Buyers Can't Cancel Deals
The only way that real estate transactions will not be able to close is if there is a breakdown in the deal processing chain somewhere, namely:
The government land registration system closes (registrations are being processed electronically)
Lawyers cannot process deals (agreements are being signed electronically)
Lenders cannot or will not fund loans
Since real estate business were classified as an essential service in Ontario, the system is operating entirely electronically and remotely and there is nothing in the foreseeable future that will stop this. Real estate services were primarily classified as essential services so that firm deals could continue to be processed without interruption.
Force Majeure
However a lot has changed from when buyers signed deals a few weeks or months ago and the anxiety level is growing because of the uncertainty to what will happen next with Covid-I9, the economy in general and the real estate market. Clients are now wondering if these unforeseeable circumstances or “acts of God”, i.e. force majeure can free them from their contracts and cancel their obligation to complete the deal for a wide variety of reasons.
In Ontario, buyers and sellers are bound by the Ontario Real Estate Association’s (OREA) Agreement of Purchase and Sale contract which does not include force majeure provisions. This means that while the situation may have changed drastically from when the contract was originally signed, there is no ability to back out of the deal.
Ontario Courts have consistently found in favour of the sellers in cases where buyers back out of a signed deal. Damages can include forfeiting the deposit paid, having to pay the difference in price the parties agreed to and the subsequent sale price offered by a different buyer and other losses recognized as a direct result of not closing the deal.
So What Should You Do If You Are In This Situation?
Your best advice is to work with the seller in good faith; the seller may be open to pushing back the closing date if you need time to sell your home, cancelling the deal completely if they can no longer leave their home or they may be willing to finance all or part of the purchase. Really anything is possible, as long as both sides agree!
Financial institutions are also working and extending mortgage credit so talk to a mortgage broker or your financial institution to see how they can help too. Right now you just need to weather the storm.
Since a lot can change between the time a real estate transaction is signed and closed, expect new clauses to be introduced into real estate contracts to protect both sides in crises situations like this.