Grkavac v. Basnet, 2023 - failure to close a real estate transaction

By David Young

In the recent case Grkavac v. Basnet, 2023 ONSC 3823 from the Ontario Superior Court of Justice in Ontario, the plaintiffs, Milan Grkavac and Despina Iliadis, brought a lawsuit against the defendants, Bimal Man Basnet and Saraswati Pandey Basnet. The dispute stemmed from a failed residential real estate transaction in Markham, Ontario.

According to the Agreement of Purchase and Sale (APS) dated March 6, 2022 the plaintiffs, Grkavac and Iliadis, agreed to sell their residence located at 192 Oakridge Drive, Markham, Ontario, to the defendants, the Basnets, for $1,608,000 with a deposit of $90,000 held by Zolo Realty Inc. The closing date specified in the APS was June 27, 2022.

Two weeks before the closing date, on June 13, 2022, the Basnets' solicitor sent an email to Grkavac’s solicitor stating that the Basnets were short on the down payment due to a decrease in the appraised value of the Property. The Basnets' solicitor requested a reduction of $150,000 in the purchase price, but the Grkavacs’ refused this request.

On the closing date, June 27, 2022, the Basnet’s solicitor sent another email requesting an extension of the closing date to August 15, 2022. The reason provided was to allow the Basnets more time to secure mortgage financing. Although there were discussions about the terms of the extension, no agreement was reached between the parties.

The Basnets believed that the Grkavacs were unreasonable in rejecting their requests for a price reduction and an extension. However, the court clarified that the Grkavacs had no obligation to amend the APS, even if the proposed amendments seemed reasonable from the Basnet’s perspective. Consequently, the transaction did not close as per the terms of the APS.

The Basnet’s counsel argued that the Grkavac’s claim should be dismissed because they failed to tender on the closing date. However, the court deemed this argument to be technical and not applicable in the current circumstances. The Basnets had made it clear that they did not have the funds to close the deal without an extension or price reduction, so there was no need to tender as per Di Millo v. 2099232 Ontario Inc. 2018 ONCA 1051 at para 45.

Due to the failed transaction, the Grkavacs relisted the Property with Zolo Realty Inc. at a reduced price of $1,499,000. This price reflected the decline in the real estate market since the initial listing in March 2022. During the 30-day re-listing period, the Grkavacs received only one offer for $1,318,000. After brief negotiations, they accepted the offer, and the sale closed on September 7, 2022, as scheduled.

The Basnets' counsel argued that the resale price of the Property was too low, presenting an appraisal report indicating higher recent sale prices. However, the court found the appraisal report unconvincing. The properties listed as comparables in the report were not fully explained, and they predated the July 2022 resale in a declining market.

Moreover, considering the limited interest and activity in the declining housing market, the court deemed it financially prudent for the Grkavacs to accept the offer, even at a slightly lower listing price. It was unlikely that a more favorable offer would emerge if they waited longer.

Referring to a previous court decision, 6472047 Ontario Ltd. v. Fleischer, 2001 CanLII 8623 the court held that in a falling market, the vendor should be awarded damages equal to the difference between the contract price and the highest price obtainable within a reasonable time after the contractual completion date. Mitigating damages by making reasonable efforts, rather than achieving an appraised value with precision, was the key.

Based on the evidence presented, the court determined that the losses incurred by the Grkavac’s due to the Basnet’s breach of the APS amounted to $320,437.92.

Additionally, the court ordered Zolo Realty Inc. to release the $90,000 deposit funds to the Grkavacs, which would be deducted from the total damages owed by the Basnets.

The Basnets’ counsel argued that the damages had not been adequately proven and suggested that viva voce evidence (oral evidence by a witness) or a full trial was necessary. The court disagreed, stating that the documentation provided sufficiently supported the damages claim. 

Consequently, the court granted judgment in favor of the Grkavacs. This case serves as a great reminder that it is crucial to close under any means necessary. In Ontario, you must close on the real estate transaction or find yourself in a similar case as Grkavac v. Basnet.

If you have any questions about this article, please reach out to one of our qualified Real Estate lawyers such as David Young (dyoung@sorbaralaw.com).