B.C. buyers who backed out of home purchase ordered to pay more than $350K in damages

Would-be homebuyers who backed out of a deal to purchase a B.C. property in a hot real estate market have been ordered to pay the seller the difference between what they offered and what he was able to sell the home for when the market cooled.

Navdeep Singh Mahli, along with Wai Ming Fong and Xiao Li Liu, entered into a contract to purchase a residential property in Kelowna for $1,115,000. But the sale was not completed by the July 2022 deadline, according to the B.C. Supreme Court's ruling on the case.

In January 2023, months after the home was re-listed, different buyers closed on the sale of the property. The market was "falling sharply" and the new buyers paid $740,000, the court heard.

The seller, Jeffrey Anton Mandl, sued for breach of contract. The defendants counter-sued, saying the property disclosure statement contained "fraudulent or negligent misrepresentations" and that the contract should therefore be cancelled.

Ultimately, Justice Dennis K. Hori sided with the seller over the would-be buyers.

The home was listed for $999,000 on March 3, 2022 and that day Mahli made an offer of $1,113,000. His was one of two offers, and the final agreed-upon price of $1,115,000 was arrived at after some negotiation, according to the judgment. Fong and Liu were also "parties" to the contract.

In it, the defendants made an unconditional offer in which they waived the right to a "subject to financing clause," which became a problem when they tried to get a mortgage and could not.

"Mr. Mahli was advised by the bank that the bank’s appraisal of the property was significantly lower than the purchase price and, accordingly, the bank would not finance the purchase," the decision says, noting that other banks similarly refused to finance the purchase.

The prospective buyers were able to negotiate several extensions of the completion date by providing an additional deposit – however they were unable to convince the seller to lower the price.

"I find that the contract was a binding agreement under which the defendants were required to purchase the Property for $1,115,000 on July 18, 2022. When the defendants failed to tender the purchase price on July 18, 2022, they were in breach of the contract," Hori said.

The defendants told the court there were a number of issues with the home, with their Realtor giving his opinion that an inspection showed that the home was "not habitable." This opinion was not backed up by additional evidence – and the judge noted it would not have mattered if it was.

One of the terms of the contract was to purchase the property "as-is," which the decision explains means "the defendants relinquished any claims of liability and responsibility against the plaintiff."

The counter-claim for negligent misrepresentation was dismissed, with the judge turning to consider the the question of damages, and explaining some of the legal principles that apply in cases like these.

"As far as money can do so, the vendor is to be placed in the same position as the vendor would have been in had the purchaser performed the contract," Hori's decision said.

"In a falling market the court should award the vendor damages equal to the difference between the contract price and the highest price obtainable within a reasonable time after the purchaser’s breach of contract," the judge continued.

In the four months between when the property was first listed and when it was re-listed, the court accepted the seller's evidence that the market in the Central Okanagan had substantially cooled.

In July of 2022, the seller put the home back on the market at $949,000. By late-October, Mandl had reduced the list price to $799,000. During that time he also paid to replace the roof and the air conditioning system, in order to "make the property more attractive on the market."

The defendants argued damages should be reduced because Mandl did not mitigate the financial impact. They argued he should have renegotiated with them and reduced the price. Alternatively, they said he should have waited until the market improved to sell the home.

Both of these propositions were dismissed as unreasonable in the circumstances.

The court ordered the defendants to pay $375,000 in damages representing the difference in the amount between the price in the contract and the final sale price. The defendants were also ordered to pay for the replacement of the roof and the air conditioning. Damages for the costs of staying in the home – including the interest on the mortgage, property taxes and hydro bills were also awarded.

After deducting the $50,000 deposit, the total due was $362,920.76.