Executive Summary: Key Legal and Evidentiary Issues

• Validity of an agreement of purchase and sale (APS) for a pre-construction condominium where one purchaser later developed serious mental health and financial problems.
• Characterization of the purchasers’ failure to close and the vendor’s subsequent termination as acceptance of repudiation, leaving only damages and consequences of forfeiture in issue.
• Availability of equitable rescission in the absence of duress, undue influence, fraud, misrepresentation, mistake, illegality, or frustration at the time of contracting.
• Application of the two-part Redstone test for relief from forfeiture of a real estate deposit under s. 98 of the Courts of Justice Act.
• Assessment of unconscionability, including bargaining power, sophistication, arm’s length dealings, and the vendor’s lack of knowledge of the purchaser’s disability.
• Determination of reasonable partial indemnity costs in favour of the successful vendor, ultimately fixed by the court at $5,000, all-inclusive.

Facts of the case

In November 2021, the applicant, Syed Farhad Hussain, and another purchaser, Farrukh Shahzad, entered into an agreement of purchase and sale (APS) with Reid’s Heritage Homes Ltd. to buy a unit in a proposed condominium project in Kitchener, Ontario. Under the APS, they paid a deposit of $69,285, representing 15% of the total purchase price, with the balance payable on closing set for October 7, 2025. The purchasers were represented by a real estate agent, and Mr. Hussain was already an experienced purchaser of real estate for investment and income purposes. The parties were strangers dealing at arm’s length and there was no special or unequal relationship between the purchasers and the developer at the time of contracting. After the APS was signed, Mr. Hussain’s circumstances changed dramatically. He began to suffer from serious mental health issues, lost his job, struggled to maintain new employment, and experienced significant financial difficulties. These problems arose well after the contract was formed. As the closing date approached, Mr. Hussain realized he could not complete the purchase. On September 5, 2025, nearly four years after the APS was executed, he wrote to the respondent’s solicitors explaining his situation. He asked either to be released from the APS altogether or, alternatively, to have the closing date significantly postponed to allow him to recover and regain financial stability. Until receiving this letter, the respondent had no knowledge of any mental health difficulties affecting the applicant.

Failure to close and termination of the APS

Despite Mr. Hussain’s request, the respondent did not agree to unwind the deal or to grant a lengthy delay. The developer’s position was that the transaction should close in accordance with the APS. Leading up to the scheduled closing, the respondent took steps to remind the purchasers of their obligations, sending reminders in the months, weeks, and days before the October 7, 2025 closing date. On the closing date, the purchasers did not tender or complete the transaction. Their failure to close amounted to a repudiation of the APS. On October 17, 2025, the respondent treated the APS as terminated, expressly accepting the purchasers’ repudiation. It advised that the deposit previously paid was forfeited. At that point, the parties were released from their further future obligations under the APS, subject to the respondent’s right to claim damages for the purchasers’ breach. The forfeiture of the deposit became a central financial consequence of the failed transaction, and the developer anticipated additional losses related to the resale and carrying of the unit.

Relief sought by the applicant

Mr. Hussain commenced an application before the closing date seeking two principal forms of relief. First, he asked to be released from the APS and to be relieved of its obligations. Second, he sought relief from forfeiture of the deposit, effectively asking the court to order that the deposit be returned to him. By the time of the hearing, circumstances had evolved. The APS had already been terminated by the vendor after the purchasers’ failure to close. In his oral submissions, the applicant therefore focused primarily on the deposit, pressing the court to relieve him from forfeiture under the Courts of Justice Act. He argued that, in light of his undisputed serious mental health condition and resulting financial hardship, it would be unfair, inequitable, unconscionable, and disproportionate to allow the APS to stand in its financial effects and to permit the respondent to retain the deposit. The respondent opposed the application. It pointed out that the APS had already been terminated following repudiation, that co-purchaser Mr. Shahzad was not before the court, and that there was no legal or equitable basis to set aside the contract or relieve against forfeiture. The respondent also argued that its expected losses from the failed closing, in a deteriorating housing market, were likely to exceed the deposit, and that it had always acted in good faith without knowledge of any disability at the time of contracting.

