Hi everyone,
Welcome back to Three Bullet Thursdays from Zinati Kay – Real Estate Lawyers.
With approximately 22,000 new condominium units anticipated to reach final closing in the GTHA this year, we are receiving a record number of calls from buyers worried about their ability to close. Between higher interest rates and lower appraisals, the math that worked four years ago often doesn’t work today.
Here are three things you must know if you are facing difficulties closing on your pre-construction unit this year.
1. The “Ostrich Strategy” Is the Worst Legal Move You Can Make When financing falls through, the natural instinct is to go silent or hope the builder delays the project further. This is dangerous. If you miss your final closing date without prior communication, you are technically in breach of contract immediately. Why this matters: Builders are far more likely to negotiate an extension or a mutual release if you approach them before the breach occurs. Once you default, you lose your leverage, and the builder’s legal team will likely move straight to litigation.
2. You Are Likely Liable for More Than Just Your Deposit There is a common misconception that if you walk away, the worst-case scenario is losing your deposit. In Ontario, if the builder resells your unit for less than what you agreed to pay, they can sue you for the “shortfall” or difference in price, plus substantially more. Why this matters: Do not assume your risk is limited to your deposit. You are liable for the builder’s total loss, which includes the difference in resale value plus interest, carrying costs, and legal fees. If the market value drops by $150k, the builder will retain your deposit and sue you for the deficiency, along with these mounting ancillary costs.
3. Assignment Sales or Private Lending Are “Least Bad” Options Even if you have to sell on an assignment at a loss, or take a high-interest private mortgage for one year to close the deal, it is often cheaper than a lawsuit. “Mitigating your damages” is the legal standard—meaning you must take reasonable steps to reduce the loss. Why this matters: Taking a $50,000 loss on an assignment sale is painful, but it is financially better than a $200,000 judgment against your future wages or other assets.
Dig deeper:
- https:/
/ www. canlii. org/ en/ on/ onsc/ doc/ 2019/ 2019onsc4332/ 2019onsc4332. html - https:/
/ www. canlii. org/ en/ on/ onsc/ doc/ 2020/ 2020onsc7810/ 2020onsc7810. html
As always, if you or a client are worried about an upcoming closing date, we’re happy to help you review your Agreement of Purchase and Sale to understand your liabilities—and your options.