Buyer Backs Out of an Ontario Agreement: Deposit Consequences

You signed an agreement to buy a home, your conditions are gone, and now you want out. Maybe financing fell through, or your plans changed. The first worry is usually the deposit, and the second is whether the seller can come after you for more.

This article explains how deposits are held, how they are released when a deal fails, and what legal tools a seller may have. Your own agreement controls many details, so a lawyer should read it before you act.

Why waiving conditions matters

A conditional offer does not bind the seller and the buyer until every condition has been fulfilled or waived. That is why a buyer can often walk away while a condition is still open. Once the conditions are fulfilled or waived, that protection is gone, and the agreement is generally one both sides are expected to complete.

Whether you have any right to cancel after that point depends on the wording of your agreement and the facts. Simply deciding not to close is not the same as having a legal way out.

Where your deposit is and who controls it

Every brokerage must keep a trust account in Ontario, deposit money it holds in trust for others into it, keep that money separate from its own, and pay it out only according to the terms of the trust. A deposit received by the brokerage that is to hold it under the agreement must be put into that brokerage's real estate trust account within five business days of receipt.

Being held in trust does not mean the deposit is automatically yours back. It is held for the parties under the agreement until it is properly released.

What happens to the deposit when a deal fails

When a deal fails, the brokerage should release the deposit only under a release or direction signed by all parties to the agreement, or under a court direction. If you and the seller cannot agree on who gets it, the brokerage generally cannot simply pick a side.

RECO's consumer deposit insurance protects deposits in a brokerage's trust account against events such as theft, fraud, insolvency or misappropriation, up to $200,000 per claim and $4 million for all claims arising from a single event. It does not apply where a deal has failed and the buyer and seller simply cannot agree on who gets the deposit.

Whether the seller is entitled to keep your deposit depends on the terms of the agreement and why the deal failed. Do not assume it is lost, and do not assume it is safe. A lawyer can tell you where you stand.

Can the seller claim more than the deposit?

Possibly. A seller may sue when a buyer refuses to close. A court that can order specific performance, meaning an order that the sale be completed, may award damages in addition to, or instead of, specific performance. What a seller can actually recover depends on the agreement and the facts, so the deposit amount is not necessarily the limit.

A buyer who sues a seller who refuses to close can protect the claim with a certificate of pending litigation, because a lawsuit that puts an interest in land in question is not notice to outsiders until the certificate is registered on title. The court may discharge a certificate in several cases, including where the party claims money instead of the land or can be adequately protected by other security.

• The seller may want the sale completed, or compensation, or both.
• A dispute over the deposit often needs a signed release or a court direction.
• Legal costs and delay can add up, so settlement is worth discussing early.

What to do next

Act early and keep records. Do not stop communicating, and do not sign a release until you understand it.

• Gather your signed agreement, all amendments, waivers and your deposit receipt.
• Note which conditions were waived and when.
• Ask your lawyer whether any term of the agreement gives you a right to cancel.
• Ask your lawyer about the risk to your deposit and the risk of a claim for more.
• Avoid informal promises by text or email about giving up the deposit.
• If a settlement is possible, have it written down and signed by all parties.

Frequently asked questions