Can a Buyer Back Out of an Accepted Offer on My Ontario House?

Your offer was accepted, the paperwork is signed, and then the buyer says they want out. You are probably asking whether they can do that and whether you can keep the deposit.

The answer turns on the wording of the agreement and what the buyer is relying on. This article covers the common situations and the remedies Ontario courts have recognized.

When a buyer can legally walk away

Whether a buyer can end an accepted offer depends on the wording of the agreement and on what the buyer is relying on. How this applies depends on your situation, so it is worth confirming with a lawyer.

• A condition in the agreement that the buyer validly relies on.
• An inspection condition, if the agreement has one: Ontario's guidance says that after an inspection a buyer may ask the seller for repairs, accept the defect, ask for a lower price, or decide not to buy.
• A new or pre-construction condo, where buyers have a 10-day right to cancel.

For resale condos, no law sets a period for cancelling without penalty. So a resale buyer generally needs a condition or other legal ground.

Conditions and the buyer's discretion

Buyers sometimes use a condition as an escape hatch. A condition giving the buyer 'sole and absolute discretion' is still read together with any duty in the agreement to act in good faith and with due diligence. In one case, the buyer had to apply to the existing mortgagees in good faith before deciding whether their terms were acceptable.

On inspections, Ontario's guidance says a home inspection is 'not a pass or fail test'. After one, a buyer may ask for repairs, accept the defect, ask for a lower price, or decide not to buy. Whether a buyer can end the deal depends on what your condition actually says.

What happens to the deposit

Deposits are normally held by the brokerage. If the buyer and seller disagree over it, the brokerage can pay it out only under a mutual consent or release signed by both sides, or under a court order.

If a brokerage has held a disputed deposit for two years with no determination, the deposit is transferred to RECO, which holds it in trust. So a seller cannot simply collect the deposit because the buyer walked away; you may need the buyer's signed release or a court order.

Your remedies beyond the deposit

When a buyer fails to close, the seller's damages are measured as the difference between the agreed price and the price on the later resale. Where the seller has a resale loss, the forfeited deposit is treated as part payment of the damages and is deducted from the award. In that case the $75,000 deposit was deducted.

A seller cannot recover losses that could reasonably have been avoided, which is the duty to mitigate. However, the seller is not required to accept a lower offer from the buyer who defaulted. In another case, the sellers had no duty to mitigate until the buyers breached, and could re-list after the failed closing. The court upheld damages and forfeiture of the deposit on summary judgment.

To get specific performance against a buyer, a seller must show a 'fair, real and substantial justification', and the equities must favour the order.

The position is different when it is the seller who refuses to close. A buyer can ask for specific performance, meaning an order forcing the sale. The court asks whether the land, rather than money, better serves justice between the parties, and it weighs the nature of the property, whether damages would be an adequate remedy, and how the parties behaved. Uniqueness is only one factor.

What to do next

• Keep the signed agreement, all amendments and every message with the buyer.
• Do not sign a release for the deposit until a lawyer has reviewed it.
• Record what the buyer says, in writing, about why they want out.
• If the deal fails, keep a record of your re-listing steps and offers received.
• Speak with a real estate lawyer early, as limitation periods apply. A claim generally must be started within two years of discovery.

A claim is discovered on the earlier of the day you knew, or the day a reasonable person ought to have known, of the injury, its cause, who caused it, and that a lawsuit would be appropriate. There is also an ultimate limit: no claim can be started after the 15th anniversary of the act or omission, whenever it was discovered. That 15-year period does not run while the defendant wilfully conceals the injury or its cause. A limitation period applies despite an agreement to vary or exclude it, with narrow exceptions. How this applies depends on your situation, so it is worth confirming with a lawyer.

Frequently asked questions