands on its own, binding the contract and guaranteeing its performance.

I was going through some case laws regarding Real Estate deposits.

Benedetto v. 2453912 Ontario Inc.[2019] ONCA 149 (CanLII) is a recent decision out of the Ontario Court of Appeal that provides a helpful summary of the rules regarding deposits in real estate transactions and applies those rules in the context of pre-incorporation contracts.

The Ontario Court of Appeal summarized the law with respect to real estate deposits as follows (paras 5-7):

Where a buyer provides a deposit to secure the performance of a sale agreement, the deposit is forfeit if the buyer refuses to close the transaction, unless the parties bargained to the contrary.

A deposit is security for the buyer’s performance of the contract in that its potential forfeiture acts as an incentive for the buyer to complete the transaction and can compensate the seller for lost opportunity and bargaining power.

A deposit does not form part of the sale agreement but stands on its own, binding the contract and guaranteeing its performance.

RE: Real Estate Deposits

Benedetto v. 2453912 Ontario Inc.[2019] ONCA 149 (CanLII) is a recent decision out of the Ontario Court of Appeal that provides a helpful summary of the rules regarding deposits in real estate transactions and applies those rules in the context of pre-incorporation contracts.

The Ontario Court of Appeal summarized the law with respect to real estate deposits as follows (paras 5-7):

Where a buyer provides a deposit to secure the performance of a sale agreement, the deposit is forfeit if the buyer refuses to close the transaction, unless the parties bargained to the contrary.

A deposit is security for the buyer’s performance of the contract in that its potential forfeiture acts as an incentive for the buyer to complete the transaction and can compensate the seller for lost opportunity and bargaining power.

A deposit does not form part of the sale agreement but stands on its own, binding the contract and guaranteeing its performance.

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