- A brokerage holding your deposit in trust first deducts commission owing, and the balance goes to the seller only on completion or with both parties' written consent.
- If a buyer repudiates the agreement and does not close, the deposit is forfeited to the seller without proof of damage, though a court can grant relief in some cases.
- For new homes, Tarion protects deposits up to set limits for freehold homes and condominium units.
The deposit you hand over with an offer can feel like money in limbo. You know it counts toward the price, but who holds it, when it moves and what happens if the deal collapses are often unclear.
This article walks through the usual life of a deposit in Ontario, from trust account to closing day, and what the courts have said when a buyer or seller fails to close.
Where the deposit sits before closing
A deposit is generally held in trust, often by the brokerage. When a brokerage holds the buyer's deposit in trust, it first deducts the remuneration (commission) owing. The balance owing to the seller may be released only when the transaction is completed, or with the mutual written consent of both parties.
So the seller cannot simply collect the deposit early. If the deal ends, what happens to the money depends on why it ended and what your agreement says, so it is worth confirming with a lawyer. Where a buyer repudiates the agreement and fails to close, the deposit is forfeited to the seller without proof of any damage.
How the deposit is applied on closing day
On a completed purchase, the deposit is treated as part of the price you are paying. Your lawyer generally shows it as a credit on the statement of adjustments, so you bring the rest of the funds needed rather than paying the full price again.
Exactly how the deposit is credited, and how other adjustments such as property tax and utilities are handled, comes from your agreement of purchase and sale. Ask your lawyer to walk you through the statement before closing so no figure is a surprise.
If the buyer does not close
When a buyer repudiates the agreement and fails to close, the deposit is forfeited to the seller without proof of any damage. The deposit is security for performance, not damages.
There is an exception. Section 98 of the Courts of Justice Act lets a court grant relief against penalties and forfeitures. For real estate 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.
Losing the deposit may not be the end of it. A seller's damages are typically the difference between the agreed price and the property's value on the date set for closing. The court may choose a later date, taking into account the seller's duty to take reasonable steps, such as reselling. A plaintiff cannot recover losses that reasonable steps could have avoided, and the defendant must prove both that the plaintiff failed to mitigate and that mitigation was possible.
Other ways a deal can go wrong
| Situation | What the courts have said |
|---|---|
| Neither side is ready to close on a time-of-the-essence date | The agreement stays in effect, and either party can restore time of the essence by setting a new closing date and giving reasonable notice |
| Seller fails to close | The buyer's damages are presumptively the contract price less the market value on the closing date; if they are equal, there is no loss |
| Buyer wants the sale forced through | Specific performance is not automatic; the buyer must show the property is unique and that damages would be inadequate |
| Substantial damage before closing | Under the standard OREA insurance clause the buyer may terminate and recover money paid, or take the insurance proceeds and complete |
| Damage that is not substantial | The buyer has no right to terminate under that clause, and trying to do so can be a repudiation |
Wording can differ between versions of the standard form, so these outcomes always turn on your actual agreement and facts.
New homes and what to do next
For new homes under agreements signed on or after January 1, 2018, Tarion protects deposits. For freehold homes, a deposit is protected up to $60,000 if the price is $600,000 or less. Above $600,000, protection is 10% of the price to a maximum of $100,000. For condominium units, protection is up to $20,000 plus limited accrued interest.
- Find out who is holding your deposit and in what account.
- Keep proof of every deposit payment.
- Do not announce you are walking away from a deal before speaking with a lawyer.
- If a problem arises before closing, give notice in writing and keep copies.
- Ask your lawyer how the deposit appears on the statement of adjustments.
Frequently asked questions
Do I get my deposit back if I change my mind?
Not usually. If a buyer repudiates the agreement and fails to close, the deposit is forfeited to the seller without proof of damage. A court can grant relief against forfeiture in some cases.
Can the seller keep the deposit and also sue me?
A seller can claim damages, which are typically the difference between the agreed price and the property's value on the closing date, subject to the duty to mitigate. How the deposit and any damages interact depends on the facts, so get advice.
Who can release the deposit before closing?
The balance owing to the seller may be released only when the transaction is completed or with the mutual written consent of both parties.
Is my deposit protected on a new home?
For agreements signed on or after January 1, 2018, Tarion protects deposits up to set limits for freehold homes and condominium units.
Sources
- RECO – For the Record: Brokerage leadership edition (October 2025) — reco.on.ca
- 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 – Akelius Canada Ltd. v. 2436196 Ontario Inc., 2022 ONCA 259 — ontariocourts.ca
- Court of Appeal for Ontario – Lucas v. 1858793 Ontario Inc., 2021 ONCA 52 — ontariocourts.ca
- Court of Appeal for Ontario – Bilotta v. Booth, 2020 ONCA 522 — ontariocourts.ca
- Tarion – Coverage before you close — tarion.com
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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