Closing day arrives and the money does not. Perhaps the buyer’s lender pulled back after appraising the home for less than the purchase price. Perhaps the seller decided that, in a stronger market, the deal no longer looks attractive. Either way, you may have movers booked, a second purchase depending on this one, and a lawyer’s voice on the phone saying that the transaction will not be completing today.
The Brampton housing market has plenty of chain transactions, in which one family’s sale funds its next purchase and a single failure spreads along the line. When a deal collapses, the first hours matter. Statements made in anger can be taken as a refusal to perform, and a rushed resale can complicate a later claim.
The discussion below is general information about Ontario law and should not be taken as legal advice for your transaction. Agreements vary, and a small difference in wording can change the outcome.
First, Is the Agreement Actually Binding?
Before talking about breach, ask whether a firm contract existed. Ontario’s Statute of Frauds requires a contract for the sale of land to be evidenced in writing and signed by the party being held to it. Most residential deals use a standard form, with schedules containing conditions and special terms.
Conditions deserve careful reading. A financing or inspection condition gives a party a limited window to satisfy or waive it. If the condition is not waived on time and in the required way, the agreement commonly becomes void and the deposit is returned. Once conditions are waived, the deal is firm, and failing to obtain a mortgage afterward is generally the buyer’s problem.
Cooling-off rights are narrower than people assume. A buyer of a pre-construction condominium from a developer generally has a 10-day period to rescind under the Condominium Act, 1998. There is no general right to change your mind on a resale house, a townhouse, or a resale condominium once the deal is firm. If you signed last night and regret it this morning, get advice right away, but do not assume you have an exit.
Why Deals Collapse
The legal analysis depends heavily on the reason the transaction fell apart:
- Buyer financing failure. The lender declines or reduces the mortgage, often because of the appraisal or a change in the buyer’s income.
- Falling market. A buyer who has waived conditions now believes the home is worth much less than the agreed price.
- Rising market. A seller regrets the price and looks for a reason to cancel.
- Title problems. An unregistered easement, an encroachment, an outstanding mortgage, or an execution appears in the title search.
- Property issues. Water damage, removed fixtures, an unpermitted basement apartment, or a change in condition before closing.
- Misrepresentation. One side claims the other made a false statement about the home, such as a previous flood or the legal status of a second unit.
Sometimes a party who says they are simply exercising a contract right is in fact breaching it. A buyer who raises a minor requisition as a pretext to escape, or a seller who refuses to remove a discharge that could easily be removed, can both end up in trouble. Courts look at what the contract actually requires, and at whether the party was truly ready, willing, and able to close.
Ready, Willing, and Able
That last phrase is important. If you intend to hold the other side responsible, you usually want to show that you yourself were prepared to complete on the closing date. Your lawyer will often “tender” by preparing documents and funds, or by delivering a formal demonstration of readiness, so that the record is clear.
Avoid telling anyone that the deal is dead until you have received advice. A party who announces it will not close may be treated as having repudiated the agreement, which hands the other side the option of ending the contract and suing. Extending the closing by a few days is often the most useful thing that can happen, but do it properly. Amendments should be in writing and signed, and they should state that all other terms remain in place, including time being of the essence where the agreement so provides.
What Happens to the Deposit
The deposit is usually the most immediate fight. Under the standard arrangement, a real estate brokerage or lawyer holds it in trust. That party generally cannot simply hand it to whichever side phones first. According to the Real Estate Council of Ontario, disputes about entitlement are resolved by mutual release or by a court order.
The general legal position differs from what most people expect. A deposit serves as a security for the buyer’s performance. When a buyer defaults without legal excuse, the deposit is typically forfeited to the seller. The seller does not have to prove loss in order to keep it. In Benedetto v. 2453912 Ontario Inc., 2019 ONCA 149, the Court of Appeal upheld forfeiture of a substantial deposit after a failed purchase, in circumstances involving an offer signed in trust.
