No Damages for Lost Opportunity in Failed Real Estate Transactions
By Daniel Waldman, Pallett Valo LLP
A recent decision from the Ontario Superior Court of Justice has confirmed that damages for lost opportunity will not be awarded when a real estate deal goes wrong.
In Akelius Canada Inc. v 2436196 Ontario Inc., 2020 ONSC 6182, Justice Morgan held that when a real estate deal falls apart due to a seller’s default, damages are to be determined at the closing date and a claim for the future appreciation of the property is therefore not available.
In 2015, two real estate investors entered into an agreement of purchase and sale for seven residential apartment buildings in Toronto for CAD 225.4 million. The buyer was a Canadian subsidiary of a large international investment corporation.
Prior to closing, the buyer discovered mortgages of over CAD 48 million encumbering some of the properties. The sellers proposed to revise the agreement to either exclude these properties, or for the buyer to assume the mortgages with a price abatement. The buyer refused, sued for breach of contract, and brought a motion for summary judgment.
In 2018, the sellers sold the properties to another party for about CAD 50 million more. In its damages claim, the buyer sought CAD 50 million reflecting the appreciation, and CAD 770,000 in sunk costs due to the failed transaction.
Justice Morgan had little diffculty finding that the sellers breached the agreement. The primary issue was to determine the appropriate measure of damages to put the injured party back in the position it would have been if the contract had not been breached.
Damages for lost speculation profits is not an available remedy in real estate transactions. As a result, the buyer was only entitled to damages for the sunk costs. No costs were awarded to either side. This decision affrms the courts’ reluctance to consider claims for lost profits from capital appreciation, even where a buyer is unfairly deprived of a lucrative opportunity. Real estate investors should be mindful of this before they opt to sue for damages.
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Pallett Valo LLP is one of Ontario’s Top 10 Regional Law Firms. The firm practices in the areas of business law, commercial litigation, commercial real estate, construction, insolvency and corporate restructuring, employment and labour, and wills, estates, and trusts.
Daniel Waldman is a member of the commercial litigation practice and a member of the Remedies Group. Daniel has a commercial litigation practice with an emphasis on real property litigation, including commercial leasing, commercial real estate, construction law, and debt collection.
Published: Litigation & Dispute Resolution Newsletter, No. 14, Spring 2021 l Photo: schulzfoto - stock.adobe.com