The recent summary judgment motion decision in Time Development Group Inc. v. Bitton, 2018 ONSC 4384, involves a situation that arises quite often in failed closings of real estate transactions. One of the main causes for an aborted real estate transaction is the failure of the purchaser to obtain the required financing to close on the transaction, possibly influenced by the Ontario Fair Housing Plan and the new mortgage lending rules.
In this case, the plaintiff entered into an agreement to purchase three adjoining properties for a residential home redevelopment project. There were a series of amendments to the agreement with the terms as follows: (a) purchase price of $10.55 million; (b) deposit of $500,000; (c) two vendor take back mortgages; and (d) closing date of July 31, 2017. The plaintiff had secured a commitment letter to finance the transaction, however, six days before the closing date, the plaintiff was dismayed to find out that their financing had been withdrawn because the market conditions had changed. The plaintiff requested a sixty day extension of the closing date to secure alternative financing but the defendant refused because he needed the proceeds from the sale to fund another transaction.
On summary judgment, the court dismissed the plaintiff’s action for specific performance and declared the $500,000 deposit was forfeited for the following reasons:
- The defendant did not act in bad faith by insisting that the transaction close on July 31, 2017. The duty of good faith only requires a basic level of honesty in the performance of the contract by not undermining the other party’s interests; it does not require a party to put the interests of the other contracting party ahead of its own. Here, the defendant was not responsible for the withdrawal of the plaintiff’s financing nor was the defendant required to provide the plaintiff with more time to obtain alternative financing;
- Specific performance is not available to a purchaser who was not ready, willing and able to close the transaction on the agreed upon closing date and the default was not caused by the vendor. It was not disputed that the plaintiff did not have the funds to complete the transaction; and
- Although the plaintiff took the position that the defendant was not ready, willing and able to close due to deficiencies in tendering, the court held that any alleged defects in tendering were curable and did not justify the plaintiff’s failure to close.