When a home offered for sale burns down just before the real estate deal is closed, the purchaser is not entitled to a guarantee of the insurance amount the seller will receive as a condition of closing the sale, the Ontario Superior Court of Justice has determined.
The court case turned on an insurance clause contained in the Ontario Real Estate Association (OREA)’s standard form agreement of purchase and sale. That clause states:
“All buildings on the property and all other things being purchased shall be and remain until completion at the risk of seller. Pending completion [of the sale], seller shall hold all insurance policies, if any, and the proceeds thereof in trust for the parties as their interests may appear. [I]n the event of substantial damage, buyer may either terminate this [sales] agreement and have all monies paid returned without interest or deduction or else take the proceeds of any insurance and complete the purchase.”
However, the buyer may not insist on a guarantee from the property seller about the amount of insurance money to be received, the court ruled. To do so breaches the terms of the insurance clause in the purchasing agreement.
“The [buyer’s] requirement that the [seller] execute an assignment that guaranteed a minimum of insurance monies to be recovered went beyond the [purchase] agreement and amounted to a variation of its terms which the [seller] was not obliged to accept,” the Ontario Superior Court ruled in a decision released Tuesday.
The dispute
In McDonald v. Lowrie, Grant Allen McDonald made an offer to purchase a rural century home on a mature, two-acre lot from the estate of June Lowrie in Tillsonburg, Ont.
On May 2, 2024, McDonald, a contractor with expertise in century homes, entered into an agreement of purchase and sale to buy the residential property from the Lowrie estate for $775,000, including a deposit of $25,000. The deal was to close on Aug. 12, 2025.
But on May 22, 2024, a fire destroyed the home before the deal closed. The fire triggered the insurance clause in the OREA sales agreement.
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By mutual consent, the buyer and the seller extended the closing date so the seller could obtain quotes from the insurer regarding the loss.
Two weeks after the initial closing date, on Aug. 26, 2024, the Lowrie estate received and forwarded to McDonald the insurer’s offer to settle the insurance claim. To rebuild the home, the insurer’s contractor quoted $973,813.
The insurer said the Lowrie estate could either hire a contractor to rebuild the house, or take a cash settlement of $749,375.37, which was the rebuild quote after overhead, profit and taxes were subtracted from the total.
One day later, McDonald requested a one-month extension to consider the insurer’s proposal. The Lowrie estate agreed only to extend the closing date to Aug. 30, 2024, at 5:00 pm.
The next day, McDonald’s counsel “raised concern about the sufficiency of the insurer’s settlement offer and repeated his request for a one-month extension of the closing date,” the court decision reads.
“That same day, counsel [for the Lowrie estate] advised that the insurer had already given a definite commitment of the amount payable under the [insurance] policy and that the [estate] would not agree to any further extensions of the closing date.”
Closing day arrived. The Lowrie estate tendered the closing documents and included an assignment of the insurance proceeds by the estate to McDonald. However, McDonald did not register transfer of the property, responding instead with a revised assignment that said the buyer “would close the sale subject to the [seller’s] guarantee of the minimum insurance proceeds payable for the loss.”
When transfer was not executed before deadline, counsel for the Lowrie estate asserted McDonald had breached the terms of the sale agreement and refunded him the money he had put forward, minus the $25,000 deposit.
McDonald disputed he had breached the sales agreement by asking for the guarantee and sued the estate for his deposit money back.
The decision
The Superior Court ruled it was enough McDonald knew what the insurer’s settlement agreement would be, and he was not entitled to a guarantee from the seller regarding the amount.
McDonald “was not ready, willing, and able to close the sale,” the court found. “While he urges that he had substantially completed all that was required to close the sale, it remains the fact that he did not, as he sought the guaranteed insurance recovery as a condition of the closing.”
Feature image courtesy of iStock.com/Wasan Tita
