What Happens If a Buyer Backs Out of an Agreement of Purchase and Sale?

Quick Overview

A firm Agreement of Purchase and Sale (APS) is a binding contract. Backing out without a legal right to do so is a breach
A buyer can walk away without penalty when a condition fails on time, a valid title objection is not fixed, the seller cannot give vacant possession, or the property is badly damaged before closing
Ontario has no general cooling-off period for resale homes. New condominiums are the main exception, with a 10-day rescission right
A buyer who defaults will usually lose the deposit, and the seller can also sue for losses above it
Courts return a forfeited deposit only in rare cases
Claims for breach of contract generally must be brought within two years

An APS Is Binding Once It Is Firm

Once every condition in an APS has been satisfied or waived, the buyer is bound to close. Ontario courts treat the agreement as a serious commitment, and the consequences of walking away can reach well beyond the deposit. A buyer who is having second thoughts should speak to a Real Estate Lawyer Ottawa before doing or saying anything that could be treated as a refusal to close.

When a Buyer Can Walk Away Without Penalty

A condition is not satisfied. Conditions such as financing, a home inspection, a condo status certificate or the sale of the buyer’s own home protect the buyer. Each has a deadline in the APS. If the buyer cannot satisfy the condition, the buyer must give written notice before the deadline. A verbal message to an agent is not enough, because the standard OREA form requires any notice to be in writing, and missing the deadline can change the result. Buyers are also expected to make a genuine effort to satisfy the condition, for example by actually applying for a mortgage.

A valid title objection is not fixed. The standard Ontario Real Estate Association form sets a requisition date. By then, the buyer’s lawyer must raise any title defects in writing. If the seller cannot or will not fix a valid objection and the buyer does not waive it, the APS ends and the deposit goes back to the buyer. The objection has to be genuine. Courts are unlikely to accept it as a way out of a deal in a falling market.

The seller misrepresented something important. A buyer who was induced to sign by a fraudulent or negligent misrepresentation may be able to rescind. Examples include false statements about boundaries, the legal status of a basement apartment, or a hidden defect the seller knew about.

The seller cannot give vacant possession. If the APS promises vacant possession and a tenant or the seller’s belongings remain, the seller is in breach. The buyer is not obliged to take on an unwanted tenancy.

The property is badly damaged before closing. Under the standard terms, the seller carries the risk of loss until closing. If there is substantial damage, such as a fire or major flood, the buyer can usually either end the agreement and recover the deposit or close and take the seller’s insurance proceeds. Minor damage does not give a right to cancel.

Cooling-Off Periods: Narrow and Specific

Ontario does not give buyers a general right to change their minds. The main statutory exception is for new condominiums. Under section 73 of the Condominium Act, 1998, a buyer of a newly built condo unit can rescind within 10 days. The clock starts on the latest of the date the buyer receives the disclosure statement, the condominium guide and the fully executed agreement. If the builder has not delivered all three, the 10 days may not have begun to run. The buyer must give written notice of rescission.

For resale homes, freehold or condominium, there is no statutory cooling-off period. Once the conditions are waived, the buyer is committed.

What Happens If a Buyer Backs Out Without a Legal Right

If a buyer simply refuses to close, the buyer is in breach. Most Ontario APS forms make time of the essence, which means closing deadlines are strict. A common closing time is 6:00 p.m. on the closing date.

The seller then has two main remedies, and they can be pursued together:

Keep the deposit. The seller is generally entitled to it without having to prove a loss.
Sue for damages. If the seller’s loss is greater than the deposit, the seller can claim the difference.

The deposit is the starting point of a defaulting buyer’s exposure, not the limit. If the seller later resells at a lower price, the buyer can be held responsible for the shortfall.

The Deposit and Relief From Forfeiture

When a seller sues for damages, the forfeited deposit is credited against the amount awarded. In Azzarello v. Shawqi, 2019 ONCA 820, the Court of Appeal confirmed that the deposit must be credited toward the seller’s total damages (CanLII). If a buyer forfeits $75,000 and the seller proves $200,000 in damages, the seller is awarded the remaining $125,000.

A buyer can ask the court for relief from forfeiture under section 98 of the Courts of Justice Act. The test comes from Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282. The buyer must show two things. First, the forfeited deposit is out of all proportion to the seller’s actual loss. Second, it would be unconscionable for the seller to keep it (CanLII). A market downturn or a buyer’s financing falling through does not meet that standard on its own.

Relief is rare but not impossible. In Naeem v. Bowmanville Lakebreeze West Village Ltd., 2024 ONCA 383, the court returned a buyer’s $82,916 deposit where the builder, a sophisticated party, had pressured an unsophisticated buyer into signing a closing-date amendment without telling her she was not obliged to.

