Words matter. Say what you mean and mean what you say.
This old adage rings truer than ever following a recent summary judgment decision out of the Superior Court of Ontario (Zoleta v Singh et al 2023 ONSC 5898), where a real estate lawyer’s choice of wording resulted in their client owing over $350,000 in damages.
Zoleta involved a failed real estate transaction — that occurred in the midst of an early 2022 market meltdown — in which the defendant purchaser’s conduct amounted to anticipatory breach of a purchase agreement, resulting in damages to the plaintiff of over $350,000.
Beginning with a simple purchase and sale
On February 26, 2022 plaintiffs, Donna and Ronald Zoleta, as Vendors (the “Vendors”) entered into an Agreement of Purchase and Sale with the defendant purchaser Lovesikander Singh (the “Purchaser”), to sell a Kitchener, Ontario residential property for $1,150,000 (the “Contract”).
The Purchaser paid a $50,000 deposit to Re/Max Twin City Realty Inc., their real estate agent’s brokerage, with completion set for June 30, 2022.
Market decline fuels demand for price reduction
Prior to the June completion, the market “precipitously declined,” with a June 2022 appraisal report for lenders indicating market value of the property was $790,000, $360,000 below the Contract purchase price.
As a result, the Purchaser sought an abatement on the purchase price through his real estate lawyer, writing to the Vendors’ lawyer on June 23, 2022 stating:
We have been advised by our clients that the property has been appraised for $355,000 less than the purchase price, therefore, our clients require the abatement for the same.
Based on expected proceeds from the sale, the Vendors had entered into an agreement to purchase another property in Calgary, Alberta and were unwilling to agree to the abatement. On behalf of the Vendors, their lawyer responded to the Purchaser’s lawyer denying the request:
We are in receipt of your letter dated June 23, 2022. Our Clients will not be entertaining an abatement to the purchase price. I kindly remind your Clients that they have entered into a firm Agreement of Purchase and Sale. Failure to close on June 30, 2022 shall constitute a breach of the Agreement and our Client will be pursuing damages.
Taking pre-emptive action to protect themselves
Having received the Purchaser’s letter, the Vendors were concerned whether the sale would in fact complete. So on June 24, 2022, they relisted the Property on a “pre-emptive basis” advising the Purchaser’s real estate agent the Property was being relisted and inquiring, on several occasions, whether the Purchaser intended to close the transaction as scheduled on June 30, 2022.
On June 29, the Purchaser requested a 15-day extension. The next day, they instead requested a 21-day extension. The Vendors agreed to an extension provided the Purchaser paid a further non-refundable deposit of $50,000. In response, the Purchaser for the first time asserted the Contract was “null and void” because the Vendors had relisted the Property.
Because of this, the Purchaser refused to close the transaction, prompting the Vendors to resell the Property, where they realized $350,000 less than the Purchaser had agreed to in the Contract because of the declining market.
The Vendors commenced their claim against the Purchaser and his brokerage for breach of contract, claiming $345,121.98 for the loss of sale value (net of real estate commission), carrying costs and the cost to extend their purchase. The Purchaser denied repudiating the Contract, claiming the Vendors rendered the Contract “null and void” by relisting it for sale. The Purchaser crossclaimed and counterclaimed for the deposit, and for legal fees.
Court finds demand for abatement = repudiation
The court found the matter suitable for summary judgment and agreed with the Vendors that by “requiring” an abatement as set out in their June 23, 2022 letter, the Purchaser made a demand rather than a request. Doing so, thereby unequivocally communicated to the Vendors that the Purchaser would not complete the purchase unless they agreed to the abatement. In other words, requiring an abatement showed the Purchaser did not intend to be bound by the agreement. Consequently, the court found this amounted to a repudiation of the Contract.
The court reiterated the law on anticipatory breach and repudiation.
Anticipatory breach of contract occurs when one party to a contract, by express language or conduct, or as a matter of implication from what it has said or done, repudiates its contractual obligations.
The court must find:
- conduct amounts to a total rejection of the obligations of the contract;
- lack of justification for such conduct; and
- acceptance of the repudiation by the innocent party within a reasonable time.
If the other party to the contract does not accept the anticipatory breach, the contract remains alive for the benefit of all parties.
The court awarded the Vendors $345,121.98 in damages, pre and post-judgment interest, and payment of the deposit. The crossclaim and counterclaim were dismissed.
Lessons learned for real estate professionals
Although Zoleta involved a demand made by the Purchaser’s lawyer, and not their real estate agent, it’s nonetheless a cautionary reminder to choose the words you use while representing your client very carefully.
As counsel for real estate agents, we frequently see communications between agents for the purchaser and the vendor which could put the enforceability of the contract at risk. When a client expresses concern about meeting her contract obligations, it’s understandable for an agent to want to help the client by trying to reach a compromise with the other party. But careless language, even where the intention is good, can harm your clients.
Asserting what may be interpreted as a demand rather than a request can have unintended consequences and sometimes, the opposite effect of what you are trying to achieve. In Zoleta, the Purchaser didn’t expressly say they would not complete if the Vendors did not agree to an abatement. However, the court found that the bullish and committal language used was sufficient to establish, in the judge’s view, an intention to repudiate the Contract.
One key takeaway is: remember your obligations under the Real Estate Services Rules which include advising your client to seek independent professional advice on matters outside of your expertise.
If your client voices concern about completing a transaction, your duties extend only to advising them there are significant legal risks and consequences associated with failing to comply with the terms of their contract and, most importantly, to advise the clients to seek legal advice.
The pitfalls associated with navigating a situation like this can be challenging even for lawyers who have extensive education in the legal concepts such as anticipatory breach and repudiation. Real estate agents do not likely have the expertise to advise clients on this type of complex legal issue beyond recommending they seek legal advice. Your role needs to end there. Negotiating on their behalf in such circumstances runs the risk the language you use could be interpreted in a way which adversely impacts your client’s legal rights and makes you a target in later litigation.
