Law360 Canada (September 16, 2026, 11:47 AM EDT) --

Ray Mikkola

The first part of this article examines the reasons why purchasers of newly built proposed condominium units are particularly susceptible to being caught in a falling market. The challenges currently faced by many such purchasers, in a climate where prices are lower than they were at the time of executing the purchase agreement, are unusual but not unique. What are the options for a purchaser in regard to an upcoming closing of a proposed condominium unit from a declarant, where the market value of the unit is significantly less than the price set out in the purchase agreement? While there is no “silver bullet” solution to the problem, here are some thoughts:

1. The wrongful failure of a purchaser to complete a purchase contract is a very serious matter. The purchaser should do everything in its power to comply with its obligations, to avoid the consequences set out below in this article. This means borrowing from friends and family, cashing out RRSPs and other savings, increasing the size of the approved loan (perhaps by pledging other properties as security) and asking parents to guarantee a larger loan, among other strategies. While it may obviously set a purchaser back financially, perhaps for years, property values generally bounce back. For instance, at the start of the pandemic, a number of reported cases dealt with nervous purchasers backing out (mostly unsuccessfully) of real estate transactions. As the economy recovered from the pandemic, real estate prices soared, but those who refused to complete their purchases are still dealing with lawsuits for damages for failing to comply with purchase agreement obligations. Generally, if it is at all possible for a purchaser to close using its own funds — regardless of the financial pain involved — the purchaser should do so. Otherwise, those funds will in any event be lost to a plaintiff as damages in the course of it successfully suing and then collecting its judgment against the purchaser.

2. If a purchaser decides not to comply with the closing obligations set out in the purchase agreement without a legal right to do so, or is simply unable to do so, the innocent seller has two choices to make:


For a variety of practical and legal reasons, the declarant will almost always choose option (a).

Sometimes, purchasers decide to approach the declarant and advise that they will be unable to complete the purchase transaction on the upcoming closing date. If they do so, they will likely receive a letter from the declarant or its lawyer advising that the purchasers are in anticipatory breach of their contract, which among other things, releases the seller from its legal duty to demonstrate that for its own part, it is ready, willing and able to complete the transaction. The declarant will advise that the deposits are forfeited to the declarant and that it will confirm what other and additional losses it will suffer, including in respect of any difference between the purchase price under the contract and the (presumably lower) price for which it is able to sell the unit to a new purchaser. The purchasers’ liability for damages is not limited to the amount of the forfeited deposits, despite a common belief to the contrary. If the purchasers are in interim occupancy, the purchasers will need to vacate the unit. Tenant protections under the Residential Tenancies Act are generally not available to purchasers in interim occupancy — see s. 80(10) of the Condominium Act.

Thereafter, the purchasers may not hear from the declarant for some time, until they are served with a statement of claim. The failure to defend the claim, or the failure to provide a defence that does not survive a motion for summary judgment brought by the declarant, will in reasonably short order result in a judgment against the purchasers. The purchasers may then be called upon to attend an examination in aid of execution. Most of the purchasers’ property and assets may be seized to satisfy the judgment, including future assets, such as a tax refund or an inheritance. Salaries and other payments to which the purchasers are entitled may be diverted (garnished) by the declarant as judgment creditor. Typically, the purchase agreement includes a standard provision that makes purchasers jointly liable for damages arising from a failure to complete the transaction. A judgment never gets too old to enforce. Interest continues to accrue on the judgment, so that when an execution against a purchaser is finally exercised years later, the amount payable under it may be very significant. The enforceability of the judgment against each of the purchasers will not generally be impacted by the purchasers having divorced, or even by the death of one or both of them.

In the alternative, the purchasers may take the position that they are not in default and are entitled not to close. Typically, this has meant challenging the sufficiency of the disclosure statement. Not surprisingly, such claims are typically made in a falling market, because in rising markets, purchasers are happy to complete their purchases. Case law from the 1990s (arising from the early 1990s falling real estate market) demonstrates that there is a significant burden on the purchaser when challenging the sufficiency of disclosure. The general rule is that any alleged deficiency in or failure of the disclosure statement must be sufficiently serious to have caused the purchasers to reconsider their purchase decision had it been known to the purchasers, on an objective basis.

An exception to this rule applies where the disclosure statement does not comply with the express mandatory disclosure requirements imposed by the Condominium Act. For a recent example, see Dicenzo (Linden Park) Holdings Inc. v. Sadeghyar, 2026 ONSC 1566, a decision in which the court released the purchaser from his obligation to satisfy a damages claim for failing to complete a purchase (even after the unit had been resold to a third-party purchaser), where the declarant could not demonstrate to the satisfaction of the court that the purchaser had been provided with a copy of the Condominium Guide described in s. 71.1 and mandated by s. 72(b) of the Condominium Act. In that case, the purchaser was a sophisticated purchaser who had even signed an acknowledgment that he had received a copy of the guide.

Timing may be important. For example, suppose that purchasers wrongfully refuse to occupy the unit and pay the additional deposit on the date stipulated for interim occupancy, causing the declarant to terminate the purchase agreement and forfeit the deposit. If the declarant thereafter materially amends the development, for example, thereby entitling all purchasers to a 10-day “cooling off” period to terminate the purchase agreement as of right, or fails to deliver the unit by the Outside Occupancy Date in the Tarion addendum, it is unlikely that the purchasers could, post-termination, raise these matters in defence of the plaintiff’s damages claim. All other non-defaulting purchasers might be entitled to exercise their statutory termination rights and recover their deposits, with interest.

3. The purchaser may attempt to settle with the declarant. This will often not be possible, given that the purchaser has typically signed the declarant’s standard form of purchase agreement, which greatly favours the declarant’s legal position. Settlement discussions will involve a difficult negotiation with the developer, which the purchaser should try to have off the record if possible. Depending on the type of purchaser (numbered company, monied downsizing purchaser, first-time buyer, long-term investor, etc.), a declarant may see some advantage in, for example, obtaining the purchaser’s cooperation on the forfeiture of the deposits and perhaps the contemporaneous payment of an additional amount as damages, in exchange for a release. Such a result would save the declarant from incurring additional legal fees to sue the purchasers and avoid the risk of non-collection (by reason of the purchaser’s bankruptcy, or as a result of the purchaser raising a valid defence as in the Dicenzo case, for example). In the 1990s (and perhaps now to some degree), declarants were offering to take second mortgages back, and to agree to a unilateral reduction in purchase price to achieve a quick closing. Any second mortgage back would likely require the purchasers’ first mortgagee to agree to the arrangement. Settlement terms that contemplate future payments or undertakings from a purchaser may require the delivery to the declarant of a consent to judgment, to be exercised in the event that there is a default by the purchaser of the settlement terms.

There is no universal low-cost or risk-free solution for purchasers or declarants in these difficult circumstances. The outcome of litigation or settlement discussions and the prospect of successfully realizing on a judgment are seldom completely obvious and may be highly dependent on considerations entirely separate from the legal effect of provisions in the purchase agreement. Different considerations apply where the purchaser is a numbered company specifically incorporated to act as purchaser, or a wealthy couple, or a first-time assetless purchaser who would qualify for quick bankruptcy relief. Likewise, the financial position of the declarant may be relevant. What is clear is that different skills and experience are required from lawyers acting for purchasers and declarants on such matters, as compared to those typically used to complete purchase agreements in the usual course.

This is the second part of a two-part series. Part one: To close or not to close: Completing purchases in a falling condo market.
 
Ray Mikkola is a partner with the firm of Pallett Valo LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the author’s firm, its clients, Law360 Canada, LexisNexis Canada or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
  
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