Seller Refuses to Close in Ontario: Certificate of Pending Litigation

You signed an Agreement of Purchase and Sale, the conditions are done, and closing day arrives. Then the seller says they will not close. Maybe they got a better offer, changed their mind, or simply stopped responding. It is stressful, and you may worry the home will be sold to someone else.

This article explains, in general terms, the tools Ontario law gives a buyer in this position: the certificate of pending litigation, the court's power to award damages, and what happens to your deposit meanwhile. Every situation turns on its own facts, so a lawyer should review your agreement before you act.

Why starting a lawsuit is not enough

When a seller refuses to close, a buyer can start a court case asking the court to force the sale. But under the Courts of Justice Act, starting a lawsuit that puts an interest in land in question is not notice to outsiders. It becomes notice only once the court issues a certificate of pending litigation and that certificate is registered on title.

In plain words, someone searching title would not see your claim just because a statement of claim exists. Without the registered certificate, the seller could try to sell to a new buyer who has no idea about your dispute.

What a certificate of pending litigation does

A buyer who is suing a seller who refuses to close uses the certificate of pending litigation as the tool to protect the claim. Once it is registered on title, anyone looking at the property record can see that there is a court case about who is entitled to the land.

Because the certificate puts your claim on the record, people who later deal with the property are on notice of it. How it would affect a sale or mortgage in your situation depends on the facts. Whether and how to get one depends on how your claim is framed, so this is a step to take with a lawyer.

When a court can discharge the certificate

The certificate is not permanent or automatic protection. The court may discharge it in several cases. The ones that matter most to buyers include where the buyer:

• Claims money instead of the land, or as an alternative to the land.
• Has no reasonable claim to the interest in the land.
• Does not prosecute the case with reasonable diligence.
• Can be adequately protected by other security.

This is why it matters to decide early what you actually want: the home itself, or compensation. It is also why a buyer who registers a certificate should keep the case moving rather than letting it sit.

Specific performance and damages

Specific performance is a court order requiring the seller to complete the sale. Whether a court would make that order in your case depends on your situation, so it is worth confirming with a lawyer. The Courts of Justice Act says a court that can order specific performance may award damages in addition to, or instead of, specific performance.

That means a buyer may end up with money rather than the home, or with both an order to close and money for losses. Which outcome is realistic depends on the facts, the agreement and what the court decides.

What happens to your deposit

Deposit money is normally held in the brokerage's real estate trust account. A brokerage must keep money held in trust for others separate from its own and pay it out only according to the terms of the trust. The deposit must go into that account within five business days of receipt.

When a deal fails, the brokerage should release the deposit only under a release or direction signed by all parties to the Agreement, or under a court direction. If the buyer and seller cannot agree, the deposit generally stays put until they sign or a court decides.

RECO's consumer deposit insurance covers events such as brokerage theft, fraud, insolvency or misappropriation, but it does not apply where a deal has failed and the buyer and seller simply cannot agree on who gets the deposit. So the insurance is not a way to get your deposit back in an ordinary dispute.

What to do next

• Gather the signed Agreement of Purchase and Sale, all amendments, and proof of your deposit.
• Keep every message and letter showing the seller's refusal or delay.
• Note the closing date and any steps you took to be ready to close.
• Do not sign a deposit release until you understand what it gives up.
• Speak with a real estate lawyer promptly, since delay can affect the case and a certificate.

Frequently asked questions