If you make an unconditional offer on a house, you better be prepared to follow through with the purchase.
An Ontario homebuyer learned that the hard way.
It happened in the spring of 2017. Following the announcement of Ontario’s 15% Non-Resident Speculation Tax (NRST) the housing market cooled rapidly. That led homebuyer Shahla Sheikhtavi to withdraw her purchase offer on a GTA property after it was accepted by the sellers.
Sheikhtavi argued that home prices fell 20 to 30% soon after the Ontario government’s announcement of the new tax. As a result, she was unable to sell her own home and unable to obtain mortgage financing to close the purchase offer. That, she argued, frustrated her ability to follow through on her agreement.
But it also left the sellers, Richard and Sylvia Perkins, in the lurch.
They had to ultimately re-list the property for far less ($1,251,888), nearly $620,000 below the original sale price.
A lower court ordered the homebuyer, Sheikhtavi, to pay damages to the Perkins in the amount of $619,112, even though she never ended up purchasing the house. The court then tacked on another $15,019.62 for the plaintiff’s legal costs plus an additional $4,621 of mortgage carrying costs.
Sheikhtavi appealed the ruling but Ontario’s Court of Appeals ruled against her.
“In this case, the appellant deliberately chose not to include a condition that she had to be able to sell her home and obtain mortgage financing before closing as a term of her offer to purchase,” the court noted. Realtors sometimes encourage buyers to make offers with no conditions, but there’s no telling if that was the case here.
“She would reasonably have known that there was a risk her home would not sell at the price she sought, but made an unconditional offer to purchase the respondents’ home because she wanted her offer to be accepted (although she was not the highest bidder)…The appellant’s contract was not frustrated; it was breached by the appellant.”
The lesson from this case is that homebuyers can’t rely on “supervening events,” such as mortgage regulations or foreign buyers’ taxes, to provide sufficient grounds for backing out of a purchase agreement. Particularly one made unconditionally.
“The evidence in this case suggests that the announcement of the NRST did affect the appellant’s ability to close the transaction (by making it more difficult to sell her own home),” wrote Brendan Monahan of Babin Bessner Spry in a review of the case.
“However, because the appellant’s offer was not subject to any conditions, the announcement of the NRST (however unexpected it may have been) did not force the appellant to do something different than what she agreed to.”