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What Does Real Estate Litigation Look Like?

When you enter into a real estate transaction, you expect everything to go smoothly. The buyer(s) will honour their commitment and come into funds on time, the seller(s) will relinquish the property on the agreed-upon closing date, and everything will be completed as planned. But what if something goes wrong? That’s where real estate litigation comes into play.

No one wants to litigate as a matter of hobby, but sometimes litigation is necessary when there are no other options. When a buyer or seller does not honour their commitment, and refuse or fail to cooperate or negotiate, litigation may be the only option to move things forward.

So, what does real estate litigation look like? When do you need to litigate a real estate matter? 

Failure to close

If a property does not close on the agreed upon date, then litigation may be the likely next step. These situations are not always cut and dry, though, and either party may be at fault for failing to close on the agreed-upon date.

If a buyer does not close on the closing date, usually due to their inability to secure funds, the seller is left in a lurch. Not only do they now need to re-list the property and are out-of-pocket on the maintenance costs of the property until the sale does close, but they may be putting their next purchase in jeopardy. If they were depending on closing funds for their next purchase, that then could hold up a subsequent transaction at the same time.

For sellers, getting cold feet or just simply refusing to sell on an agreed-upon closing date may also lead to litigation. This leaves buyers effectively stranded, especially if they no longer have a residence. The seller may be responsible for the buyer’s expenses, and, in some situations, may even be forced to sell their home.

In both situations, litigants can claim for damages including moving expenses, utility costs, taxes and potentially other costs associated with re-listing the property or a subsequent move. It is also important to note that the buyer’s scenario may be entirely avoidable if the transaction is conditional upon securing funding. This may make an offer to purchase less attractive, but it can avoid a significant mess should issues arise.  

Defects

No house is 100% perfect, and some issues are easily noticeable on a plain view. Buyers can also make their purchase conditional upon a home inspection, where a trained professional examines the property after an offer is accepted, and the buyers can abandon their offer if they are unsatisfied with the inspector’s results. Sellers may even conduct an inspection themselves to show prospective buyers that the property is in good working order.

However, an inspector does not move walls, lift floors, or dig around a property’s foundation. They may notice patent defects, which are visible to the naked eye, but they may not notice those latent defects which are hidden out of sight. If a buyer finds latent defects after closing, they’ll be quick to blame the previous owner and may be hungry to litigate. However, it is important to note that, subject to the terms of the Agreement of Purchase and Sale, the parties, or more specifically buyers, are subject to the doctrine of “caveat emptor” or “buyer beware”. 

The general rule is that purchasers must make whatever inquiries about a property to satisfy themselves that the property is suitable. Although sellers cannot coverup defects and they must disclose any defects that render the property unfit for habitation, commencing litigation to recover damages on account of defects later discovered is not always the best choice. As such, it is critical that purchasers conduct sufficient and proper due diligence prior to entering into an Agreement of Purchase and Sale.  This will include, without limitation, retaining a home inspector, conducting several inspections of the subject property, and inserting the proper guarantees and warranties in the Agreement of Purchase and Sale. 

Chattels

Any property is full of fixtures and chattels. Fixtures are those things that are fixed to the property, like a hot water tank, baseboard heaters, and a furnace. Those items stay with a property after the sale. Chattels, however, are not affixed. These can include appliances, window coverings, and other key items which may not be permanently fixed but are still integral.

An Agreement of Purchase and Sale should spell out which fixtures and chattels are included with a property. It is unusual for a seller to take a washing machine or stove with them when they go!  However, parties typically agree that these items will be in good working order. The stove does not need to be new, but it does need to work properly.

If the chattels are not usable or in good working order at the time of closing, buyers may move towards litigation because the sellers broke the contract. Damages may be minimal, but the sellers may be on the hook for the replacement or repair costs of the chattel that is not working properly.

Forcing a sale

If a seller is unwilling to close on a transaction, can the Court force the sellers to move forward anyway? The answer is that it depends on the property. 

The remedy of specific performance is when the Court forces one party to an agreement to fulfil their end of the bargain, but this is not granted in every scenario. If the property is not unique in any way, and other similar properties are available at a similar or price, the buyer may not have legal recourse to force the sellers out. They may instead need to find a new property.  However, the purchasers may still have a claim for damages for breach of contract.

However, if the property is unique, like a heritage home, or something else that’s truly one-of-a-kind, the buyer may not have the opportunity to find something else like it at a similar price. In those cases, the Court may order specific performance and force a sale to the buyer.

In situations where a buyer would like to force the seller to complete a transaction, it is important that the buyer quickly take the necessary steps to preserve their equitable interest in the property by first registering a caution upon title and then pursuing a Court Order allowing for the registration of a Certificate of Pending Litigation. Doing so will provide the public with notice that the subject property is the subject of an ongoing dispute such that someone other than the registered owner maintains or allegedly maintains an equitable interest in the property. 

Final Thoughts

Real estate litigation may not be any buyer’s or seller’s first choice, but it can be a helpful tool or necessary in cases where a transaction does not go according to plan. Our lawyers have assisted with real estate litigation matters throughout the Cambridge, Kitchener, and Waterloo Regions, and we would be happy to speak to you about your issues.  Contact our team at Pavey Law LLP to set up a consultation.