Is the real estate market experiencing a downward slide? Has it finally crashed? Did the peak point for real estate just pass? The uncertainty of the Toronto market has stirred-up anxiety across the city. As the vendors pop-open their Champaign bottles to celebrate having sold at the peak, panicked buyers are trying to find a way to back out of deals. If you are a panicked buyer, here are some useful information.
Contrary to what many people believe, the agreement of purchase and sale is not just an offer, but a binding legal contract as soon as the offer is accepted by the vendor. You cannot just walk away or choose not to pay the deposit, otherwise the vendor can sue you.
However, if the property you are buying is a new-build condominium/pre-construction condominium, and the vendor is the builder, you may be in luck. The Condominium Act allows the buyer ten (10) days, also known as a cooling-off period, during which you can change your mind and walk away without a reason.
If it is a resale condominium or another type of residential real estate property, you will have to look at the agreement itself for alternative options.
Most real estate agreements are conditional on the buyer being able to get a mortgage, being satisfied with a home inspection, and/or becoming satisfied with a condominium status certificate. Many buyers and their agents removed conditional clauses for the bidding-war peak to ensure their offer became the winning offer. But even if you left these conditions in your agreement, depending on how the condition was phrased, you may not just change your mind and walk away. If words such as “at the buyer’s sole and absolute discretion” are drafted into the condition, in theory you can refuse to close, but you may nonetheless be named in a court action by the vendors. In most other situations, courts have found that buyers have a positive obligation to take reasonable steps to fulfill conditions precedent in good faith. This means that you, or your lawyer who reviewed the status certificate, or your inspector who inspected the property, must have a legitimate reason for why you found the property unsatisfactory.
So, are there any other ways for a buyer to get out of a firm deal?
In most situations, not legally and not without the blessings of the vendor. The case law on residential real estate contract termination are more confusing than helpful and each decision can vary depending on a small difference in the facts. You should contact a lawyer for assistance but do not be surprised if your lawyer tells you that it is a grey area.
Finally, if you have decided to walk away, who gets the deposit?
Contrary to popular belief, the deposit is held in the listing brokerage’s trust account and is not automatically defaulted to the vendor. The deposit can only be released upon successful completion of a transaction, a court order, or mutual release by both parties. However, since at no time can a brokerage hold two deposits for the same property, it may be worth the time for you to request for return of the deposit. This is because it will be difficult for a vendor to keep the deposit and immediately retain a new buyer. Often, when faced with a subsequent offer, the vendor will have no choice but to provide a mutual release or they will have to wait until a court proceeding.
If you are facing a situation that is described above, please contact JDC Law!