What are the Damages for a Failed Real Estate Transaction?
When a contract for the sale of land fails to close because of the default of one of the parties an award of damages is made to put the innocent party in the same position he or she would have occupied had the contract been completed. This basis for calculating damages is qualified by the requirement that: (1) the damages must be reasonably foreseeable; (2) they must be unavoidable so that the innocent party had an obligation to take reasonable steps to avoid the loss, or to mitigate; and (3) they must be proved with some certainty.
The usual measure of damages at common law for the failure to complete a purchase of land is the difference between the contract price and its market value. That difference is the benefit of the bargain to the vendor. Subject to the duty of the vendor to mitigate, the proper date for taking the market value should be the time fixed for closing. In most abortive real estate transactions, the breach occurs on or about the closing date and if the innocent party treats the breach as ending the contract; that is, it accepts the repudiation, the damages, if any, will be assessed on that date. If there is an anticipatory breach, which is a repudiation before closing, and the anticipatory breach is treated as ending the contract, then the date set for closing is still used as the date to measure damages, subject to the principle of mitigation.
The onus is on the defendant to prove a failure to mitigate, but this onus does not relieve the plaintiff from proving the elements of the damages claim. The proper course is for the plaintiff to adduce evidence of the contract price and the market value or resale price relied upon to establish the loss of value. In assessing the innocent party’s efforts at mitigation, the courts are tolerant, and the innocent party need only be reasonable, not perfect in deciding what is a reasonable way to mitigate the effects of a breach of contract.