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  • Writer's pictureDaniel Ebady

What Happens When Both the Vendor and the Purchaser Can’t Close?

In real estate transactions, especially in new home builds there are instances when both the vendor (builder) and the purchaser can’t close on the closing date (i.e., funds not being available). This scenario comes into play if the unwary vendor delays in a fashion that is not compliant with the agreement or the relevant legislation (Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31). Such acts can be construed as the ‘repudiating’ act which gives the purchaser the ability to elect to accept the repudiation and sue for damages.

Alternatively, the purchaser can elect to affirm the repudiating act and in that case the agreement is not repudiated the agreement subsists. This effectively waives the purchaser’s right to terminate and sue for damages.

But what happens if the vendor is in default and the purchaser can’t close? Starting from the basic legal expectation that for a purchaser to be entitled to sue for specific performance and/or damages, the purchaser must be ready, willing or able to close on that date.

The Court will likely apply the cited rule[1] which stipulates:

1. When time is of the essence and neither party is ready to close on the agreed date the agreement remains in effect.

2. Either party may reinstate time of the essence by setting a new date for closing and providing reasonable notice to the other party.

It truly becomes a race to the punch. The party who acts first will be the party the Court will tend to favour.

Therefore, any time a vendor or purchaser is caught in a situation such as this, they should act quickly and prudently. Acting means informing the other side in writing that the repudiation is accepted and therefore the contract is terminated. For a vendor seeking to still close on the property, amend the closing date and be ready to close on that date.

[1] King v. Urban & Country Transport Ltd. (1973), 1 O.R. (2d) 449 (C.A.)

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