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Breach of an APS

3 minute read

Ideally, your real estate deal will go smoothly, but unexpected and unwanted issues can and sometimes do happen.  The worst potential issue is a breach or default of the terms contained in the agreement of purchase and sale (APS) that leads to the termination of the deal itself.  Defaulting on a real estate contract can cause significant legal and financial risks to the parties involved.

The APS is the starting point to any real estate transaction and it’s an important one.  It is essential to ensure that the terms and conditions of the APS meet your needs, whether you are the seller or the buyer.  For example, a seller may want to sell the property “as is” or may want to exclude certain fixtures from the sale.  A buyer may want the APS conditional on financing to ensure they can get a mortgage to complete the transaction, or they may ask that the vendor do certain remedial work/clean up of the property prior to closing.  Once these conditions are met, the APS is a firm and binding contract between the parties.

If either party isn’t able to close the transaction when the closing date comes around, they will be considered in default of the APS and legal action can be taken against them.  For example, a buyer thought they had been approved for a mortgage. They advised the seller that the financing condition was met, thereby making the APS firm and binding.  But, it turned out the mortgage approval fell through and they don’t have the funds to buy the property.  That’s a problem.  When faced with such a situation, a seller has a couple of options.

The seller can negotiate an extension of the closing date to allow the buyer more time to get a mortgage approved.  If it doesn’t seem likely that this will happen in the near future, then a seller can terminate the contract.  Although the seller is the one terminating the contract, it is still the buyer who is legally at fault for causing the termination.  They are the party who hasn’t met the terms of the contract and isn’t able to close the transaction.

If the seller chooses to terminate, they can seek costs against the buyer for their losses.  These losses include having to maintain the property until they sell it to a new buyer, including mortgage payments, insurance, utilities, taxes, etc.  If the seller ends up selling the property for less than the sale price they had with the buyer who defaulted, they can also seek costs for that difference in the sale price.  The seller is also entitled to keep any deposit that the buyer may have paid at the time the APS was signed.

Having a well-drafted APS is crucial to protecting your interests.  Before you sign an APS, you should ask a lawyer to review the APS with you.  Your lawyer will ensure you understand the terms of the APS and that the terms meet your needs.  Your lawyer will also make sure you fully appreciate the legally binding contract you are about to enter into.

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Allison C. Dale

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