Backing Out of an Agreement of Purchase and Sale in Ontario: Your Deposit

Sometimes a buyer has no condition left to rely on but no longer wants to close. Maybe the job fell through, the price now feels too high, or something changed in the family. The seller, meanwhile, wants to know whether the deposit is forfeited and whether more can be claimed.

This article explains how the deposit is held, who decides where it goes, and what a seller may pursue beyond it. Outcomes turn on the exact wording of your agreement and the facts, so treat this as a starting point.

When can a buyer actually walk away?

A conditional offer does not bind the seller and the first buyer until every condition has been fulfilled or waived. If a real condition has not been satisfied, the buyer may have a way out written into the agreement. A buyer who has waived or fulfilled all conditions and simply changes their mind is in a different position, because the agreement has no exit for that.

Whether a condition was truly unmet, and whether notice was properly given, are questions answered by the agreement's wording. A buyer who is unsure should have the document reviewed before sending anything to the seller.

Where the deposit sits

Every Ontario brokerage must keep a trust account, deposit money held in trust for others into it, keep it separate from its own money 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 go into the brokerage's real estate trust account within five business days of receipt.

RECO's consumer deposit insurance covers deposits held in a brokerage's real estate trust account against events such as brokerage 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. So the insurance protects against brokerage problems, not against a dispute between you and the other side.

Who decides where the deposit goes

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. A seller cannot simply announce that the deposit is forfeited, and a buyer cannot simply demand it back. If the two sides disagree, the money generally stays in trust until they sign or a court rules.

Money that sits unclaimed in a brokerage trust account for more than two years, including where it is unclear who is entitled to it, must be paid to RECO after reasonable efforts to find the person entitled. Amounts totalling less than $25.00 need not be sent. Do not let a dispute drift.

Can the seller claim more than the deposit?

Possibly. A court that can order specific performance, which means ordering a party to complete the deal, may award damages in addition to, or instead of, specific performance. Whether a seller can claim more than the deposit, and how much, depends on the agreement's terms and on the seller's actual loss, so the answer varies from file to file.

• The agreement's wording on default and on what happens to the deposit.
• Whether the seller resold the home and for how much.
• Costs the seller can show were caused by the buyer backing out.
• Whether the buyer had a genuine right to terminate.

What to do next

• Read the agreement and find every condition, date and notice requirement.
• Do not stop communicating; keep all messages and notices in writing.
• Do not sign a release for the deposit until you understand what it gives up.
• Ask a real estate lawyer about your options before you tell the other side you are backing out.
• If you are the seller, keep records of your costs and of any resale efforts.

Many disputes end in a negotiated, signed release. Having a lawyer review the wording first can help you avoid giving up rights you did not mean to.

Frequently asked questions