- Under the standard Ontario Real Estate Association (OREA) insurance clause, the property stays at the seller's risk until completion.
- If the damage is substantial, the buyer may terminate and recover the money paid, or take the insurance proceeds and complete the purchase.
- If the damage is not substantial, trying to terminate can count as a repudiation of the agreement, so get advice before you refuse to close.
You walk through the home before closing and find water damage, a broken window or something that was supposed to stay and is gone. Closing is close, your funds are lined up and you need to know whether you must still go ahead.
The answer turns on the wording of your agreement of purchase and sale and on how serious the damage is. This article explains the usual rules in Ontario so you can ask better questions, but it is general information and not a substitute for advice on your own contract.
Who carries the risk until closing
In many Ontario resale deals the agreement uses the standard OREA form. Its insurance clause keeps the property at the seller's risk until completion, and any insurance proceeds are held in trust.
In plain words, the seller is responsible for the home and its insurance until the deal closes. You do not become responsible just because you have signed. The exact wording can differ between versions of the form, so read the clause in your own agreement.
Substantial damage versus minor damage
The key question is whether the damage is substantial. If it is, the buyer may choose between two options: terminate and recover the money paid, or take the insurance proceeds and complete the purchase.
| Situation | What the standard clause generally allows |
|---|---|
| Substantial damage | Terminate and recover money paid, or take the insurance proceeds and close |
| Damage that is not substantial | No right to terminate under the insurance clause |
In one Court of Appeal for Ontario decision, the flood damage was not substantial, so the buyers had no right to terminate under the clause. Their attempt to terminate was treated as a repudiation of the agreement. Whether damage is substantial depends on the facts, which is why a lawyer should look at the reports and photos before you decide.
Notice and a chance to inspect
If the seller learns of damage, you should hear about it promptly. A court has implied that the buyer is entitled to timely notice of the damage and a meaningful chance to inspect.
This is one reason a final walk-through close to closing matters. If you find a problem, write down what you see, take dated photos and tell your lawyer right away.
Missing items and what happens if you refuse to close
Missing fixtures or chattels, such as light fixtures or appliances, are usually dealt with by what your agreement says was included. Whether a missing item lets you refuse to close depends on the contract and the facts, and it is worth confirming with a lawyer before you act.
Refusing to close without a proper right is risky. When a buyer repudiates the agreement and fails to close, the deposit is forfeited to the seller without proof of any damage. The seller may also claim damages, which are typically the difference between the agreed price and the property's value on the date set for closing.
There is some protection against harsh results. Section 98 of the Courts of Justice Act lets a court grant relief against penalties and forfeitures, and for deposits courts have asked whether the forfeited deposit is out of all proportion to the seller's damages and whether it would be unconscionable for the seller to keep it. That is a court remedy, not something to count on.
What to do next
- Photograph the damage or missing items and note the date.
- Tell your lawyer and your real estate representative immediately, in writing.
- Ask the seller to confirm whether an insurance claim has been made.
- Read the insurance clause and the list of included items in your agreement.
- Do not announce that you are terminating until you have advice.
- Ask whether closing can be delayed or funds held back by a written agreement, if both sides agree.
Frequently asked questions
Who is responsible if the house is damaged before closing in Ontario?
Under the standard OREA insurance clause, the property stays at the seller's risk until completion, and insurance proceeds are held in trust. Your own agreement may word this differently, so check it.
Can I walk away if there is damage before closing?
Only if the damage is substantial and your clause gives you that right. In that case you may terminate and recover the money paid, or take the insurance proceeds and close. If the damage is not substantial, terminating may be a repudiation.
What happens to my deposit if I refuse to close?
If a buyer repudiates and fails to close, the deposit is forfeited to the seller without proof of damage. A court can sometimes grant relief from forfeiture under section 98 of the Courts of Justice Act.
What if items the seller promised are missing?
It depends on what your agreement says was included and how serious the problem is. Raise it in writing with your lawyer before closing rather than after.
Sources
- Court of Appeal for Ontario – Ching v. Pier 27 Toronto Inc., 2021 ONCA 551 — ontariocourts.ca
- Court of Appeal for Ontario – Tribute (Springwater) Limited v. Atif, 2021 ONCA 463 — ontariocourts.ca
- Court of Appeal for Ontario – Bilotta v. Booth, 2020 ONCA 522 — ontariocourts.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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