It’s mucky out there, folks.

And I don’t mean the weather.

I mean the real estate world, and it’s across the board, as just about everything you can think of in this business and this market has become more difficult than before.

I swear, if I had to open a door with a damn key, it’s going to be harder than it was last year or the year before.

Case in point: every single closing is made difficult these days.

However, it’s not for the reasons you might think…

Let me pretend to be an old curmudgeon, just for a moment.  Spare me the obvious, “Gee, David it won’t be hard to pretend,” long enough for me to say that it’s beyond coincidence at this point that every young condo buyer out there right now believes that he or she is entitled to a brand-new, mint-condition unit, completely different from the one they purchased!

Ah, youth!  It’s wasted on the young…

Imagine selling a condo in a 23-year-old building, whereby the buyer of the unit visits twice, submits an offer, provides a deposit, waives his or her condition, and then proceeds to closing, only to then – days before closing, submit a long list of “deficiencies” to be remedied.

These “deficiencies” are more like “imperfections.”  They’re items that you or I could fix if we wanted to, but a 25-year-old in today’s society can’t change a light bulb.

No, seriously.  I’m not being metaphorical.  One buyer agent asked us to change a light bulb that was burned out, in a condo that had been empty for six months, becasue his client didn’t know how.

This was on his list of “deficiencies” to be remedied before closing.

In any event, I could write a whole post on this (I think I’ll add it to the queue), but the point is that every time one of these agents and/or buyers threatens not to close on the purchase unless the 23-year-old bathroom fan that is “a bit too noisy” is replaced, I tell my seller-clients, “Relax, they have to close.”

The only valid reason that a buyer can refuse to close on a purchase is if there’s a problem with the title.

This sounds crummy to say, but if the seller replaced the WOLF range with a Samsung stove and wheeled out the Sub-Zero fridge and simply left a red Coleman cooler in its place, the buyer still must close the purchase.  The onus is on the buyer to sue after the fact.

Buyers know this.  Or at least, buyers are told this by their lawyers when the buyers are puffing out their chests and threatening not to close because all the handles on the kitchen cabinets are “a bit jiggly.”

But what happens when a tenant refuses to close?

In fact, let’s take this a step further.  What happens when a tenant refuses to close and then doesn’t?

What does the landlord do when the tenant simply changes his or her mind, or says, “I’m not moving in?”

Here’s a story for which the ink is dry, but barely…

I have long-time clients who we’ll call Melissa & Henry.  My daughter is sitting next to me and she just chose those names…

Over the year, I have assisted Melissa and Henry with the purchase of several investment properties as well as the purchase and sale of some of their family-owned properties.

One such property became vacant and they decided to hang on to it long-term, and thus they needed help finding a tenant.

The property wasn’t quite what I would call “luxury,” although we wrote about the concept of luxury two weeks ago and, suffice it to say, the definition is a bit of a moving target.

Let’s just say that at $7,000 per month, this was a stellar condo!

It’s one that Melissa and Henry decided to keep, long-term, because they could see themselves moving into it down the line when they retire.

We listed the condo for lease on MLS and had immediate interest.

I was surprised by the number of showings, since it’s a high(er) end property and you wouldn’t think there would be such demand for it, but, alas, there was.

We received an offer, which we turned down, from a guy who was a “pretty big deal,” as described by his agent, who was building a house in Forest Hill and needed a place to “slum it” for a while in between.  They offered us $5,500 per month, which is something I have never seen before in two decades in this business, but if not for the price, we still wouldn’t have leased to this guy.

We had other interest, but it wasn’t until we received an offer for $7,000 per month from a nice family who were relocating from the United States that we actually pulled the trigger.

They wrote a “letter of introduction” which was well received, their credit was great, and their income was substantial.

The lease start date was two months out, and since the condo was vacant, it wasn’t ideal.  But they were perfect tenants so we thought they’d be worth the wait.

The closing date was scheduled for August 1st.

