In this recent decision, the Ontario Court of Appeal upheld a summary judgment ruling that permitted the Buyer to walk-away from a real estate closing when water damage was discovered in the basement the day before closing, and have their deposit returned.
Central to this case was whether the water damage was tantamount to “substantial damage to the property” because if so, paragraph 18 of the agreement of purchase and sale gave the purchaser the option to terminate the agreement and have their deposit returned. This term is typically found in the standard OREO endorsed Agreement of Purchase and Sale form.
Several technical issues were raised during the appeal, but in the end the appellate court concluded that there was no palpable or overriding error in the judge’s analysis, and there was sufficient evidence to support the conclusions made. In short, the appellate court refused to set aside the motion judge’s finding that the water damage was substantial damage, sufficient to trigger the escape clause in paragraph 18 of the agreement of purchase and sale.
The important take-away is that the appellate court reminds parties to a real estate deal that when fairly substantive damage is observed, even the day before closing, vendors are required to afford the purchasers a reasonable opportunity to inspect the property and assess the damage before closing (citing Bilotta v. Booth, 2020 ONCA 522, at para. 20) (with the closing to occur on a later date sufficient to satisfy the “reasonable opportunity” to inspect and assess time frame). In this case, the purchaser’s demands for the purchasers to close on the closing date was not proper or lawful.
Purchasers are well advised to seek an inspection a day-or-two before closing because as this case illustrates, it provides some level of protection if substantial damage is discovered.
To sum things up, if substantial damage is discovered prior to closing, the seller must give the purchaser reasonable time to assess, and if necessary delay the closing. If the damage is substantial, the purchaser can elect to walk away with deposit returned.
Tsui v. Zhuoqi, 2022 ONCA 464
https://www.canlii.org/en/on/onca/doc/2022/2022onca464/2022onca464.html