Real Estate Deposits in Ontario: Where It Goes and Refunds

You have found a home, you are about to sign an offer, and you are being asked to put down a large sum of money. It is natural to wonder where that money goes, who controls it, and what happens to it if the deal falls apart.

This article explains how deposits generally work in Ontario, when they are returned, and what can put them at risk. Every deal turns on its own wording, so treat this as a starting point and have a lawyer review your agreement before you sign.

Where your deposit is held

In a typical Ontario resale, your deposit is not handed to the seller. It is normally held by the brokerage in a real estate statutory trust account.

That money can be released only in two ways: a mutual consent or release signed by all parties, or a court order. Neither RECO nor the brokerage can pay it out until all parties agree.

How large a deposit is usual is set by the deal and the market, so the amount is something you and your lawyer should review against your agreement rather than assume.

When a deposit comes back to you

Most buyers are protected by conditions in the offer, such as a satisfactory home inspection or financing. These must be waived or performed by the agreed time before the deal becomes binding, and they must be used in good faith.

Depending on how a condition is worded, if it is not met the buyer may terminate, or the contract may end automatically, with the deposit returned. Once all conditions are waived, the agreement is firm and binding.

• Read each condition and its deadline carefully before signing.
• Keep proof of when and how any notice or waiver was delivered.
• Do not assume a condition has protected you until the wording is checked against what happened.

When a deposit is at risk

A deposit can be put at risk by your own conduct. Paying the deposit late or withholding it can itself breach the agreement. In one RECO example, a buyer who held back a deposit due on acceptance until after an inspection may have given the seller grounds to terminate and seek damages.

Whether a seller may keep a deposit after a failed closing depends on the wording of the agreement and the facts, so it is worth getting legal advice before you walk away from a deal or assume the money is gone.

If you and the seller disagree

If both sides claim the money, the brokerage cannot simply choose. The deposit stays in trust until all parties sign a release or a court orders otherwise.

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.

New builds and deposit insurance

Deposits on new homes may have other protection through Tarion. For freehold homes, the protection depends on when the agreement was signed, and for agreements signed before 2018 the maximum is $40,000. Newer agreements are covered by different limits, and the deposit-coverage rules for freehold buyers can change over time, so confirm the current rules with your lawyer or Tarion before you rely on them. For condominium units, Tarion deposit protection is up to $20,000.

Separately, RECO consumer deposit insurance is up to $200,000 per claim, but it does not cover deposits that are simply in dispute, as opposed to missing or misappropriated.

What to do next

• Have a lawyer review the offer before you sign, especially the conditions and deadlines.
• Pay the deposit when the agreement says it is due.
• Ask who holds the deposit and in what account.
• Keep copies of every signed document and notice.
• If a deal is collapsing, get advice before you sign any release.

Frequently asked questions