I’m not really keeping you in suspense, right?  You read the title of today’s blog post?

Okay, good.

The tenants’ agent, whom we’ll call “Brad,” emailed me before closing to say that his tenants would, unfortunately, not be “proceeding with the lease.”

I said “before closing.”

How long before closing?

About twelve hours!

Brad emailed me on the evening of July 31st!

Thanks for the heads up, Brad!

I called him the next morning, which was August 1st, the day the deal was scheduled to close, and asked him, “What is happening?”

He talked a lot, and the more he talked, the more it felt like bullshit.

The story was that the tenants were no longer moving to Canada for work, but I’m not sold.  There was more to it.

In any event, it doesn’t matter what actually happened.  It has no effect on the fact that they were now in breach of their contract.

Here’s where it gets a bit sticky, so please follow…

The tenants had provided first-and-last month’s rent, so they weren’t guilty of “non-payment of rent” at this point, but rather they were telling us, in writing, that they no longer planned to follow through with their contract.  They were not intersted, nor did they plan on meeting us to pick up the unit keys, provide post-dated rent cheques, and transfer the utilities into their names.  So while there’s an argument to be made that they weren’t in breach yet, because we had their two months’ deposit, the fact that they notified us put them in breach.

I told Brad, “I’ll speak to my landlord clients and see if they’d be willing to release your tenants from the contract.”

He said, “Oh, thanks, that would be amazing!  And the deposit returned?”

I paused and said, “Um, no, Brad.  The deposit is ours.  We’re keeping that.  I mean, I’ll see if my clients would be willing to release your tenants from the contract and any further liability in exchange for the deposit.”

Brad stuttered and said, “Wait, what?  You want to keep the $14,000?”

I answered, “Yes, Brad.  That’s what deposits are for.”

Then I further added, “Your clients are contractually obligated to pay us another $7,000 per month for ten months.  They’re legally on the hook for $70,000.  Don’t you think they’ll pay $14,000 to avoid being sued for $70,000?”

Brad said, “I’ll see what I can do.”

I called Melissa and Henry to let them know what was happening, and Melissa said, “David, we trust you.  Do whatever you think.  Whatever you want!”

I was way ahead of them on that, of course.

In a situation like this, hesitation comes at a cost.  I went on the offensive as soon as Brad called me, and I wasn’t going to back down.

Brad called me the next day and said, “I think I can get them to agree to release one month’s rent.  It’ll be $7,000.”

Without hesitation, I told Brad, “Not happening.”

He sighed and sounded really defeated.

He told me, “I’ve never had this happen before.  I’m just feeling my way through it.”

I could sympathize, but then again, I could also use this to my advantage.

I drove home my point and said, “Brad, my clients are exceptionally litigious and are going to sue your clients for the full $84,000 owed to them.  I need you to emphasize this when you speak to them next.”

The following day, Brad sent me a Mutual Release signed by his tenant-clients, who volunteered to release $7,000 to Melissa and Henry and return $7,000 to the tenants.  In return, Melissa and Henry would release the tenants from all future liablity.”

I called Brad and said, “Not happening.  They won’t settle for less than the full $14,000.”

That evening, Brad called me and said, “Okay, they’ve agreed.  Sign the Mutual Release back to us, and I’ll get them to sign it.”

It’s important to note at this juncture that when you take an offer, whether it’s a Mutual Release, an Amendment, or an Agreement of Purchase & Sale, and you sign it back to the other party, then the original offer is null and void.

By signing the Mutual Release back to the tenants, seeking $14,000, we were making their original offer of $7,000 void.

Why this is important is because of what happened next!

The dialogue with Brad went silent.

I didn’t hear from Brad for two days, and our Mutual Release offer expired.

I finally got Brad on the phone, and he said, “David, I don’t know what to say.  My client changed his mind.”

He explained that his client was “researching” online and reading articles and blogs from tenant advocacy groups, seeing as his client was located in the United States, where the laws are different.

