Why purchasers of real estate should always include a finance condition

Fatima VieiraFinance Litigation, Real Estate | Developers, Real Estate Litigation0 Comments

By Fatima Vieira, B.A., M.A., LL.B.

In Perkins v. Sheikhtavi 2019 ONCA 925, the sellers, Perkins listed their home for sale in March 2017 and received 13 offers. The purchaser, Sheikhtavi submitted the second highest offer, with no conditions. The offer was accepted by Perkins. The terms of the offer included a purchase price of $1,871,000 and a deposit of $80,000 to be held until the closing on July 10, 2017.

After the unconditional offer was accepted, but before closing, the government of Ontario made a policy announcement which caused prices in the area to drop 20% to 30%. On the day of the closing, the purchaser advised she could not close because she was unable to sell her own home and could not obtain sufficient mortgage financing. Perkins put the property back on the market and sold it for $1,251,888. This was $619,112 less than Sheikhtavi agreed to pay.

Perkins commenced legal proceedings against Sheikhtavi seeking the difference of $619,112, the carrying costs between July 10, 2017 and the sale of the property. Sheikhtavi opposed claiming that the government announcement frustrated the agreement.

The Ontario Court of Appeal affirmed the decision of the lower court, that the doctrine of frustration applies to contracts including real estate transactions, when a supervening event alters the nature of a party’s obligation to such an extent that it would force the party to do something radically different from what she agreed under the contract. However, the court held that the contract is not frustrated if the supervening event was contemplated at the time of contracting and was provided for or deliberately chosen not to be provided for in the contract.

In this case, Sheikhtavi 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. She would’ve known that there was a risk her home would not sell at the price she sought but she made an unconditional offer to purchase because she wanted her offer to be accepted, although she was not the highest bidder. The court noted that Sheikhtavi was specifically told by her real estate agent that unless she put in an unconditional offer, her offer would not be accepted. She took the risk of not including a finance condition because she wanted the home and her offer was not the highest. The test for frustration was not met because the policy announcement did not force Sheikhtavi to do something radically different from what she agreed. Also, the agreement included a clause stating that the written agreement is the entire agreement between the parties. This precluded any implied condition or term as asserted by Sheikhtavi.

In the result, the purchaser, Sheikhtavi was ordered to pay $619,112 plus carrying costs of $4621.05 to the sellers, Perkins.

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About the Author
Fatima Vieira

Fatima Vieira

Fatima has appeared at all levels of Ontario courts in broad areas of litigation including condominium disputes, construction defect claims, insurance coverage applications, occupiers’ liability, personal injury and product liability claims. Fatima has achieved positive results for clients in court and at tribunals as well as in out of court agreements. Bio | Contact

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