What Happens If a Buyer Can’t Close on a House in Alberta?

What Happens If a Buyer Can’t Close on a House in Alberta?

Short answer: if a buyer cannot close on a house in Alberta, the buyer may be in breach of the purchase contract.

That can have serious consequences.

Depending on the contract and the circumstances, the seller may be able to:

• keep the deposit;

• terminate the agreement;

• resell the property;

• claim additional damages;

• seek interest or carrying costs;

• claim legal costs; or

• in some cases, ask the court to force completion.

The exact result depends on why the buyer cannot close, whether conditions were removed, whether the seller was ready to close, and what the purchase agreement says.

The important point is simple:

Once conditions are removed, a buyer should assume they are expected to complete the purchase unless the contract gives them another legal way out.

What Does It Mean to “Close” on a House?

Closing is the legal completion of the real estate transaction.

For a buyer, closing usually means:

• signing mortgage and closing documents;

• providing the required down payment and closing funds;

• ensuring mortgage funds are advanced;

• paying the balance of the purchase price through the buyer’s lawyer;

• satisfying lender conditions;

• completing title registration steps; and

• receiving possession once the seller’s lawyer releases keys.

If the buyer cannot provide the money or complete the required steps by the closing date, the buyer may be unable to close.

That can put the buyer in default.

Common Reasons a Buyer Can’t Close

A buyer may be unable to close for many reasons.

Common examples include:

• mortgage financing falls through;

• the lender changes or withdraws approval;

• the buyer does not have enough down payment;

• the buyer cannot provide closing costs;

• the buyer’s property sale does not complete;

• employment or income changes before closing;

• the buyer removes conditions too early;

• the buyer misunderstands mortgage approval;

• funds from another source are delayed;

• the buyer separates from a spouse or co-buyer;

• title or lender issues arise at the last minute; or

• the buyer simply changes their mind.

Some of these problems may be understandable.

But they do not automatically excuse the buyer from closing.

Mortgage Approval Is Not the Same as Closing Funds

One of the biggest mistakes buyers make is assuming that a mortgage approval guarantees closing.

It does not.

A lender may still require:

• final income confirmation;

• proof of down payment;

• satisfactory appraisal;

• insurance;

• signed mortgage documents;

• payout or debt information;

• no material change in financial circumstances;

• confirmation from the lawyer; and

• satisfaction of all lender conditions.

A buyer may believe financing is approved, but if the lender does not advance funds on closing day, the buyer may still be unable to close.

The practical rule is simple:

Do not remove a financing condition unless financing is truly secure and all important lender requirements are understood.

What If Financing Falls Through After Conditions Are Removed?

If the financing condition has already been removed or waived, financing problems usually become the buyer’s risk.

A buyer may no longer be able to say:

“I could not get financing, so I am allowed to walk away.”

Once the financing condition is removed, the seller will usually expect the buyer to complete the purchase.

If the buyer cannot close, the seller may treat the buyer as being in breach.

In Alberta, courts have enforced real estate closing obligations where the buyer was not ready, willing and able to complete by the closing date. In Bowlen v. Digger Excavating (1983) Ltd., the buyer failed to tender the funds required to close, and the seller was entitled to terminate while time remained of the essence.

The practical point is this:

After conditions are removed, losing financing is usually not a free exit from the deal.

Can the Buyer Ask for an Extension?

Yes, the buyer can ask.

But the seller does not necessarily have to agree.

A buyer who cannot close on time may ask the seller for:

• a short extension;

• a delayed possession date;

• permission to close once financing is funded;

• a temporary holdback arrangement;

• an amendment to the contract; or

• a mutual release.

Whether the seller agrees may depend on:

• how long the delay will be;

• whether the seller needs the sale proceeds to buy another property;

• whether the seller has already moved out;

• whether the market has changed;

• whether the buyer has a realistic plan to close;

• whether the seller is losing money; and

• whether the seller believes the buyer is acting in good faith.

If an extension is granted, it should be documented in writing.

The practical rule is simple:

Do not rely on verbal permission to close late.

What Happens to the Deposit?

The deposit is often the first major issue.

If the buyer cannot close and is in default, the seller may claim the deposit.

Many Alberta purchase contracts allow the seller to keep the deposit if the buyer fails to complete. The deposit may be treated as security for the buyer’s performance.

In Bowlen v. Digger Excavating (1983) Ltd., the Alberta Court of Appeal upheld forfeiture of the deposit where the buyer failed to close and the agreement allowed the seller to retain the deposit.

That does not mean every deposit is automatically forfeited in every situation.

The contract wording matters.

The conduct of both parties matters.

The reason closing failed may matter.

But if the buyer removed conditions and then cannot close, the deposit is usually at serious risk.

Can the Seller Claim More Than the Deposit?

