Real Estate Litigation Lawyers in British Columbia

Whether your claim is against a real estate agent, a buyer, or a seller we have experience defending and prosecuting a variety of claims related to commercial and residential real estate transactions.

Our experience with all facets of real estate law allows us to provide customized consultations and representation to help avoid litigation or to litigate more effectively.

There are three broad categories of reasons why a real estate transaction may collapse or cause one party to suffer damages:

1. Default or Breach of Contract

2. Misrepresentation

3. Frustration

This article will review each category and the remedies that may be available to innocent parties in such circumstances.

Claims by buyers or sellers of real estate for breach of contract.

During a real estate transaction, when parties enter into an Contract or Agreement of Purchase and Sale for a residential or commercial property, there are always consequences for breaching said contract or failing to complete the sale.

A default or breach of contract typically arises in the following situations:

1. The Seller no longer wishes to sell or cannot sell their property in accordance with the terms of the contract (e.g. the Seller may decide not to complete a transaction in order to take advantage of rising property prices and obtain a higher price from another Buyer).

2. The Buyer is unable to complete the purchase of the property (i.e. unable to obtain financing), or the Buyer does not want to complete the purchase (often because of new information or a new economic context – i.e. the purchase price is above market value as a result of a falling market).

3. One party to the contract is in breach of one of its obligations under the contract (e.g., the Buyer failing to pay a deposit on time or the Seller not being able to deliver vacant possession when the contract requires it).

Buyer’s Remedies:

(a) Claiming the Return of the Deposit

If the seller backs out of a real estate transaction, the buyer may demand the return of the deposit, and, failing payment, may sue for its return.

(b) Specific Performance or Damages

The buyer may be able to claim one of the following, depending on the circumstances:

(i) specific performance and damages (in limited cases);

(ii) damages in lieu of specific performance; or

(iii) common law damages.

The buyer who seeks specific performance should also claim and file a certificate of pending litigation, which gives notice of litigation affecting title. This filing effectively prevents the seller from selling the property to anyone else.

The Supreme Court of Canada decision Semelhago v. Parmadevan, 1996 CanLII 209 (S.C.C.) suggested that specific performance should not be granted without some evidence that the property is unique to the extent that its substitute would not be readily available. The term “readily available” was not defined, and the Court did not specify the evidence needed to establish uniqueness. However, property purchased for a development will generally not be considered unique.

Damages in Lieu of Specific Performance

There may no longer be any significant distinction between quantum of damages recoverable “in lieu of specific performance” and that recoverable as “damages for breach of contract.” In legal theory, however, there is a distinction. Damages in lieu of specific performance are awarded:

(i) to a plaintiff who would otherwise be entitled to an award of specific performance but who cannot perform, because of circumstances beyond the plaintiff’s control; or

(ii) if the court in its discretion deems an award of damages to be more appropriate than the order for specific performance that the plaintiff seeks.

Common Law Damages

When calculating damages, the Court will try to put the party in the position it would have been had the breach not occurred. Often the main component of the damages will be the difference in the value of the property from the contract price. Other components that may be considered by the Court when calculating damages will be the other losses and expenses that the buyer has suffered and may include: closing costs incurred for the collapsed transaction, moving and storage costs, additional property or rental costs, interest and professional fees due or lost as a result of the breach.

Seller’s Remedies

(a) Claiming the Deposit

If a buyer repudiates the agreement, the seller may simply accept the repudiation, treat the agreement as being at an end, and return the deposit to the buyer. In practice, this alternative is seldom considered. Generally, the seller wishes, at the very least, to claim forfeiture of the deposit.

Most purchase contracts will include a term providing for the forfeiture of the deposit to the seller if the buyer repudiates. In some circumstances, the seller will be content to take the deposit in full satisfaction of the seller’s claims. In other cases, the seller will want to receive the deposit and to pursue additional remedies, such as specific performance and damages.

