The Price of Breach: Calculating Damages for Failed Land Sales
Can a property developer recover lost profits when the landowner breaches an agreement to sell the land? In The Rosseau Group Inc. v. 2528061 Ontario Inc., 2023 ONCA 814, the Rosseau Group sued 2528061 Ontario Inc. for breach of an agreement to sell development lands. At trial, the trial judge awarded over $11 million in damages to Rosseau Group for lost expected profit. The defendant appealed. Among other things, it argued that the trial judge should have assessed only the normal measure of damages — the difference between the purchase price and the market value of the property on the date the sale was to be completed.
Key Issue on Appeal
While there were several grounds for appeal, the key issue on damages was whether special circumstances justified the trial judge departing from the normal measure of damages because the sale involved land intended for development.
The Decision on Appeal
The Court of Appeal found that the trial judge erred by measuring damages according to the profit the Rosseau Group lost.
According to the court, it is not enough that a plaintiff establishes that the parties contemplated future development and that the lost opportunity was foreseeable. The plaintiff must also show that the normal measure of damages would not address the type of loss. The trial judge did not find that the Rousseau Group had established this — and there was not sufficient evidence for her to do so.
Assessing market value for the purpose of damages can take into account the market’s perspective of the value of the current and potential future uses and opportunities available to the land’s owner, including development. There was no suggestion at trial that using a market value calculation would miss or exclude the development value of the lands. In fact, the agreement of purchase and sale attributed value to the property according to its potential development; the price was $350,000 per developable acre for residential development. In addition, the defendant knew the value of the property had increased by the closing date.
The court ordered a new hearing to assess damages according to the normal measure.
Rikin Morzaria is a Toronto civil litigation lawyer at Kinara Law. If you’d like assistance with a legal matter, feel free to reach out to him for a free initial consultation.