Potentially, yes.

A seller may be able to keep the deposit and also claim additional damages if the contract allows it and the seller can prove a loss.

Additional damages may include:

• the difference between the original sale price and a lower resale price;

• additional mortgage interest;

• property tax expenses;

• insurance costs;

• utility costs;

• condominium fees;

• resale costs;

• carrying costs; and

• other losses caused by the failed closing.

In Lozcal Holdings Ltd. v. Brassos Developments Ltd., the Alberta Court of Appeal allowed the seller to pursue actual damages beyond the deposit, with the deposit credited against the loss.

The practical point is this:

Losing the deposit may not be the buyer’s only exposure.

When Might the Deposit Be the Seller’s Only Remedy?

Sometimes the contract may limit the seller to the deposit.

This depends on the wording of the deposit and default provisions.

If the agreement clearly says the deposit is the seller’s exclusive remedy, the seller may be limited to keeping the deposit and may not be able to claim more.

In Bucci Xenex Project Ltd. v. Ramasiuk, the court treated the deposit as the upper limit of the seller’s recovery because the clause did not clearly preserve broader remedies.

The practical rule is simple:

Whether the seller can claim more than the deposit depends on the contract.

What If the Seller Resells for Less?

If the seller resells the property for less than the original purchase price, the seller may claim the difference as damages.

For example, if the buyer agreed to buy for $600,000 and the seller later resells for $560,000, the seller may claim the $40,000 shortfall, subject to the contract, proof of loss and mitigation.

The seller cannot simply sit back and let losses grow.

The seller generally has to take reasonable steps to reduce the loss.

That may include relisting the property, marketing it reasonably and attempting to resell at a fair market price.

In Alberta real estate cases, resale efforts and valuation evidence can become important when damages are disputed. In Lindner v Ganatra, the court considered evidence about resale efforts and valuation in assessing the seller’s loss.

Can the Seller Force the Buyer to Complete?

Possibly, but not always.

The seller may ask for specific performance, which is a court order requiring the buyer to complete the purchase.

However, specific performance is not automatic. Courts usually consider whether damages would be an adequate remedy and whether the property or transaction has special circumstances.

The Supreme Court of Canada has made clear that real estate is not automatically treated as unique in every case. Specific performance generally requires evidence that damages are inadequate: Semelhago v. Paramadevan and Southcott Estates Inc. v. Toronto Catholic District School Board.

In many failed residential closings, the practical fight is about the deposit and damages.

But in the right case, an order forcing completion may be requested.

What If the Seller Was Not Ready to Close?

A buyer’s default is not the only issue.

The seller must also be ready, willing and able to complete the transaction.

If the seller failed to perform important obligations, the seller may not be able to rely strictly on the buyer’s missed closing.

Examples may include:

• the seller could not provide required documents;

• the seller did not have authority to sell;

• title could not be transferred as required;

• the seller failed to provide closing documents;

• the seller was not ready to give vacant possession;

• the seller refused to close when required; or

• the seller breached the contract first.

In 1613185 Alberta Ltd v 837757 Alberta Ltd, the seller could not rely on the buyer’s failure to tender funds where the seller had not provided required documents under the agreement.

The practical point is this:

A seller usually has to be ready to close before blaming the buyer for not closing.

What If Time Is of the Essence?

Many real estate contracts say that time is of the essence.

That means deadlines matter.

If the closing date is essential, the buyer may be required to close on that date, not days or weeks later.

Missing the deadline can put the buyer in breach.

However, time-of-the-essence issues can become complicated if:

• the seller caused the delay;

• the seller was not ready to close;

• the parties agreed to extend;

• one party waived strict compliance;

• the contract required notice before termination; or

• both sides continued negotiating after the closing date.

The practical rule is simple:

Do not assume a closing deadline can be missed without consequences.

Does the Seller Have to Give a Warning Before Terminating?

Not always.

The answer depends on the contract.

Some agreements allow the seller to terminate after the buyer fails to close, without providing an additional warning or grace period.

In H&C S Holdings PTE Ltd v Pengrowth Energy Corporation, the Alberta Court of Appeal held that the seller was not required to give an additional warning where the agreement allowed termination after the buyer failed to close.

That said, some contracts may require notice, an election to terminate, or other steps.

The agreement must be reviewed carefully.

Can the Buyer Get the Deposit Back?

Sometimes, but not usually if the buyer simply cannot close after conditions are removed.

A buyer may have a stronger argument for return of the deposit if:

• a condition was not satisfied or waived;

• the seller breached the contract first;

• the seller could not provide title;

• the seller failed to provide required documents;

• the parties mutually agreed to release each other;

• the contract gives the buyer a termination right; or

• the deposit clause is unenforceable or does not apply.

