The 2022 Ontario case of Tabrizi vs. Majesty involved a Buyer refusing to close a sale after the Seller did not consent to a property severance application.
In early 2017 the Buyer made an offer to purchase a large property in Richmond Hill, Ontario for $1,960,0000. The Buyer allegedly wanted to develop the property into townhouses and claimed he told his real estate agents to include a condition for property severance in the offer. He also claimed he did not read English very well and relied on his real estate agents instead of reading the offer himself.
His real estate agents would later testify that they went through the offer line by line with the Buyer and that he did not ask for a severance condition. They testified that the Buyer presented himself as an experienced businessman who wanted to buy the property to flip it for a higher price, not develop it into townhouses.
On March 10, 2017 the Seller entered into an Agreement of Purchase and Sale (APS) to purchase the property for $1,960,000 with a deposit of $100,000 to be paid on signing the agreement with another $50,000 due on May 31, 2017. The closing was set for August 15, 2017. Importantly, there was no condition relating to severance in the APS and nothing in the agreement required the Seller to cooperate with a severance application.
In April 2017 the government introduced a foreign buyer’s tax which resulted in the hot GTA real estate market cooling down significantly. The Buyer failed to pay the second deposit of $50,000. He was given an extension to August 15, 2017 to pay the deposit to and the closing was extended to December 15, 2017.
The Buyer then asked his real estate agent to send a letter to the Seller asking for permission to sever the property. He alleged he was told by his real estate agent that the Seller would agree to the severance once he paid the final deposit of $50,000 which he did. The Seller would later dispute they promised to agree to the severance and they ultimately refused to sign an authorization for severance.
The Buyer refused to close the deal on December 15, 2017 on the grounds that the Seller had backed out of their promise to sign the severance authorization.
The Seller put the property back on the market in January 2018 and listed it for $1,760,000. That month they received an offer of $1,600,000 but it included a term for severance so they refused. They received no further offers for the remainder of the 2018 despite reducing the listing price to $1,435,000. The Seller paid $40,000 in upgrades to try and make the property more appealing. Finally on February 19, 2019 the property was sold for $1,135,000 which was $610,000 less than what they had agreed to with the Buyer.
The Buyer sued the Seller for the return of his $150,000 deposit. The Seller counterclaimed against the Buyer for damages from the failed closing. In defending against the Seller’s claims, the Buyer added his real estate agents as third party defendants to the lawsuit – saying that any damages payable would be their responsibility.
The Court rejected the Buyer’s evidence and concluded that he fully understood the terms of the APS, including that there was no condition for severance. The Court also accepted the testimony by the real estate agents that they explained the terms of the APS to the Buyer and that his true goal was to flip the property which was not possible given the sudden drop in the real estate market.
The court also rejected the Buyer’s argument that the Seller had breached an agreement to consent to the severance application, stating that “severance was never a term that had been negotiated as between the parties”.
The court dismissed the Buyer’s claim for a return of the deposit and also dismissed the claim against the real estate agents. The court found that the Buyer was liable to the seller for $610,000 being the difference in the reduced sale price (less the deposit), as well as $49,750 in carrying costs. However, the Court did not agree that the $40,000 in upgrades to the property were the responsible of the Buyer.
MORAL OF THE STORY: If you need the cooperation of the Seller, make sure to make their cooperation a condition of the purchase. Read the terms of an offer before it is sent by your real estate agent to ensure the clauses you want are included.
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