Determining the Date for Assessing Damages in Real Estate Transactions

By Slonee Malhotra

When a contract is breached, the innocent party may be entitled to damages for the costs they incurred as a result of the breach. In real estate transactions, the presumption is that damages are assessed as of the date of the breach.[1] The award of damages should put the injured party back in the position they would have been in had the contract been performed. The Court does, however, have the discretion to choose a later date by considering the specifics of the plaintiff's case.[2]

In Akelius Canada Ltd. v. 2436196 Ontario Inc., the Ontario Court of Appeal found that the purchasers failed to justify displacing the date for assessing damages past the date of the breach.[3] The parties had entered into an agreement of purchase and sale (“2015 APS”) for seven properties, set to close on January 7, 2016.[4] The deal did not close as the vendors did not meet all the conditions of the sale.[5]

In 2018, two years later, the vendors sold the properties to a new purchaser for $57 million more than the purchase price from the 2015 APS.[6] The former purchasers claimed that the increase in value should be considered in calculating their damages from the vendor’s breach.

In their decision, the Court of Appeal examined several cases that involved shifting the date of assessment away from the date of the breach. The Court found that in all cases, the date of the breach remains a starting point for the assessment of loss. A later date may only be used if it represents the first date that the innocent party could reasonably have been expected to re-enter the market and mitigate its damages.

In applying this rule to the situation at hand, the Court found that the capital appreciation should not be included in the purchaser’s damages. At the time of the sale, the purchasers intended to keep the properties as long-term income-producing rental properties, they were not intended for resale.[7] The Court, therefore, did not even consider when the party could have reasonably been expected to mitigate their losses, because the claimed losses were not in the reasonable parties contemplation when they entered the 2015 APS.

The purchasers were, however, awarded $775,855.46, representing the costs reasonably incurred and thrown away by the appellant as a result of the respondents’ breach of the APS.[8]

The full article can be found here: Akelius Canada Inc. v. 2436196 Ontario Inc. et al. 2022 ONCA 259