Home Purchaser Forfeits $100,000 Deposit Because Her Lawyer Doesn’t Check Fax Machine
The Superior Court has ruled that a potential home purchaser has forfeited a $100,000 deposit because her lawyer “deliberately let the clock run out” and failed to check her fax machine for two hours leading up to the 6 p.m. closing deadline.
The purchaser signed an agreement to purchase a $1.5 million Toronto home. As part of the agreement, she provided a $100,000 deposit.
Leading up to the closing day it was discovered that there was an open building permit on the house which related to renovation work which had been performed four years earlier. All of the work had been completed correctly and had passed inspection, however (perhaps through oversight) the appropriate steps to close out the permit were not completed.
The purchaser advised that she would not complete the sale unless the building permit had been closed. The sellers did everything they could to have the permit closed before the closing deadline but were unable to do so.
The agreement of purchase and sale contained a clause that, effectively, allowed the sellers to remedy the permit issue by obtaining title insurance for the purchaser prior to closing.
The agreement provided that the transaction had to close by 6 p.m. on the closing date.
At 1:18 p.m. the purchaser’s lawyer sent a fax to the sellers’ lawyer advising that the purchaser was unwilling to close the sale with the permit still open and was unwilling to extend the closing date. She advised that the purchaser was electing to terminate the agreement.
The sellers’ lawyer responded at 1:55 p.m. and stated that the sellers were confident that the permit could be closed promptly as all of the work was done correctly and the appropriate inspections had in fact been conducted and that the matter could likely be resolved within a few days. He further advised that the sellers were prepared to hold back a substantial amount of money as a sign of good faith. The sellers’ lawyer asked whether the purchaser would reconsider her position.
Shortly thereafter, the sellers’ lawyer was able to arrange for title insurance over the open permit.
At 3:55 p.m. the sellers’ lawyer sent a fax to the purchaser’s lawyer advising that title insurance had been arranged and that the sellers wished to proceed with closing and were in a position to do so. This letter was received by the purchaser’s lawyer’s fax machine. However, for some reason the lawyer did not see the letter.
Unaware of the 3:55 p.m. letter, the purchaser’s lawyer sent a fax at 4:01 p.m. repeating that her client would not accept the house while the permit remained open and that she was not prepared to extend the closing beyond that day. The letter stated that the purchaser had the right to terminate the agreement and that the agreement would in fact be terminated as of 6:00 p.m.
The purchaser’s lawyer concluded that the deal was dead and turned her attention to other closings taking place that day.
About a week and a half later the sellers’ lawyer wrote to the purchaser’s lawyer advising that the permit had been closed and that the sellers remained ready to close the transaction. The purchaser’s lawyer responded by advising that the purchaser had since entered into an agreement to buy a different property and demanding the return of the purchaser’s $100,000 deposit. The purchaser subsequently applied to the Superior Court for the return of her deposit.
The court found that the purchaser’s lawyer had a duty to monitor the situation until the 6 p.m. deadline and not assume that nothing further could or would be done by the sellers to remedy the problem.
The agreement was in full force and effect and the parties had a duty to act in good faith and were required to do what was necessary to fulfill their obligations under the agreement up until 6 p.m. The court found that once the sellers had secured a commitment for title insurance the purchaser was obligated to close.
The court held that because the purchaser had breached the agreement, she was disentitled to the return of her $100,000 deposit.
There’s this thing called a telephone…… surprisingly, neither lawyer seemed to know of its existence.
The client should file a claim against the lawyer for the money. Small claims has a limit of $25000 in Ontario. This could be filed in a higher court but the costs will be higher for the litigant. The lawyer had a responsibility to follow up with the faxed documentation. The LSUC won’t be able to do much as they will say that this is negligence and they cannot help the complainant in the area of negligence.
Sigh.
It’s unlikely that either the vendor or the putative purchaser will lose any money (added: they ought to lose) on the transaction. As Mitch Kowalski pointed out, there’s this thing, in Ontario, called a telephone. There’s even email. And, there’s errors and omission insurance. Anybody in practice, in Ontario, should realize that one or the other of the lawyers will have reported this mess to LawPro and that LawPro was likely behind the motion to determine who was entitled to keep the deposit, assuming there was negligence anywhere. That might not be the case.
Ms Skelly: you ought not to assume that the putative purchaser’s lawyer was NOT acting on instructions from his client after explaining the probable consequences of refusing to close. It is not always the case that clients accept a lawyer’s correct advice. The comment also applies to the vendor’s lawyer.