In Ontario, real estate transactions are governed by specific laws and regulations designed to protect the interests of all parties involved.
Even so, some situations occur that force buyers or sellers to reconsider their decisions.
Let’s take a look at the home-buying process and what happens if a buyer decides to step back from a real estate deal in Ontario.
The Initial Agreement
Real estate transactions in Ontario typically begin with the signing of an Agreement of Purchase and Sale (APS) or an Ontario Real Estate Association (“OREA”) Form 100. This legally binding document outlines the terms and conditions of the deal, including the purchase price, deposit amount, closing date, and any conditions or contingencies. Once both the buyer and seller have signed the APS, they are legally bound by its terms.
Backing Out: The Rescission Period
Buyers in Ontario have a limited period during which they can rescind or back out of the deal without facing severe consequences. This period, known as the rescission period, usually lasts for 10 days after the buyer receives a copy of the signed APS. This period is granted to allow buyers to review the agreement, seek legal advice, and secure financing. Paramount though, is that this only applies to new condominium purchases in Ontario.
Buyers must act promptly if they intend to rescind the deal, as failing to do so within the stipulated timeframe may lead to legal complications. During this period, buyers are encouraged to thoroughly examine the terms of the agreement, conduct necessary due diligence, and ensure they can fulfill any conditions outlined in the APS.
Conditions and Contingencies
Buyers often include conditions in the APS to protect their interests. Common conditions may include a satisfactory home inspection, securing mortgage financing, or the sale of the buyer’s existing property. If any of these conditions are not met within the specified timeframe, the buyer may have the right to back out of the deal without forfeiting their deposit.
Both buyers and sellers must understand the language and implications of the conditions to avoid disputes.
Deposit and Default
When a buyer decides to back out of a real estate deal after the rescission/conditional period has elapsed, the matter becomes more complex. In such cases, the deposit paid by the buyer is typically at stake. The deposit is a good-faith gesture demonstrating the buyer’s commitment to the transaction.
If the buyer defaults on the deal without a valid reason, the seller may be entitled to keep the deposit as compensation for the time the property was off the market. The amount of the deposit is usually a percentage of the purchase price and is stipulated in the APS. Disputes over the deposit can escalate, highlighting the importance of clear and precise language in the agreement. Entitlement doesn’t necessarily end there either, sellers may also pursue damages from the purchaser so things such as the difference in the sale price in finding a new buyer and any carrying costs or expenses.
Legal Recourse for Sellers
Sellers facing a situation where a buyer has backed out of the deal may consider legal recourse to recover potential losses. However, the ability to do so depends on various factors, including the circumstances surrounding the default and the terms outlined in the APS.
Sellers are highly encouraged to consult with a real estate lawyer to assess the viability of legal action and the costs involved.
Mitigating Risks and Future Considerations
To avoid the complexities and uncertainties associated with a buyer backing out of a real estate deal, both buyers and sellers can take proactive steps. Buyers should conduct thorough due diligence during the rescission period, seeking professional advice and ensuring they can meet the conditions outlined in the APS.
Sellers, on the other hand, should carefully vet potential buyers and consider including protective clauses in the APS. These clauses may address specific scenarios and outline the consequences of default to provide clarity and minimize disputes.
Backing out of a real estate deal can have legal consequences. To navigate this process smoothly, it’s important to understand the terms outlined in the APS, applicable laws, and potential risks involved. Consulting with a qualified real estate lawyer can help safeguard your interests. Each transaction is unique, and seeking professional guidance is crucial for a smoother journey.