When it comes to real estate transactions, the dream of homeownership or investment often meets the reality of complex contracts and legal obligations. In Alberta, many buyers and sellers wonder if they can back out of a deal once an offer has been made or signed. It’s important to understand the legal implications before making any hasty decisions.
An Agreement of Purchase and Sale is a binding contract that outlines the specific terms of a property transaction. In Alberta, once this agreement is signed by both parties, it holds legal weight. Buyers typically provide a deposit (usually between one and three per cent of the purchase price) to show their commitment to the deal. If a buyer decides to back out after signing, the deposit is forfeited and this can have significant financial consequences.
When can a buyer or seller legally back out?
“While real estate transactions are generally binding, there are conditions in the agreement that can allow a party to cancel without penalties. Buyers, for example, are often protected by conditions such as financing, home inspections and securing title," says Fisnik Pllana, real estate expert from Forum Law.
One key protection for buyers is the cooling-off period for condominium purchases. According to the Condominium Property Act, Alberta buyers of newly built condos have 10 days to reconsider their purchase without facing financial penalties. This gives buyers the chance to review their decision carefully.
If a seller fails to meet their contractual obligations, such as neglecting repairs or withholding crucial information about the property, buyers may also have the right to cancel the agreement. For example, if hidden defects are discovered that could result in costly repairs, the buyer can terminate the contract.
On the other hand, sellers can also back out of a deal under certain circumstances. For example, if the buyer fails to meet conditions like securing financing or completing inspections, the seller may be able to cancel the agreement. “Buyers must ensure that they meet all conditions set out in the contract, or they risk giving the seller grounds to walk away,” Pllana says.
Book your consultation online today!
"In cases where both parties agree, a transaction can be cancelled mutually. However, it’s essential to document the agreement clearly and address all financial aspects, such as deposit returns," Pllana adds. "We always recommend consulting with a legal professional before moving forward with any changes to the contract."
The financial consequences of backing out can be steep. Buyers who choose to walk away could lose their deposit and may also be liable for any loss in the property's resale value. For example, if the buyer backs out of a $1-million sale and the seller has to relist the property for $800,000, the buyer could be responsible for the $200,000 difference, as well as any legal fees incurred.
“In some cases, the costs of backing out go far beyond just the deposit," Pllana says. "Buyers and sellers need to be aware of the financial risks before deciding to walk away from a deal.”
To avoid complications, it’s crucial to work with a real estate lawyer who can help you understand the terms of your Agreement of Purchase and Sale and guide you through the process. “Real estate laws are intricate and even minor missteps can result in costly consequences,” Pllana adds. “Seeking legal advice early in the process can save you significant headaches down the road.”
Whether you're buying or selling, navigating real estate transactions requires careful planning. By understanding the terms of your agreement, working with professionals and knowing when you can or cannot back out, you can make informed decisions and avoid costly mistakes.
Navigate your next real estate sale or purchase with confidence. Find more information online at forumlaw.ca or by calling (587) 557-5723.