Brad told me, “My client was shocked at how lax our rules are here in Ontario, and well, he thinks he can get away with it.”

Brad added, “He’s also just a little bit pissed that his offer to hand over $7,000 was rebuffed.”

I went on the offensive and told Brad, “But he would be paying us with our own money.”

Brad asked what that meant, and I said, “We have $14,000 being held in trust.  It’s our brokerage’s trust account.  Your client doesn’t ‘have’ that money anymore.  So offering us $7,000 is actually asking us for the other $7,000 back.”

“I’m just conveying the message,” Brad told me.  “My client thinks he’s going to get the whole $14,000 back.”

I asked Brad, “How?  And when?”

Brad said, “I don’t know, but the money is his, right?”

I told Brad, “I’m the Broker of Record.  I sign the cheques personally.  The only way that money is released is via court order or a signed Mutual Release.”

Brad was silent.

“I didn’t know that,” he said.  “My client seemed to think that when the deal falls through, the deposit is returned, and then you’re basically asking for $7,000, er, um, $14,000, in exchange for not suing him.”

I don’t fault Brad.  He said he had never been through this before.

He made that abundantly clear when he said, “Hey, how come you re-listed the unit on MLS for lease?  If you’re still holding the deposit, and if we haven’t signed a Mutual Release, then how can you do that?”

Brad was asking for a legal lesson at this point, so I explained, “When we get to court, Brad, the judge will ask us if we attempted to ‘mitigate’ the damages, and we’ll show that we have.  We’ll show that, as soon as your client breached his contract, we re-listed the unit on MLS to ensure we didn’t experience further financial damage.”

Brad laughed as if to say, “Okay, you win,” and said, “David, I don’t know what’s going to happen from here.  Maybe nothing.”

And nothing did happen, for about five days.

I called and emailed Brad and he said, “I haven’t heard from my client, but his position hasn’t changed.”

So what did we do next?

Well, there’s another trick in the bag which I don’t think is all that effective, having been on the receiving end of these before, but we decided to draft the good ‘ole, “letter from a lawyer,” which isn’t worth the paper it’s printed on, but often scares the recipient.

Our in-house legal counsel drafted a four-page letter, detailing our position – that we were owed $84,000 and that we would seek this amount plus damages, and cited a few legal precedents to boot.

This letter was sent to the non-cooperative tenant, his real estate agent, his office manager, and his Broker of Record.

Letters are pieces of paper, and nothing more.

And yet, I’m happy to say that, at least in this case, it worked.

Three days after the letter was sent, Brad emailed me a Mutual Release, signed by his tenant-clients, offering to release $10,500 of the $14,000 deposit, in exchange for Melissa and Henry waiving the right to further litigation.”

Melissa and Henry accepted.

“David, we probably would have just rolled over,” Melissa told me.  “Shit happens, and when we heard they weren’t taking possession, Henry and I were like, ‘Oh well.’  But you got us money!  This is awesome!”

But Melissa and Henry deserved it, in my opinion.

The tenants waited two months to tell us they weren’t taking possession, and we could have tried to lease the unit to somebody else in that time.  Now we had to go find another tenant while the property would sit empty, and who was responsible for their losses?

Those tenants.

The ones who legally contracted to lease the condo for twelve months and $84,000.

For all the tenant advocates who are reading this (probably years after publication since the title will be an SEO darling!), expalain to me why Melissa and Henry should have to eat the cost of the vacancy here, and for the love of God, do better than, “They’re rich, they can afford it,” or my favourite, “Houses are for living, not making money from!”

A pact is a pact.

A contract is a contract.

Tenants shouldn’t just be allowed to walk away, and while most could if they took this the distance (ie. through the Landlord & Tenant Board), that doesn’t make it just.

Maybe hardball won’t work in every case like this, but it sure worked for Melissa and Henry.

Now if we can find somebody to rent the condo immediately, then we’re really coming out ahead…