This case illustrates the dangers of entering into a second real estate deal while the closing on the first one is contentious. In short, someone is going to pay dearly.
In this case the vendor’s first sale transaction didn’t close, and subsequently the parties argued over whose fault it was. If it was the vendor’s fault, the first purchaser arguably ought to get the property, however, if it was the purchaser’s fault (ie: failed to tender), then the vendor would be free to resell the property, and the property would transfer to next purchaser.
The problem is, however, that until a court rules on who caused the first deal to fall through, nobody knows the answer. The parties are best to bring a motion for judicial review, and get a ruling. But the vendor in this case didn’t wait for an answer, and instead, resold the property for $130,000.00 more to a second purchaser.
To prevent the second sale from being completed, first purchaser brought a motion the day before the closing on the second sale, to request the court to issue a certificate of pending litigation, which is a document that alerts the world that there is a ownership dispute over the subject property: the net effect is to stall any future transactions involving that property because the ownership of the property is unresolved and under dispute.
In this case, the court granted the requested certificate the day before the second deal was to close. With this certificate now in place, a very high-risk situation has been created for the vendor, and to some extent, the first purchaser.
If the court eventually concludes that vendor was at fault for the first deal not closing, then arguably the first purchasers get the house, and the vendor is left with the burden of having to compensate the second purchaser who lost the house. Conversely, if the court eventually concludes that the first purchaser’s conduct frustrated the first closing, then the first purchaser, by inappropriately encumbering the property with a certificate, is now potentially exposed to damages sustained not only to the vendor (ie: lost profit on missed higher resale), but also possible damages sustained by the second purchaser (especially if they had to move on and pay more for another house, etc).
The interesting take-away from this case is that the court was not influenced by the fact that the issuance of the certificate would generate a lot of problems, all of which could be avoided if the certificate wasn’t granted. But rightly so, the court concluded that protecting the vendor from the mess he created was not a valid consideration, especially since the vendor knew all along that the first purchaser was challenging the initial failed closing. The court addressed this issue as follows:
“[46] The …(Vendors’)… concerns of prejudice pertaining to the inability to complete the Second Agreement of Purchase and Sale derive from the …(Vendor’s)… decision to enter into the Second Agreement of Purchase and Sale at a time when the …(First Purchasers’) … were claiming an interest in the Subject Property. The …(Vendors) … made a decision to enter into a Second Agreement of Purchase and Sale on December 22, 2021 when the …(First Purchasers)… were actively claiming continued rights and entitlements in the First Agreement of Purchase and Sale.”
Rahbar v. Parvizi, 2022 ONSC 1104
https://www.canlii.org/en/on/onsc/doc/2022/2022onsc1104/2022onsc1104.html