Lost Development Profits in Failed Real Estate Deals: ONCA Clarifies Damages and Mitigation

When can a party recover lost-profit damages following a failed commercial real estate transaction?

In Block Developments Inc. v. Brewers Retail Inc., 2026 ONCA 431, the Ontario Court of Appeal provides important guidance on when lost-profit damages may be awarded following a failed commercial real estate transaction and on the evidentiary burden required to establish a mitigation defence.

Why It Matters

The Court upheld an award of lost development profits arising from the loss of a specific and well-defined development opportunity that was known to both parties at the time of contracting.

The decision highlights that sometimes lost profits may be awarded as the true measure of damages where they best capture the plaintiff’s loss, notwithstanding the traditional market-value measure of damages . Transacting parties about to terminate an agreement of purchase and sale (APS) or have their APS terminated should bear this in mind.

The Court also confirmed that defendants advancing a mitigation defence cannot simply point to post-breach acquisitions. They must establish that those opportunities arose because of the breach and would have reduced the plaintiff's loss. The decision should therefore inform how parties frame their cases and elicit evidence in support of their damages claims.

Background of the Dispute

Block Developments entered into agreements to purchase Toronto properties from Brewers Retail for condominium redevelopment. Two of the properties involved leaseback arrangements that required the parties to negotiate long-term leases so that Brewers could continue operating retail locations after closing.

While those lease negotiations were ongoing, Brewers decided to sell the properties instead to a third party who was a friend of a Brewers executive. Brewers ultimately terminated the agreements with Block and later sold the properties to the third party at a slightly lower price.

Block brought an action against Brewers, alleging that Brewers’ conduct caused it to lose the opportunity to develop the properties. Brewers argued that Block suffered little or no loss because the properties were ultimately sold to the third party for slightly less than the price Block had agreed to pay under its (terminated) deal.

Both parties elicited expert evidence on the quantum of lost profits, should that approach be accepted by the Court. Block succeeded at trial and was awarded approximately $15.5 million in damages for lost profits.

The Legal Issues

The appeal raised two key issues.

Can lost development profits be ordered as damages in this case?

The primary issue was whether the trial judge erred by awarding damages based on Block’s lost development profits rather than the traditional measure generally applied when a vendor breaches an agreement to sell real property: the difference between the contract price and the property’s market value on the closing date.

While a subsequent sale may be evidence of market value, it is not necessarily determinative of it. Brewers argued that the trial judge improperly departed from the traditional market-value measure of damages by awarding lost development profits.

The Court upheld the lost-profit award of nearly $15.5 million in damages because Block lost more than the opportunity to purchase land. In the Court's view, the damages methodology accepted at trial provided a reliable way of valuing that specific development opportunity as of the date of breach.

The Court emphasized that the properties had been marketed by Brewers as “excellent development opportunities” and that both parties entered the transactions with a shared understanding about how the properties were going to be used. The contemplated redevelopment was not vague or speculative. Both parties specifically envisioned a mixed-use condominium development and the agreements themselves required Brewers to lease space back in the completed redevelopment.

The Court repeatedly returned to the fact that the lost opportunity had “a significant degree of specificity known to the parties at the time of contracting.” This was not a situation where a purchaser later decided it might someday redevelop a property. Rather, redevelopment was the very premise of the transaction. This appears to be one of the key reasons the Court was willing to uphold damages based on development profits. The Court viewed Block as having lost a specific commercial opportunity that both parties understood and contemplated from the outset.

The Court also held that the damages analysis accepted by the trial judge did not suffer from the weaknesses identified in the case of The Rosseau Group Inc. v. 2528061 Ontario Inc., 2023 ONCA 814. In Rosseau Group, damages were calculated by simply estimating the profits that would have been earned years later if a hypothetical development had successfully proceeded.

That approach failed to account for the risks, contingencies, and timing associated with redevelopment, all of which were accounted for by the parties in their expert evidence in this case. Their analysis accounted for the time required to complete the projects, the risks associated with achieving the projected profits, and the time value of money.

Did the trial judge err by concluding that Block’s damages should not be reduced due to mitigation?

Brewers’ mitigation argument arose from the fact that, following the breach, some of Block’s affiliate entities acquired six other development properties. At trial, Brewers argued that those acquisitions had fully mitigated Block’s damages, which the trial judge rejected.

On appeal, Brewers changed tunes: it argued that, by failing to acquire those properties from its affiliates, Block itself failed to pursue subsequent development opportunities and therefore failed to mitigate.

The Court rejected that argument for two reasons:

• it held that the parties at trial had treated Block and its affiliates as one for the purposes of the mitigation analysis, with purchases by affiliates treated as purchases by Block. As a result, the trial judge committed no error.
• it found that Brewers failed to establish a causal connection between its breach and the alleged mitigation opportunities.

This was not a situation where the plaintiff strategically chose not to pursue replacement opportunities after the breach, even though it had some capacity to do so. Here, the trial judge found that Block and its affiliates would have acquired the post-breach properties regardless of whether the Brewers transactions closed.

The Court therefore held that those acquisitions were independent transactions unrelated to the breach and could not constitute mitigation. Accordingly, Brewers failed to establish that Block's losses should be reduced on account of those purchases. Overall, the duty to mitigate was met by the acts of the affiliates as argued at trial.

What This Means for Real Estate Practice

Purchasers and Developers

The decision demonstrates that lost-profit damages may be available where a purchaser can prove the loss of a specific development opportunity. However, such claims require a robust evidentiary foundation.

Purchasers seeking damages beyond the traditional market-value measure should be prepared to lead substantial evidence regarding the proposed development, anticipated profitability, and the causal connection between the breach and the lost opportunity.

The more clearly defined and contemplated the proposed development is at the time of contracting, the stronger the argument that damages should reflect the value of the lost opportunity rather than merely the underlying land.

Vendors

For vendors, the decision highlights the potential exposure that can arise when a failed transaction involves a development property. Damages may not be confined to the difference between the purchase price and the property’s market value. Rather, in appropriate circumstances, they may extend to profits the purchaser expected to earn from the development itself.

Vendors should be mindful that leading evidence on the purchaser’s alleged lost profits may be viewed as accepting that model of damages, while failing to do so may leave the court without competing evidence on quantum should lost profits be ordered.