WHEN CLOSING DATES COLLIDE: HOW BRIDGE FINANCING COULD HAVE PREVENTED $75,000 IN DAMAGES

In a recent Ontario court case, a real estate dispute led to a significant $75,000 damage award due to a breach of contract by the purchasers. This case highlights the critical role bridge financing could play in preventing financial losses when closing dates collide, and the importance of understanding the legal principles of damages and mitigation.

Understanding the Case: A Breach of Contract

In this case, the plaintiffs, the sellers, relied on the proceeds from the sale to complete another real estate transaction on the same day. When the purchasers failed to meet the agreed-upon closing date, the sellers were forced to extend the closing date on their new property, incurring a substantial $75,000 in costs.

Despite the purchasers’ argument that the damages were too remote, the court ruled in favor of the plaintiffs, affirming that it was reasonable to expect that the sellers would depend on the sale proceeds to fund their subsequent purchase. This decision emphasized the importance of clear communication and adherence to closing deadlines in real estate transactions.

The Role of Remoteness in Real Estate Damages

In contract law, the concept of "remoteness" limits the scope of recoverable damages. Based on the landmark case Hadley v. Baxendale, damages can only be claimed if they were a foreseeable consequence of the breach at the time the contract was formed. In this situation, the court ruled that it was reasonable to foresee the seller’s reliance on the sale proceeds to complete another purchase.

By referencing precedents like Kasekas v. Tessler and Cuttell v. Bentz, the court confirmed that damages arising from closely-timed real estate transactions are often recoverable, provided they are reasonably foreseeable.

The Duty to Mitigate Losses

Another key issue in this case was the plaintiffs’ duty to mitigate their losses. The purchasers argued that the plaintiffs failed to negotiate the extension fee for their new property. However, the court rejected this argument, noting that no evidence suggested negotiations would have resulted in a lower fee. The plaintiffs’ decision to pay the fee promptly, avoiding additional expenses like short-term housing or storage costs, was deemed a reasonable mitigating action.

How Bridge Financing Could Have Helped

Bridge financing could have been the solution to this real estate dilemma. Had the plaintiffs secured bridge financing, they would have had the necessary funds to complete both transactions on time, without incurring the additional $75,000 in costs. Bridge financing, which is a short-term loan, is often used to bridge the gap between the closing of one property and the purchase of another.

While the court briefly mentioned the role of bridge financing, the decision underscores how valuable this tool can be in preventing financial strain during overlapping real estate transactions. The cost of bridge financing is generally modest compared to the potential damages from missed deadlines or breach of contract claims. In this case, the cost would likely have been reimbursed by the defaulting purchasers, thus saving the sellers from unnecessary stress and financial loss.

Conclusion: The Importance of Timely Closings and Financing

Real estate transactions can be complex, and when closing dates collide, the risks of financial loss increase. Bridge financing is a practical solution to avoid the negative consequences of delayed or breached contracts. This case demonstrates how buyers and sellers can benefit from securing bridge financing to ensure timely closings and reduce the risk of incurring significant damages.

In Ontario, reliance damages are recoverable if the reliance was foreseeable and if the claimant took reasonable steps to mitigate losses. Sellers and buyers should consider bridge financing to avoid complications and protect themselves from the financial fallout of delayed closings.

Remember: Always explore bridge financing options to ensure your real estate deals close smoothly and without unnecessary stress.