When a purchaser of a real estate property fails to close and the vendor takes reasonable steps to sell the property at arm’s length, the measure of damages is usually the difference between the contract price and the resale price. However, as in Eyelet Investments, this is not always the case.
A vendor of a pre-construction house has an obligation to mitigate their damages after a failed closing of the purchase agreement. If a purchaser intends to challenge the mitigation efforts and that the vendor failed to mitigate, it is the purchaser’s burden to prove the failure.
Summary Judgment motion in Eyelet Investments Corp. v. Lin Zhou, 2025 ONSC 4434
In Eyelet Investments Corp. v. Lin Zhou, 2025 ONSC 4434 (CanLII), the purchaser requested supporting evidence from the vendor of their efforts to mitigate, which the vendor could not provide. At summary judgment, the motion judge found an adverse inference against the vendor for failing to provide the evidence.
The motion judge reasoned that when the property is resold for below its appraised value 6 months after termination of the purchase agreement and there is no record provided by the vendor of what was done to market the property, it was not appropriate to use the sale price 6 months later as the true measure of the property’s value. Instead, the motion judge used the date of the termination of the purchase agreement as the date to assess damages.
After deducting the purchaser’s deposit from the difference between the purchase agreement and the value of the property at the date of termination of the contract, since the deposit was greater than the difference in value, the motion judge found the vendor suffered no damages.
Appeal in Eyelet Investment Corp. v. Zhou, 2026 ONCA 453
The Court of Appeal reviewed the motion judge’s summary judgment decision in Eyelet Investments Corp. regarding the obligation of the vendor to mitigate their damages after the failed closing of the purchase agreement, the determination of damages, and the burden of proof and evidence required.
The party that failed to perform the contract, in this case the purchaser, had the burden of proving that mitigation of damages was possible and the vendor failed to make reasonable efforts to mitigate. Based on the evidence presented, the motion judge had found the following:
- The vendor failed to provide evidence about the marketing strategy for the particular property
- There was a delay in selling the property
- The property sold below the value of the appraisals of both parties as of the date the APS was terminated and the date of the ultimate sale
The Court of Appeal found that the issues raised involved mixed questions of fact and law and so reviewed the motion judge’s decision on a reasonableness standard entitled to deference on appeal. The Court of Appeal upheld the motion judge’s decision and the adverse inference – the Court of Appeal dismissed the appeal.
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