Cautionary Tales in Real Estate: Understanding the Implications of APS Conditions Waiver

Buying or selling a home is often the largest financial decision a family will make, and the fine print of an agreement of purchase and sale (APS) can carry consequences that last long after the ink dries. The recent decision of the Court of Appeal for Ontario in Nguyen v. Zaza, 2023 ONCA 34, offers an important cautionary lesson for buyers: once you waive the conditions in an APS, you are firmly bound to close the deal.

Key Legal Principles from the Decision

The court's verdict underscores several fundamental principles that every buyer and seller should understand:

• A seller need not hold title to the property when the APS is signed, so long as they can deliver clean title by the time the transaction closes.
• A buyer who waives their conditions in an APS is bound by their contractual duties and cannot rely on outside factors to avoid closing.
• A deposit acts as security for the buyer's performance of the contract. If the buyer fails to close, the seller is entitled to keep the deposit.
• A seller may rightfully refuse to extend the closing date when the buyer is seeking an extension simply because they lack the necessary funds.

Background: How the Deal Was Structured

On December 19, 2020, the buyer and seller signed the APS. At that time, the property title was held in the name of the seller's father. In other words, the APS named the title holder's son (the seller) and the buyer as the parties to the agreement.

The APS required the deal to be completed no later than 6:00 p.m. on November 15, 2021. It was subject to two conditions: the buyer arranging financing and a satisfactory home inspection. On January 6, 2021, the buyer waived both of these conditions.

On January 18, 2021, the seller's father, who held the actual title to the property, transferred it to his son, the seller under the APS.

The Failed Closing

On the closing date of November 14, 2021, the seller produced the documents required to complete the transaction. The buyer, however, did not provide the required purchase price.

The buyer argued that the APS should be treated as an agreement between her and the seller's father, since he held title to the property when the APS was signed. She claimed that the seller was not entitled to require her to complete the APS on the closing date because, in her view, the contract was really between her and the seller's father. She further asserted that the seller should have obtained her consent for the January 18, 2021 title transfer. On these grounds, she maintained that she was not responsible for the failure to close the sale.

The Court of Appeal's Ruling

The Ontario Court of Appeal held that even though the seller signed the APS with the buyer on December 19, 2020, title to the property did not need to be in his name at that moment. He simply needed to ensure that good title could be delivered to the buyer at closing.

The court emphasized that the seller was able to transfer legal title to the buyer on the closing date of November 15, 2021, because the property had been conveyed to him on January 18, 2021. Yet the buyer failed to tender the necessary purchase price at closing.

The court also noted that, in the absence of a specific clause in the APS dealing with the disposal of the deposit, the deposit serves as a guarantee of the buyer's contractual performance and is forfeited to the seller when the buyer fails to close. Accordingly, the court awarded the seller the $50,000 deposit, cancelled the registered caution and certificate of pending litigation (CPL) on the property, and ordered the buyer to pay the seller's appeal costs of $7,500.

How Bhoj Law Office Can Help

If you have questions about how an agreement of purchase and sale could affect your future, Bhoj Law Office is ready to help. Please get in touch with Bhoj Law Office.