A buyer cannot obtain financing. A closing date passes. The deposit remains in trust while both sides demand payment. When an Ontario real estate transaction falls through, the first question is often who gets the deposit. The next question can be even more important: is there a claim for additional losses?
Losing the deposit does not necessarily end a buyer’s liability. Equally, a failed closing does not automatically entitle a seller to every amount claimed. The agreement, the reason the transaction failed and the evidence all matter. Our Ontario real estate litigation practice assists buyers and sellers with failed closings and deposit disputes.
When can the seller keep the deposit?
A true deposit serves as security for the buyer’s performance. If a buyer unjustifiably refuses or fails to complete a binding purchase agreement, the seller will generally be entitled to the deposit, subject to the contract’s terms and the court’s power to grant relief from forfeiture.
In Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, the Ontario Court of Appeal confirmed that a seller does not have to prove a financial loss to claim forfeiture of a deposit. A profitable resale therefore does not, by itself, mean the buyer is entitled to a refund.
The reason for the failed transaction remains crucial. A valid termination under an existing contractual condition is different from a buyer walking away from a firm agreement. A seller’s own breach may also change the result. Financing difficulties should be reviewed against the actual agreement and any conditions or extensions; they should never be assumed to cancel a buyer’s obligations.
Can a buyer obtain relief from forfeiture?
Ontario courts have discretion to grant relief under section 98 of the Courts of Justice Act. The analysis considers whether the forfeited amount is out of proportion to the seller’s damages and whether allowing the seller to retain it would be unconscionable.
In Redstone, the court emphasized that unconscionability requires compelling facts. The assessment can include the size of the deposit, the parties’ bargaining positions and sophistication, the negotiations, the seriousness of the breach and the parties’ conduct. Relief is available in an appropriate case, but it should not be treated as an assured route to recovering a deposit.
Why might the deposit remain in trust?
Entitlement to the deposit and authority to release it are separate issues. The Real Estate Council of Ontario explains that, where ownership of a deposit held in a brokerage’s trust account is disputed, the brokerage can disburse it under mutual consent or a release signed by both buyer and seller, or in accordance with a court order.
A demand from one party does not resolve the dispute. Depending on the circumstances, the next step may be a negotiated payment direction, a settlement or court proceedings. Before signing a release, obtain advice on whether its wording also gives up a claim for damages or another remedy.
Can the seller claim more than the deposit?
Yes. A buyer who breaches a binding agreement may face a damages claim beyond the deposit. Recoverable losses can include a resale shortfall and reasonable additional expenses caused by the breach, such as certain carrying costs. The seller must establish the claim and take reasonable steps to reduce avoidable losses. The resale process and supporting records can therefore be important evidence.
In Azzarello v. Shawqi, 2019 ONCA 820, the Court of Appeal upheld damages arising from a failed closing but required the buyer’s deposit to be credited against the award. A seller cannot simply add the deposit to the same compensatory loss.
For example, if proven damages total $100,000 and a $50,000 deposit is applied to those damages, the remaining balance is $50,000, before any separately awarded interest or litigation costs. Litigation costs are subject to the court’s discretion; recovery of the full legal bill is not automatic.
What should buyers and sellers do next?
- Preserve the complete record. Keep the purchase agreement, schedules, amendments, condition notices, deposit receipt and correspondence about financing or closing.
- Get advice before changing your position. An extension, termination notice, release or resale can affect the available options.
- Document the financial consequences. Sellers should retain evidence of marketing efforts, offers, resale terms and additional expenses. Buyers should obtain a clear assessment of the claim and any available defence.
Discuss your real estate dispute with Hashmi Law Group
Whether you need to recover a disputed deposit, assess a failed closing or respond to a claim for additional losses, the starting point is a careful review of the agreement and the evidence. Learn about our real estate litigation services or contact Hashmi Law Group to discuss your circumstances and the next steps.
Legal information only. This article provides general information about Ontario law and is not legal advice. The result depends on the agreement and the facts. Reading this article does not create a solicitor-client relationship.
