Conditions in an Ontario Offer: Financing and Inspection

A conditional offer lets a buyer commit to a home while keeping time to check something important, such as getting a mortgage or having the property inspected. Used well, conditions protect you. Used carelessly, they can cost you the home or your deposit.

This article explains how conditions generally work in an Ontario agreement of purchase and sale, what happens when you waive one or cannot satisfy it, and how a seller may treat other offers in the meantime.

What a condition does

A condition is a term that must be met, or waived, before the deal becomes binding. A conditional agreement is not final and binding until all its conditions are met or waived. Once all conditions are waived, the agreement is firm and binding.

Common examples are financing and a satisfactory home inspection. How long each lasts is negotiated and written into the offer, so read the dates closely and ask your lawyer if anything is unclear.

Financing and inspection conditions

Conditions must be waived or performed by the agreed time before the deal becomes binding, and they must be used in good faith. A buyer cannot simply invoke a condition as a way out of a deal they regret.

• A financing condition gives you time to confirm your mortgage. If your down payment is below 20 percent, you will typically need mortgage loan insurance.
• For CMHC homeowner mortgage loan insurance, the purchase price must be below $1,500,000.
• An inspection condition gives you time to have the home inspected and decide whether to proceed, negotiate or walk away.
• Ask your lender and a lawyer how long you need, since approvals can take time.

An inspection is also a good moment to ask practical questions about the home. For example, find out whether proper permits were obtained for any renovations. In Ontario, a building permit is required before most construction, additions, renovations and changes of use, and the municipal building department can confirm what permits exist for a property.

If a condition is not met

What happens depends on how the condition is worded. If it is not met, the buyer may terminate or the contract may end automatically, with the deposit returned. The wording and your notice steps matter, so do not rely on a guess.

Deposits are normally held by the brokerage in a real estate statutory trust account. They can be released only with a mutual consent or release signed by all parties, or under a court order. If you and the seller disagree about the deposit, expect the release to need that agreement.

If a brokerage holds a deposit for two years and it is still not clear who is entitled to it, the deposit goes to RECO, which also pays out only on consent or a court order. How a disagreement over your deposit would play out depends on your situation, so it is worth confirming with a lawyer.

The seller and other offers

A seller who has accepted a conditional offer may still consider other offers. The seller protects itself with an escape clause that requires notice to the first buyer and gives that buyer a set time, for example 48 hours, to waive or satisfy its conditions.

If the first buyer waives or fulfils its conditions within the deadline, the seller must sell to that first buyer on the original terms. A backup (second) offer should therefore be made conditional on the first deal ending, so the seller does not end up selling to two buyers.

When an offer is received, the seller may accept it, reject it, make a counter-offer, or ask the buyer to revise it. Pressure can build quickly, so know your deadline and be ready to talk to your lawyer and lender before you waive.

What to do next

• Write down every condition date and time from your offer.
• Book your inspection and speak with your lender early.
• Do not waive a condition until you have the information you need.
• Pay the deposit on time. Paying it late or withholding it can itself breach the agreement.
• Have a lawyer review the agreement before you sign it, and again before you waive.

If a condition cannot be satisfied in time, ask about your options before the deadline passes rather than after.

Frequently asked questions