Developer Cancels a Pre-Construction Condo Sale: Your Options in Ontario

Getting a letter saying your pre-construction condo is cancelled is upsetting, especially after years of waiting. The first questions are usually whether the builder is allowed to do this and how quickly you get your money back.

This article explains the general rules in Ontario for builder cancellations, deposit refunds, interest and Tarion's deposit protection. Your own agreement and its Tarion Addendum matter a great deal, so a lawyer should review them.

When a builder can cancel

A builder can cancel a pre-construction deal only under the early termination conditions listed in Schedule A of the Tarion Addendum. Each condition must be clearly described in the purchase agreement, with a date by which it must be met. Conditions of a type the Addendum does not permit are unenforceable.

• Failing to sell enough units.
• Being unable to secure project financing.
• Delays in getting building or planning approvals.

These are typical examples. Whether the builder properly relied on a condition in your agreement is the key question if you want to challenge a cancellation, and a lawyer can review the wording and dates.

Getting your deposit back

Money a condo builder receives, including deposits, must generally be held in trust under the Condominium Act. If a builder terminates, it must return your deposit in full within 10 days.

If a project is cancelled, buyers are generally entitled to their deposit back plus accrued interest at two per cent below the Bank of Canada bank rate. Clear records of every payment you made will make any refund or claim much easier to sort out.

Which interest rate applies

There is an exception for newer situations. Since January 1, 2023, interest is paid at the Bank of Canada policy interest rate where no units were sold before that date and the developer terminates the agreement. The two-per-cent-below rate still applies when the buyer rescinds during the cooling-off period or after a material change.

If the builder does not pay: Tarion

If a builder does not refund a condo deposit, Tarion's deposit protection covers up to $20,000 plus a limited amount of accrued interest. To claim, call Tarion at 1-877-982-7466 for a Deposit Refund Claim Form and submit it with the purchase agreement and cancelled deposit cheques. Assessment can take up to six months.

Tarion cannot force a builder to complete a condominium project it has decided not to proceed with, though you may be eligible for deposit protection. Deposit protection may not cover everything if your deposits were large, so a lawyer can help you understand any gap.

Other buyer rights to know about

A cancellation by the builder is different from your own rights to leave a deal or to be compensated for delay. Knowing the difference helps you see which rules apply to your situation.

• A buyer of a new condo from a builder has a 10-day cooling-off period to rescind the agreement of purchase and sale under the Condominium Act, 1998, s. 73. It starts once you have the purchase agreement, the disclosure statement and the Condo Buyers' Guide.
• The purchase agreement is not binding until you have received both the disclosure statement and Ontario's Residential Condominium Buyers' Guide from the builder.
• You may also rescind after a material change in the information in the disclosure statement, which is a separate right from the initial cooling-off period.
• If the unit is not ready by the Outside Occupancy Date, you have 30 days to terminate the agreement, and you are then entitled to a full refund of all money paid (deposits, extras and upgrades) plus interest.

Delayed occupancy compensation is capped at $7,500 in total, including a flat $150 a day for living expenses that needs no receipts. Delayed occupancy claims go to the builder within 180 days of the occupancy date or termination date, and if the builder does not pay, you can claim to Tarion during the first year of possession, or up to 365 days after terminating. The dates and amounts in your own Addendum can differ, so confirm them with a lawyer.

What to do next

• Keep the cancellation notice and note the date you received it.
• Gather your purchase agreement, Tarion Addendum, and proof of every deposit payment.
• Check Schedule A of the Addendum for the condition the builder relies on and its date.
• Watch the 10-day deadline for the builder to return your deposit. If the deposit is not returned, call Tarion at 1-877-982-7466 for a Deposit Refund Claim Form.
• Write down the dates in your agreement, such as occupancy dates, so you can see whether any other deadline is running.
• Do not sign a release or new agreement until a lawyer has reviewed it.

Frequently asked questions