Relief from Forfeiture in Real Estate: Naeem v. Bowmanville Lakebreeze

When Courts Intervene to Prevent Unconscionable Forfeiture


Overview

This case study examines the Ontario Court of Appeal’s decision in Naeem v. Bowmanville Lakebreeze West Village Ltd., which addresses the rare but significant remedy of relief from forfeiture in real estate transactions. The case highlights the legal principles and exceptional circumstances under which a buyer may recover a deposit after failing to close on a property purchase.

Key Discussion Points

1. Background of the Dispute

  • The purchaser paid a substantial deposit on a new-build home but was unable to close the transaction after the builder exercised contractual rights to delay the closing multiple times.

  • Upon failure to close, the builder claimed breach and retained the deposit.

  • The purchaser sought the return of the deposit, arguing that its forfeiture was disproportionate and unconscionable.

2. Legal Framework and Tests

  • Ontario law generally enforces forfeiture of deposits when buyers breach an agreement of purchase and sale, viewing the deposit as compensation for the seller’s lost opportunity and as a deterrent against breach

  • Relief from forfeiture is an equitable remedy under Section 98 of the Courts of Justice Act, but is granted only in exceptional cases

  • The court applies a two-part test:

    1. Is the forfeited deposit out of all proportion to the damages suffered by the seller?

    2. Would it be unconscionable for the seller to retain the deposit?

3. Court’s Findings

  • The Court of Appeal upheld the motion judge’s decision to grant relief from forfeiture, allowing the buyer to recover the deposit3.

  • The court found that retaining the entire deposit would be unconscionable given the circumstances, particularly where the deposit was disproportionate to the seller’s actual damages.

  • Factors considered included the parties’ bargaining power, fairness of the bargain, sophistication, and conduct throughout the transaction

4. Alignment with Precedent

  • The decision aligns with previous case law, such as Redstone Enterprises Ltd. v. Simple Technology Inc., emphasizing that relief from forfeiture is an exception, not the rule, and is reserved for cases where equity demands it

Client Benefits

  • Equitable Remedy: Buyers may recover deposits in rare cases where forfeiture would be unconscionable and disproportionate to the seller’s loss.

  • Judicial Oversight: The decision reinforces the court’s willingness to intervene to ensure fairness and prevent unjust enrichment.

  • Guidance for Future Transactions: Both buyers and sellers gain clarity on the importance of proportionality and fairness in deposit forfeiture scenarios.

Next Steps for Legal Professionals and Clients

  1. Carefully assess the proportionality of deposits relative to potential damages in real estate agreements.

  2. Ensure clear documentation of all communications, delays, and amendments in transactions.

  3. Advise clients about the high threshold for relief from forfeiture and the factors courts will consider.

  4. Monitor evolving case law for further developments in equitable remedies in real estate law.

Conclusion

Naeem v. Bowmanville Lakebreeze West Village Ltd. demonstrates that while forfeiture of deposits remains the norm in Ontario real estate transactions, courts retain the discretion to grant relief in exceptional cases. This case serves as a reminder of the importance of fairness, proportionality, and judicial oversight in contractual remedies, and provides valuable guidance for parties navigating real estate agreements in Ontario

If you have further questions or concerns, please contact Carson Law and one of our lawyers would be happy to help.
905.336.8940 x 1000
info@carsonlaw.ca