But if the buyer removed conditions, the seller was ready to close, and the buyer simply could not provide funds, the deposit is usually in jeopardy.

The key question is not:

“Did the buyer have a good reason?”

The key question is:

“Did the contract excuse the buyer from closing?”

What If the Buyer’s Own Sale Falls Through?

Many buyers rely on the sale of their current home to fund the next purchase.

If the buyer’s own sale falls through after conditions are removed on the new purchase, the buyer may still be required to close.

Unless the purchase contract contains a condition allowing the buyer to cancel if their own sale does not complete, the risk may belong to the buyer.

This is why sale-of-buyer’s-property conditions matter.

Without that protection, the buyer may be exposed on two fronts:

• unable to complete the new purchase; and

• potentially liable to the seller for the failed closing.

What If the Buyer Changes Their Mind?

Changing your mind is usually not a legal reason to back out after conditions are removed.

A buyer may regret the purchase because:

• prices dropped;

• interest rates increased;

• inspection concerns were underestimated;

• renovation costs are higher than expected;

• the buyer found another property;

• family circumstances changed; or

• the buyer no longer wants to move.

Those reasons may be understandable.

But they do not necessarily release the buyer from the contract.

The practical point is simple:

Once the deal is firm, buyer’s remorse is usually not a defence.

What Should a Buyer Do If They Cannot Close?

If a buyer realizes they may not be able to close, they should act quickly.

Practical steps include:

• speak with the lender immediately;

• confirm exactly why funding is delayed or denied;

• ask whether the issue can be fixed before closing;

• speak with the real estate lawyer right away;

• review the purchase contract;

• confirm whether any conditions remain;

• determine whether an extension is realistic;

• communicate through proper channels;

• avoid making admissions without advice;

• consider whether other funding is available;

• ask whether the seller will agree to an amendment; and

• document all communications.

Waiting until possession day can make the problem much worse.

The practical rule is simple:

If closing is at risk, deal with it before the closing date whenever possible.

What Should a Seller Do If the Buyer Cannot Close?

A seller should also act carefully.

Before terminating or claiming the deposit, the seller should confirm:

• the buyer is actually in default;

• the seller has performed its own obligations;

• the seller is ready, willing and able to close;

• the contract allows termination or deposit forfeiture;

• required notices have been given;

• the deposit is being handled properly;

• resale efforts are reasonable;

• losses are documented; and

• communications do not accidentally waive rights.

The seller should preserve evidence of:

• the original agreement;

• condition removals;

• closing correspondence;

• lawyer communications;

• proof the seller was ready to close;

• expenses caused by the failed closing;

• resale listing efforts;

• resale offers; and

• the final resale price.

Can the Parties Negotiate a Resolution?

Yes.

Many failed closings are resolved through negotiation.

Possible outcomes include:

• a short closing extension;

• a larger deposit;

• an amendment to the purchase price;

• payment of the seller’s carrying costs;

• a mutual release;

• partial return of the deposit;

• forfeiture of the deposit with no further claim;

• settlement of damages after resale; or

• a structured closing arrangement.

A negotiated solution may be faster and less expensive than litigation.

But any agreement should be in writing.

Common Mistakes to Avoid

There are several common mistakes buyers make when they cannot close.

Do not ignore the problem. Silence can make the situation worse.

Do not assume financing failure cancels the deal. If the financing condition was removed, the buyer may still be bound.

Do not assume only the deposit is at risk. The seller may claim additional losses.

Do not rely on verbal extensions. Amendments should be documented in writing.

Do not wait until possession day. Funding problems should be addressed as early as possible.

Do not assume the seller must give a grace period. The contract may allow termination after default.

Do not assume the seller is automatically right. The seller’s own readiness to close still matters.

What This Means Practically

Three rules are worth remembering.

A firm deal is usually binding. Once conditions are removed, the buyer is generally expected to close.

The deposit is at risk. If the buyer cannot close, the seller may be able to keep the deposit and potentially claim more.

The contract controls the outcome. Conditions, default clauses, deposit wording, closing obligations and time-of-the-essence language all matter.

Speak With an Alberta Real Estate Lawyer

If a buyer cannot close on a house in Alberta, the next steps should be handled carefully.

A proper review should consider:

• the purchase contract;

• the status of all conditions;

• the deposit clause;

• the default provisions;

• whether time is of the essence;

• why the buyer cannot close;

• whether the seller was ready to close;

• whether an extension is possible;

• whether the seller can claim more than the deposit;

• whether the deposit can be returned; and

• whether litigation or settlement is likely.

This article provides general information about failed real estate closings in Alberta. The consequences of not closing are fact-specific and depend on the purchase contract, the parties’ conduct and the circumstances of the transaction.

Berjak Law

10080 Jasper Avenue, Suite 301
Edmonton, Alberta

780-879-0200