What Happens When A Real Estate Deal Doesn’t Close?

When a real estate deal doesn’t close, it can cause big problems for both the buyer and the seller. This article will look at transactions as per the standard contracts as put forth by the Alberta Real Estate Association.

If a buyer does not close the deal on time, they may lose their deposit and get sued by the seller for breach of the purchase contract. If a seller does not close the deal, they may be found in breach of the purchase contract and can be sued by the buyer for specific performance, as well as having to compensate the buyer for solicitor-client costs.

Common Questions For Buyers:

Can I Back Out Of An Accepted Offer?

When a seller accepts a buyer’s offer, the buyer must follow the rules in the purchase contract. Oftentimes, there is a provision in the contract that states a contract is conditional to the buyer satisfying their conditions within a certain timeframe. The buyer needs to act in good faith when trying to satisfy their conditions and if they are unable to satisfy the conditions within the stated time frame, then the contract can be terminated. For example, if the buyer has a condition of getting financing in the contract and they don’t are not approved for the financing by the deadline in the contract, the deal might be terminated.

If there are no conditions in the contract, then under the terms of the standard AREA contract, the contract would be firm upon acceptance from the seller. In this situation, if the buyer tries to back out of the deal, they could lose their deposit or even get sued by the seller.

What Happens To My Deposit If I Can’t Close?

If a buyer cannot buy the property after the contract is made firm, they lose the money they already paid as a deposit to the seller. The seller might also be able to take legal action against the buyer for damager and costs the incur as a result of the buyer’s inability to close on the transaction.

Can I Get My Deposit Back If The Inspection Shows Major Problems?

If an inspection of the property is a condition of the contract, and the inspection shows problems that the sellers did not tell the buyers about, the buyer has the option to not waive conditions and have their deposit returned. If there is no condition in the contract for the property inspection, but the seller still allows an inspection to take place after the contract is firm and through the course of the inspection a material latent defect is discovered, then buyer can try and have the deposit returned to them and the deal terminated. However, in this scenario, both the seller and the buyer must agree to release the deposit and terminate the contract. If neither of them agree, the matter will likely need to go to court.

What Happens If A Seller Cannot Close?

If a seller does not close the deal, they may be found in breach of the purchase contract. An example where a seller cannot close is if they do not have or are unable to provide the buyers free and clear title to the property. If the seller is unable to close a transaction, the buyer has the right to sue them for specific performance, which would ultimately force the seller to sell the property to the buyer as per the terms of the contract.

If the buyer does not want to proceed with the sale, nor sue for breach of contract, the buyer has the option to have their deposit returned to them and terminate the contract.

Common Questions For Sellers:

Can I Keep The Buyer’s Deposit If They Back Out?

As a seller, what happens to the buyer’s deposit depends on why the deal didn’t close. If the buyer was unable to satisfy their conditions of the purchase contract, such not being able to get the financing in order by the deadline, then the buyer will get their deposit back as the deal was not firm. However, if the deal is firm and the buyer has decided to back out, then the deposit is then forfeited to the Seller.

What Do I Do If The Buyer’s Financing Falls Through?

If the deal does not close due to the buyer not having their money available on closing day, the seller is allowed to terminate the transaction and keep the deposit so long as they have fulfilled all of their obligations under the contact. If the seller is willing, the closing can also be delayed with the buyer paying late interest at ATB Prime + 3% per annum on the cash to close amount. The Seller also has an option to agree to the amendment to the closing date, if such a suggestion is brought forth, to delay the closing to a later date with no late interest being payable. If the seller wants to terminate the transaction and sue the buyer for breach of contract, they have that option as well. In the latter option, the seller can relist the property and will need to work to mitigate their damages and costs.

Can I Sue The Buyer For Damages?

Yes, if the buyer backs out of a firm deal and breaches the purchase contract, the seller can sue for damages. Damages that a seller may sue the buyer over can include the difference between the price in the purchase contract and the new sale price if they have to sell for less to another buyer, costs they incur to maintain the home like utilities and interest on their mortgage.

Kahane Law Office Can Help!

Real Estate Purchase contracts can be complex and it is always best to review a contract to understand the obligations, representations and warranties you will be held to, along with those that fall on the other party to the contract prior to entering into a contract. If you have already entered into a contract, then it is best to have the contract reviewed so you know what terms you have agreed to and how to prepare for the closing of your transaction to avoid any delays. If you have any questions, please give us a call at 403-225-8810 or email us at [email protected].

This article is intended for informational purposes only. Readers are cautioned that this article does not constitute legal or professional advice and should not be relied on as such. Rather, readers should obtain specific legal advice in relation to the issues they are facing.