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What are the Consequences of Backing out of an Agreement of Purchase and Sale?

Updated: Sep 30, 2020

Sometimes a buyer is unable to complete the purchase of a property after signing the Agreement of Purchase and Sale, and once all preliminary conditions are fulfilled/waived.


Since the Agreement of Purchase and Sale is a legally binding contract, there are a number of possible considerations that a buyer should contemplate in these circumstances.


The Deposit


The Agreement of Purchase and Sale may directly address what happens to the deposit if the buyer defaults. If the Agreement of Purchase and Sale does not address this issue, a court will likely find that the seller is within his or her right to keep the deposit amount to offset their losses.


Damages


If the matter went to court, the buyer who backed out of a deal after signing the Agreement of Purchase and Sale could be required to compensate the seller for expenses that he or she incurred because of the buyer backing out of the deal.


This could include the costs of having to put the property back on the market, moving expense, interest on outstanding loans, and other immediate expenses that the seller incurred because of the buyer’s default.


The buyer could also be liable for a host of other expenses incurred by the seller. For example, if the seller agreed to buy another property on the basis of having sold his or her existing home, the defaulting buyer may be liable for the deposit amount and any other expenses incurred as a result of the seller having to back out of this subsequent purchase.


Although a court is unlikely to order the buyer to complete the transaction (compel the buyer to purchase the house, called "specific performance" in legal terms), a defaulting buyer could have to pay the seller thousands of dollars if, for example, the seller is unable to find a buyer and is forced to sell the house at a lower price.


Conclusion

The Agreement of Purchase and Sale is a legally binding contract and a buyer should only make an offer to purchase if they are certain about their ability to close the deal. If the buyer has no choice but to back out of the Agreement, speak with a lawyer at our firm to best understand your options.

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