(b) Specific Performance or Damages

Like the buyer, the seller may be able to claim one of the following, depending on the circumstances:

(i) specific performance and damages;

(ii) damages in lieu of specific performance; or

(iii) common law damages.

To enforce the agreement, the seller may sue for specific performance or for damages for breach of contract. Although the remedies are consistent, they are alternative remedies. At or before trial, the seller must select between them. If the seller wishes, the seller may elect only one of the alternative remedies before taking action, although it is usually better to maintain options if you can.

If the property is resold by the seller, or if the seller doubts the buyer’s ability to specifically perform, or wishes to keep the property while seeking compensation for diminution in value, the seller may elect to recover damages.

No matter how the damages are calculated, when contemplating litigation, it must be remembered that a non-defaulting seller cannot rest on his right to sue in the hope of eventually making himself whole – he has a duty to mitigate or minimize his losses and may need to aggressively sell the property. If the Court finds that the seller hasn’t properly mitigated its losses, the seller may not be awarded full indemnification.

Breach of Contract

The breach can be an actual breach (i.e., one which has occurred), or an anticipatory breach where the breaching party demonstrates (by words or conduct) that they do not intend to complete the transaction contemplated under the contract.

If a default or breach of contract does not relate to a fundamental term of the contract, then the innocent party is generally required to still complete the transaction and can sue for damages resulting from the breach or default. A fundamental breach is one that goes to the ‘root of the contract’; that is, it deprives the innocent party of substantially the whole mutually intended benefit of the agreement. A default or breach of a fundamental term of the contract may relieve the innocent party from needing to complete the transaction, while still entitling them to additional remedies such as entitlement to the deposit and/or damages. The most common fundamental terms in real estate contracts relate to time, payment of funds and clearing title.

Claims by buyers against sellers or real estate agents for misrepresentation.

Misrepresentation by a real estate agent or home Seller is a common problem, and can lead to significant damages. The most common fraudulent misrepresentation is when a Seller or real estate agent deliberately hides an issue with a property or home (i.e. that a property was once used for a marijuana growing operation). This failure to disclose information can result in expensive problems for buyers.

There are three different types of misrepresentation: innocent, fraudulent and negligent. The party who relies on the misrepresentation may be entitled to remedies under all three types of misrepresentation (though the specific remedy may differ between the three).

The remedy for misrepresentation can be damages and/or rescission (again this depends on the type of misrepresentation). Rescission is a remedy that disaffirms the contract. The remedy assumes the contract was properly formed, but effectively extinguishes the contract as though it never came into existence and its terms cease to be enforceable.

Claims against brokers or real estate agents
for negligence and other breaches of duty.

There are many inherent risks when it comes to a real estate business that can result in lawsuits. With the heavy load that realtors carry including maintaining multiple listings, handling clients and contracts, hosting open houses, and marketing and managing their business, it’s not uncommon for mistakes to occur.

Unfortunately, these mistakes can be costly to the Buyer or the Seller. It is important to speak with a lawyer if you think your agent or the other party’s agent has been negligent in a real estate transaction as you may be able to sue for damages.

Frustrated Contracts

A contract is said to be “frustrated” if an event makes the contract impossible to complete. A frustrated contract is unenforceable.

The case of Folia v Trelinski, 1997 CanLII 469 (BC SC), lays out the issue very well:

“The event in question must have occurred after the formation of the contract and cannot be self-induced. The contract must, as a result, be totally different from what the parties intended… The change must totally affect the nature, meaning,purpose, effect and consequences of the contract…”

For instance, a contract may be “frustrated” when after signing a Contract of Purchase and Sale, but before the possession date, the house being sold is destroyed in a fire. For the doctrine of frustration to be applicable, three things must be present in the given situation:

1. The parties (or either of them) are unable to carry out the contract or parts of the contract.

2. The intervening event causing such inability to perform was beyond the control of, and not the fault of, either party.

3. The parties did not make any provision in the contract to possibly deal with such an event or the consequences flowing from it.

The remedy for frustrated contracts can include termination of the contract and restitution.

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