A buyer may ask for relief from forfeiture. Section 98 of the Courts of Justice Act allows a court to grant relief against penalties and forfeitures on just terms, but this is not an easy argument, and a typical deposit in a normal range is hard to attack. If the seller was the one at fault, the buyer can claim the deposit back along with any damages.
If You Are the Seller
Where a buyer defaults, a seller will generally have two main questions: do I resell, and how much can I claim?
The usual measure of damages is the difference between the agreed price and what the property fetches on resale, plus reasonable costs such as additional carrying charges and legal fees, with credit given for any deposit kept. A seller must take reasonable steps to mitigate. That usually means putting the property back on the market in a sensible way, at a fair price and with proper exposure, and documenting the effort.
Hypothetically, imagine a home sold for $1,000,000 with a $50,000 deposit, which later resells for $940,000 after several months on the market. The basic shortfall of $60,000, plus reasonable carrying and transaction costs, would be weighed against the $50,000 already held. The real number depends entirely on the evidence, and a buyer may argue that the seller listed too high, took too long, or resold too cheaply.
Keep your listing history, agent’s advice, appraisals, showing records, and all expense receipts. Without that material, a good claim becomes much harder to prove.
If You Are the Buyer
A buyer whose seller refuses to close has more than one route. The first is damages, typically measured by what it costs to end up in the equivalent position, including any increase in the value of the home and sometimes extra moving, bridge, or storage costs.
The second is specific performance, a court order forcing the seller to complete. Many buyers assume this is automatic because real estate seems unique. It is not. In Semelhago v. Paramadevan, [1996] 2 S.C.R. 415, the Supreme Court of Canada made clear that a buyer cannot obtain specific performance simply because land is involved. The buyer must show the property has a quality that makes damages an inadequate remedy, a test that is harder to satisfy for a home with many comparable substitutes.
If you plan to seek the property itself, a certificate of pending litigation may be available. Section 103 of the Courts of Justice Act allows a certificate to be issued and registered on title in a proceeding where an interest in land is in question. Registering one warns the world and can effectively stop a sale to someone else. It must be sought properly, the court can later discharge it, and the party obtaining it can face liability if it was wrongly obtained. A buyer who loses the property to a third party without acting quickly may have few options other than damages.
Our real estate and mortgage litigation page explains how these claims are handled when they reach court.
Misrepresentation and Hidden Problems
Claims sometimes surface after closing. The buyer moves in, finds a wet basement or discovers that a second unit is not legal, and looks back at what the seller or agent said. Ontario law generally puts the burden on buyers to inspect for what can be seen, but it does not protect a seller who actively conceals a known defect or makes false statements. Statements on a property condition form can matter a great deal, as can things said by listing agents.
Practical evidence includes listing materials, inspection reports, seller disclosure forms, the emails and messages exchanged before firming up, and photographs taken before and after closing. Agents and brokerages may also be involved in the dispute, depending on what was said and by whom.
Which Court, and How Fast
Where damages are at or under $50,000 and no interest in land is being claimed, Small Claims Court may be available. Claims over that amount, and any claim for specific performance, belong in the Superior Court of Justice. Disputes about property located here would ordinarily be heard in Brampton, at 7755 Hurontario St., since the county of the property generally has a strong connection to the case.
As for time, the Limitations Act, 2002 generally gives two years from discovery of a claim to start a proceeding. The Real Property Limitations Act can apply a different period to some claims involving land itself. Treat two years as the outer planning limit for a contract claim, and do not delay if you may want the property. Courts can take delay into account when deciding whether to order specific performance, and a buyer seeking a home needs to move quickly.
The First Week
If your deal has just fallen apart:
- Call your real estate lawyer before you send anything to the other side.
- Stop relying on verbal assurances and get everything in writing through your lawyer.
- Do not relist, sign another deal, or remove your own funds until you understand the effect on your rights.
- Gather your agreement, all amendments, waivers, lender letters, and agent communications.
- Work out your exposure on any linked purchase or sale, and consider whether a short extension could help.
A careful review can often reveal options that are not obvious in the panic of closing day. For a discussion of a contract dispute or an active closing problem, you can reach our office with your agreement and timeline at hand.