A real estate dispute can become a nightmare of red tape and complicated details. If you buy or sell a home or another property in Ontario, it is important to be advised and represented by a Toronto real estate lawyer who has extensive experience handling real estate transactions.
Can a prospective real estate buyer in Ontario back out of a real estate deal after signing an “APS” – an Agreement of Purchase and Sale? What are the consequences and ramifications for buyers – and for sellers – when a prospective buyer backs out of a deal to buy a property?
If you will keep reading this brief discussion about buyers backing out of real estate deals, you’ll learn the answers to these questions, but if you are the real estate buyer or the seller, you also must have the personalized advice and services that an Ontario real estate lawyer will provide.
What is an Agreement of Purchase and Sale?
When a home or any other real estate is sold and purchased in Ontario, the first legal step happens when the buyer and seller both sign an Agreement of Purchase and Sale, which is a binding legal contract.
Most real estate agents, buyers, and sellers in Ontario use a standard APS form provided by the Ontario Real Estate Association. Once this is signed, additional documents are then readied for the transaction to happen on the closing date specified by the Agreement of Purchase and Sale.
In an Agreement of Purchase and Sale, a prospective buyer agrees to buy the property for a specified price, provided that certain conditions and terms are satisfied. The buyer makes an offer, and if the offer is not accepted by the seller by a specified date, the offer becomes void.
What Conditions May Be Included in an APS?
If the seller accepts the offer, the APS becomes legally binding and may not be canceled unless both parties agree. The purchase price offered and the deposit amount paid by the buyer are included in the APS. Most agreements also include details about the buyer, seller, and property.
Additionally, most Agreement of Purchase and Sale documents establish a number of terms and conditions regarding the property and the prospective purchaser’s offer. The conditions that an Agreement of Purchase and Sale usually spell out include:
- That the offer to buy is conditional on the seller being the legal and registered owner.
- If the purchaser’s lawyer finds legal problems while conducting document searches, the purchaser must explain the problem to the seller’s lawyer in writing. If the seller cannot remedy the problem, the buyer has the right to void the offer.
- If the buyer is assuming the seller’s existing mortgage, the Agreement of Purchase and Sale should state this clearly.
- That the transaction is conditional on the sale of the buyer’s current residence or on a prospective purchaser of that residence arranging for financing.
- That the offer may be voided by the buyer if significant problems are found by a home or building inspector.
Before an APS becomes final and binding, it may be modified by negotiations between the seller and buyer. Have an APS reviewed by a Toronto real estate lawyer before you sign it. In fact, you should have a real estate lawyer’s advice and services from the start of the transaction process.
What Else is Included in an APS?
An APS specifies a requisition date and a closing date. Typically, a requisition date is fifteen to thirty days before the closing date. Before the requisition date, a buyer’s lawyer should conclude the document searches to ensure that there are no legal or financial problems with the property.
The closing date is the date when the necessary legal documents are exchanged by the lawyers for the two parties, and the transaction is final.
Can a Purchaser “Back Out” of an Agreement of Purchase and Sale?
An Agreement of Purchase and Sale may be legally voided if either party cannot keep its end of the agreement through no fault of their own. Examples might include properties destroyed by a flood or a tornado after the APS is signed but before the buyer can take possession.
Otherwise, once both the buyer and seller have signed the Agreement of Purchase and Sale, they are required by law to meet their contractual obligations. A buyer who backs out may lose his or her deposit, but that buyer will also be liable for any damages that the seller may suffer, such as:
- the lost opportunities to sell the property to other buyers
- the costs entailed by delaying a relocation
- the loss of the seller’s deposit on the home he or she intended to buy
It’s not likely, but if a buyer backs out of a real estate transaction after signing an Agreement of Purchase and Sale, an Ontario court has the power to order the buyer to purchase the property and also to pay the seller’s lawyer fees and court costs.
What About Cost Increases on New Homes?
If you are building a new home in Ontario, and if the home builder asks you to pay more than the price spelled out in the Agreement of Purchase and Sale, the builder must offer sufficient reasons for the proposed price increase.
Homebuyers should know, however, that a higher cost alone is not a legal reason for canceling a real estate transaction. An Agreement of Purchase and Sale may only be terminated for reasons outlined in the APS itself. When asking for a higher price, an Ontario home builder must:
- inform the buyer of the amount and reason for the increase
- advise the buyer regarding all of his or her options
- recommend that the buyer seek legal advice from a real estate lawyer
A home builder’s failure to meet these legal requirements may trigger a license revocation or suspension.
What Else Should Property Buyers and Sellers Know?
An Agreement of Purchase and Sale is exactly like any other contract. Any failure to meet your contractual obligations may land you in an Ontario court and have serious legal and financial repercussions.
This cannot be emphasized strongly enough: When you buy or sell a property in Ontario, seek legal advice from an Ontario real estate lawyer to make sure that you completely understand your obligations and rights before you sign an Agreement of Purchase and Sale.