LACKIE: Buyers and sellers beware, bailing on a real estate contract could be costly – Toronto Sun

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The notion of a contract is as old as time.

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Two parties make a promise to one another, they settle on the terms and compensation, then they shake hands to bind the agreement.

I will give you this if you give me that; I will do this if you do that.

Should one party to the agreement fail to come through, the contract is breached and the other party is entitled to legal remedy.

A contract is a contract.

Of course, this is a wild oversimplification — contract law is actually quite complex and nuanced — but fundamentally we all understand the concept.

For example, when deciding to purchase a home, a buyer signs an offer and usually accompanies that offer with a healthy deposit cheque. If and when that offer is accepted by the seller, they then have a firm and binding contract that clearly outlines the obligations of both parties and a date upon which the deal is to be transacted.

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What happens if the buyer wakes up the next morning with cold feet? What if they can’t obtain financing from the bank? What if the following week they find their dream home and want to bail on the first deal?

Well, they would be in breach of the contract they signed. Their deposit would be forfeited. And the other party would be entitled to pursue damages against the other.

You’d be shocked at how often this happens.

You may have read this week about a 250-year-old heritage tree at the centre of a whole legal brouhaha in Toronto. Long story short, on a fairly random lot up in North York sits a house. And but inches from that house sits a red oak tree that pre-dates Confederation.

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So glorious and significant is this tree that in 2019, after the community rallied to protect and preserve it, the City of Toronto entered into an agreement with the homeowner to purchase the property with the intention to demolish the house and turn the lot into a parkette. They settled on a price, which was agreed to be fair market value at the time. The deal was contingent on the city putting up a portion of the money with community donors responsible for the rest. Hence the lengthy gap between signing and completion to allow for fundraising, which was fulfilled.

Nearly two years later the seller has changed his mind, citing the substantial increase to market value for the property. If the city wants the deal to go ahead, he’d like more money.

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Hopefully someone has told him he signed a contract; the simple fact of no longer liking the terms of that contract does not make it invalid.

It will be settled in court in October.

It’s the classic case I have seen a number of times. When one party realizes the terms they agreed to could be more favourable and wants a do-over.

The thing is, that’s not how contracts work, even if it’s something that parties to real estate transactions have been getting away with for years.

As the Toronto market has been on its upward climb for most of recent memory, if a buyer wanted to bail on a deal, you could usually count on another buyer being ready and willing to step in, grateful for the opportunity.

With prices rising month-over-month, by and large the seller wouldn’t suffer much of a loss so rather than dragging it out into a protracted battle, typically both parties would simply sign a mutual release, the deposit would be returned and everyone would move on.

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The problem with all of that is that it appears to have given the impression that real estate contracts are flexible. Contracts by definition are not flexible.

Especially now that we are starting to see prices coming down from the highs of March. A buyer refusing to close on a house purchased at the top of the market will result in a substantial loss for sellers who will be unlikely to hit the same number now that the market activity has slowed.

That’s a financial loss suffered by one party as a result of the other’s breach of contract. That party would be entitled to pursue damages against the other, and based on recent cases, it’s a near certainty the courts would side with the aggrieved party. Courts are in the business of upholding contracts.

The moral of the story? A contact is a contract. You are bound to the terms you agreed and signed on. And if you wish you hadn’t? Think long and hard because bailing is surely going to cost you.

@brynnlackie