Can’t Close Preconstruction Home Ontario

What Happens When You Can’t Close on a Preconstruction Property?

Purchasing a preconstruction home in Ontario can be an exciting investment, but if you can’t close on a preconstruction home in Ontario, you could face serious financial and legal consequences. Courts have ruled on many cases involving builder disputes, deposit forfeiture, and buyer liabilities. Here’s what you need to know if you find yourself unable to close on a preconstruction property.

Buyer’s Breach of Agreement: Understanding the Consequences

Failing to close on a preconstruction property constitutes a breach of the Agreement of Purchase and Sale (APS). Such breaches often result in:

1. Forfeiture of Deposit: The deposit serves as a security measure for the builder. Courts consistently uphold the forfeiture of deposits when buyers fail to meet their obligations. For example, in Lecco Ridge Developments Inc. v. Vaquero (2022 ONSC 6547), the buyer’s default resulted in the forfeiture of a $50,000 deposit to the builder​.
2. Assessment of Damages: Damages typically include the difference between the original purchase price and the resale price of the property, as well as additional costs incurred due to the buyer’s breach. In Mattamy (Jock River) Ltd. v. Ishola (2024 ONSC 6231), the court awarded the builder damages for the loss incurred on resale, along with legal and real estate fees​.

Builder’s Duty to Mitigate Losses: Fair Market Practices

Builders have a duty to mitigate their losses by making reasonable efforts to resell the property at fair market value. Courts carefully scrutinize the actions taken by builders to ensure they have not inflated their damages.

1. Timely Resale Efforts: Builders must act promptly to relist and sell the property after a default. In Lecco Ridge Developments Inc. v. Vaquero (2022 ONSC 6547), the builder immediately listed the property on the MLS after the buyer failed to close, which the court found to be reasonable​.
2. Proper Pricing and Marketing: Fair market practices require builders to price the property reasonably based on current market conditions and to actively market it to potential buyers. In Mattamy (Jock River) Ltd. v. Glover (2024 ONSC 4411), the builder adjusted the listing price to reflect a downturn in the real estate market and used multiple channels to promote the property, ensuring it was exposed to a wide audience​.
3. Acceptance of Reasonable Offers: Builders are not required to accept lowball offers but must consider reasonable ones that align with market conditions. If a builder refuses a reasonable offer without justification, the court may reduce the damages recoverable from the defaulting buyer.\

Under Ontario law, builders must act reasonably when reselling a defaulted preconstruction property. The New Home Warranties Plan Act outlines builder obligations and consumer protections, ensuring that fair market practices are followed.

Damages Recoverable by Builders

When assessing damages, courts typically include the following expenses:

1. Price Difference: The primary measure of damages is the difference between the original contract price and the price at which the property is eventually resold. For instance, in Tabrizi v. Majesty Development Group Inc. (2022 ONSC 1933), the court awarded the builder damages for a $610,000 shortfall in the resale price​.
2. Real Estate Commissions: Builders can claim higher commissions incurred during the resale process. In Lecco Ridge Developments Inc. v. Vaquero, the court awarded damages for commissions that were significantly higher than those initially agreed upon due to the need to relist the property​.
3. Legal Fees: Costs related to the resale, including those for preparing and executing the transaction, are typically recoverable. In Mattamy (Jock River) Ltd. v. Ishola, the builder successfully claimed these expenses​.
4. Carrying Costs: Expenses incurred while the property remains unsold, such as property taxes, insurance, and utility costs, are included in the damages. In Tabrizi v. Majesty Development Group Inc., the builder was awarded carrying costs incurred during the delay​.
5. Property Improvements: If reasonable improvements are made to enhance the marketability of the property, these costs may also be claimed. For example, in Tabrizi v. Majesty Development Group Inc., the court allowed damages for upgrades such as landscaping and interior renovations​.

Lessons for Buyers

If you are unable to close on a preconstruction property, it’s crucial to understand your obligations and the potential consequences:

• Communicate Early: Engage with the builder to explore options such as extending the closing date or assigning the agreement to another buyer.
• Monitor the Resale Process: If you default, monitor the builder’s efforts to resell the property to ensure they adhere to fair market practices.
• Seek Legal Advice: Consult a real estate lawyer to evaluate the potential damages and explore strategies to mitigate your liability.

Buyers should also be aware of their rights under the Tarion Warranty Program, which governs new home warranties and protections in Ontario. Understanding these protections can help buyers navigate potential disputes with builders.

Final Thoughts

Failing to close on a preconstruction property can lead to significant financial consequences. Builders are entitled to recover losses, but they must act reasonably and adhere to fair market practices. If you are facing challenges with a preconstruction purchase, understanding your rights and obligations is the first step toward resolving the issue.

Need Help?

At Bozai Law, we specialize in real estate litigation and can assist you in navigating disputes with builders. Contact us today for a consultation!

Disclaimer

The information provided in this article is for general informational purposes only and does not constitute legal advice. Reading this article does not create a lawyer-client relationship between you and Bozai Law. Every legal situation is unique, and the application of law varies depending on specific circumstances.

If you require legal advice tailored to your situation, you should consult a qualified lawyer before taking any action. Bozai Law expressly disclaims all liability for any reliance placed on the information contained herein.

For legal assistance, please contact Bozai Law at [email protected] to schedule a consultation.