The Duty to Mitigate Damages: What to Do When a Real Estate Deal Falls Through

When a purchaser walks away from a new home in a falling market, the builder may face a significant loss on resale. But that loss does not automatically become the purchaser’s responsibility. A builder that delays remarketing the property or cannot show what it did to secure the best available price may undermine its own damages claim, as the Ontario Court of Appeal’s recent decision in Eyelet Investment Corp. v. Zhou, 2026 ONCA 453, illustrates.

Delaying a Resale Can Limit Recoverable Damages

Ms. Zhou agreed to purchase a home from Treasure Hill Homes (the “Builder”) for approximately $1.68 million and paid a $127,500 deposit. Two weeks before closing, she advised that she would not complete the transaction.

The Builder was left with the property in a declining market. Rather than immediately listing it on the Multiple Listing Service (MLS), the Builder prioritized selling other homes in the development because it did not want to flood the market with competing inventory. The property ultimately sold approximately six months later for $1.3 million.

The Builder sought damages arising from the failed transaction, including the difference between the original purchase price and the eventual resale price. Zhou successfully argued that the Builder failed to mitigate its losses.

A Breach Does Not Give the Vendor a Blank Cheque

A purchaser who unjustifiably refuses to close may be liable for the vendor’s resulting losses, typically measured as the difference between the contract price and the value of the property on the scheduled closing date. The vendor must nonetheless mitigate its damages. In a failed real estate transaction, that means making reasonable efforts to obtain the highest available price within a reasonable period after the intended closing date.

Where the vendor does so and resells within that period, the resale price may itself supply the measure of damages. Where it does not, the closing date governs and the resale price is evidence of value rather than the measure.

In Eyelet, the issue was not simply that the Builder waited six months to sell. The Builder could not demonstrate that its approach during those six months was reasonable. The property was not immediately placed on the MLS, there was limited evidence of the alternative marketing undertaken and the vendor had not adequately documented the offers received before the eventual resale.

Without that evidence, the Builder could not establish that the eventual resale loss was attributable to Zhou’s breach rather than its own decisions while the market continued to decline. The Builder retained Zhou’s $127,500 deposit but recovered no additional damages.

Builders Should Be Prepared to Justify Their Resale Strategy

Builders may have legitimate reasons for managing inventory differently, particularly within a larger development. However, those business decisions may later be scrutinized in a damages claim.

Builders should therefore begin resale efforts promptly and maintain a clear record of what follows. Marketing efforts, offers received, broker communications and the reasons for rejecting an offer or delaying broader market exposure should be documented. If a builder chooses not to immediately list the property publicly, it should be prepared to explain why its alternative marketing strategy was reasonable in the circumstances.

The Bottom Line

A defaulting purchaser may be liable for the loss on a failed real estate transaction, but the vendor cannot simply wait while the market declines and expect to recover the eventual shortfall. For builders and developers, mitigation must begin as soon as the deal falls apart. Prompt resale efforts and a documented, commercially reasonable marketing strategy can be critical to preserving a damages claim.

HOW WE CAN HELP

RAR Litigation advises homebuilders and developers on disputes arising from failed real estate transactions, including purchaser defaults, deposit claims and damages following a failed closing. We can help assess mitigation obligations, preserve evidence of resale efforts and pursue or defend claims arising from a breached agreement of purchase and sale.

Contact us to discuss how we can assist.