Analysis of rescission and the validity of the contract

To the extent the application was framed as an attempt to rescind or undo the APS, the court considered whether any recognized equitable ground for rescission applied. Relying on established authority, the judge reaffirmed that rescission is available only where an agreement was entered into under inequitable circumstances such as duress, undue influence, illegality, fraud, misrepresentation, mistake, or frustration. On the facts, there was no evidence of any such vitiating factor. The purchasers had the benefit of a real estate agent, and the applicant was experienced in real estate investment. There was no suggestion of dishonesty or negligence on the part of the developer. Most importantly, the respondent was completely unaware of any mental health issues at the time the APS was signed and only learned of the applicant’s difficulties years later when he wrote shortly before closing. As a result, the court held that the APS was valid when made and that there was no basis for rescission. Once the purchasers failed to close and the respondent accepted that failure as repudiation, the APS came to an end in the ordinary way, leaving only questions of damages and the status of the deposit.

Relief from forfeiture and unconscionability

The heart of the case concerned relief from forfeiture under s. 98 of the Courts of Justice Act. The court applied the two-part test from Redstone Enterprises Ltd. v. Simple Technology Inc. where the forfeited sum is a deposit. First, it considered whether the deposit was disproportionate to the damages suffered or to be suffered by the vendor. The applicant argued that the respondent had not yet quantified its damages and relied on this lack of precise evidence to argue that retention of the deposit was excessive. The respondent put forward an affidavit from its president, pointing to several categories of loss: the potential difference between the original contract price and a lower resale price in a softened housing market, costs associated with re-listing and marketing the unit again, legal fees and disbursements connected with the aborted sale and subsequent efforts, and ongoing carrying costs such as taxes, insurance, utilities, maintenance, repairs, and property management. Based on his experience and market conditions, he reasonably expected these losses to exceed the deposit of $69,285. The court accepted these observations as reasonable, finding that the deposit was not out of all proportion to the likely damages. It also emphasized that, under Redstone, even if damages ultimately turned out to be lower than the deposit, or even nil, that alone would not oblige a court to grant relief from forfeiture. Deposits perform a special role: they are security to motivate a purchaser to close, and forfeiture typically does not hinge on a strict comparison with proven loss. On the second branch, the court turned to whether it would be unconscionable to allow the respondent to retain the deposit. Unconscionability, the judge stressed, is reserved for exceptional cases and is assessed through multiple factors, including inequality of bargaining power, whether the bargain was substantially unfair, the parties’ sophistication, whether negotiations were bona fide, the nature of the relationship, the gravity of the breach, and the parties’ conduct. Here, the purchasers had real estate advice; the applicant was experienced; and the parties were unknown to one another, negotiating a standard arm’s length transaction. The respondent had no knowledge of any mental health condition when the APS was made and conducted itself honestly and in good faith. The purchasers’ failure to close amounted to a fundamental breach, and the respondent had tried diligently to avoid that outcome by sending reminders and by attempting to work with the co-purchaser when the applicant became unresponsive. The deposit, at 15% of the purchase price, was within the normal range for such transactions and was smaller, proportionally, than deposits upheld in other cases. The court distinguished an authority relied on by the applicant, where a developer had actively misled a purchaser; no such misconduct existed here. Although the judge accepted that Mr. Hussain faced genuine and unfortunate personal and financial hardship, those circumstances arose after the contract was made and did not, in themselves, render the forfeiture of the deposit unconscionable. Consistent with other case law, personal misfortune and financing difficulties, without some inequity at the time of formation or oppressive conduct by the vendor, do not justify characterizing retention of a contractually agreed deposit as unconscionable.

Decision and amount awarded by the court

In the result, the court dismissed the application. It refused rescission because there were no vitiating factors at the time of contracting, and it declined to grant relief from forfeiture because the deposit was not disproportionate and it was not unconscionable for the respondent to retain it. Turning to costs, the respondent, as the successful party, sought partial indemnity costs of just over $8,000 based on its bill of costs. The applicant, who was self-represented, asked the court not to award costs or to reduce them significantly, citing his inability to pay. The court reaffirmed the standard principle that the successful party is ordinarily entitled to costs and found no reason to depart from that convention. However, recognizing that partial indemnity costs can be fixed at varying levels and that any award would be difficult for the applicant to satisfy, the judge exercised discretion to reduce the amount. Ultimately, the court ordered the applicant to pay the respondent partial indemnity costs fixed at $5,000, all-inclusive. This $5,000 is the only new monetary amount expressly awarded by the court in its judgment, with all other financial consequences (including forfeiture of the $69,285 deposit) arising from the termination of the APS and the contractual framework rather than from a fresh damages award.