How a Seller’s Damages Are Measured

A seller who resells at a lower price can claim the “loss of bargain,” which is the difference between the contract price and the resale value. The general approach comes from the Supreme Court of Canada’s decision in Dobson v. Winton & Robbins Ltd., [1959] S.C.R. 775 (Supreme Court of Canada). The loss is generally assessed as of the date of the breach, but a court has discretion to use another date, such as the date of resale, where the market is volatile and the seller acted reasonably.

Sellers can also claim reasonably foreseeable carrying costs, such as mortgage interest, property taxes, insurance and utilities during the gap. The trial judge awarded these in Azzarello.

Sellers must take reasonable steps to limit their loss, typically by relisting promptly at a fair price. The defaulting buyer carries the burden of proving the seller did not do so. Under Azzarello, a seller is not required to accept a lower offer from the buyer who just defaulted.

Can a Seller Force a Buyer to Close?

In theory, a court can order specific performance, which means making a party complete the deal. In practice, it is uncommon. In Semelhago v. Paramadevan, [1996] 2 S.C.R. 415, the Supreme Court of Canada ended the presumption that every piece of land is unique (Supreme Court of Canada). A party asking for specific performance must show that the property is unique enough that money would not be adequate compensation. A seller is rarely in that position because money is exactly what the seller wants. In Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, the Supreme Court confirmed that a party claiming specific performance may still have to mitigate its losses unless it has a substantial and legitimate interest in the property itself.

When a Buyer Says They Will Not Close

If a buyer announces before closing that they will not or cannot complete the purchase, this is called an anticipatory repudiation. The Court of Appeal explained in Ching v. Pier 27 Toronto Inc., 2021 ONCA 551, that the repudiation does not end the contract automatically. The seller must choose between accepting the repudiation, which ends the contract and allows the seller to relist and sue, or affirming the contract and insisting on performance (CanLII).

Affirming has risks. If the seller insists on performance but is not ready to close on the closing date, the seller may end up in breach as well. Sellers weighing the choice should get legal advice quickly.

Getting the Deposit Released

Because the brokerage holds the deposit in trust under the Trust in Real Estate Services Act, 2002, RECO’s guidance is that it should release the funds only with a written mutual release signed by both parties or a court order. A party who refuses to sign can leave the funds frozen until the dispute is resolved.

When parties cannot agree, one of them can apply to court for a decision on who is entitled to the money. Applications of this kind may proceed under Rule 14.05 of the Rules of Civil Procedure, which allows a quick determination based on the contract. Since October 1, 2025, the Small Claims Court can hear claims up to $50,000, exclusive of interest and costs, under O. Reg. 626/00, s. 1, as amended by O. Reg. 42/25. Larger claims go to the Superior Court of Justice.

Source:

Real Estate Magazine: RECO’s position on releasing deposits after a failed deal

Other Ways Failed Closings Get Resolved

Many failed closings end in negotiation rather than a trial. Common outcomes include:

An extension. The seller may agree to a later closing date, often in exchange for an additional deposit or a per-day fee to cover carrying costs.
An assignment. The buyer transfers the APS to a new buyer. Many APS forms and builder contracts require the seller’s or builder’s consent, and some charge a fee.
A resale by the buyer. If the buyer can close, the buyer may close and resell, although this adds legal fees and a second round of land transfer tax.
A negotiated mutual release. The seller keeps the deposit, and the parties agree to end the matter without further claims.

A buyer who raises the problem early usually has more options than one who goes silent.

Time Limits That Matter

Under the Limitations Act, 2002, the basic limitation period is two years from the day the claim was discovered or ought to have been discovered. There is also an ultimate limitation period of 15 years from the act or omission. Contractual deadlines in the APS, such as condition dates and the closing time, are much shorter and are enforced strictly.

Talking to a Lawyer Before You Decide

Whether you are a buyer facing a problem with a condition, a title defect or financing, or a seller dealing with a buyer who will not close, the steps you take in the first few days matter. LMS Lawyers acts for buyers and sellers in residential transactions in Ottawa and can review your APS, the deadlines and your options with you. Ottawa buyers and sellers can contact a Real Estate Lawyer Ottawa at LMS before sending any notice or signing any release.

FAQs

Can I cancel an offer on a resale home after the conditions are waived?
No. Once the conditions are waived, there is no cooling-off period for resale homes in Ontario. Backing out is a breach.

Do I lose my deposit if I back out?
Usually, yes. A buyer who defaults forfeits the deposit. Courts return it only in rare cases where the two-part test from Redstone is met.

Can the seller sue for more than the deposit?
Yes. If the seller’s actual loss is greater than the deposit, the seller can claim the difference, and the deposit is credited against that claim.

Is there a cooling-off period for new condos?
Yes. Under section 73 of the Condominium Act, 1998, buyers of new condominium units can rescind within 10 days. The period starts after the buyer has received the disclosure statement, the condominium guide and the fully executed agreement.

How long does a seller have to sue a buyer who does not close?
Generally two years from when the claim was discovered, under the Limitations Act, 2002.

Can I assign my APS to someone else?
Only if the contract allows it or the seller consents. Many forms prohibit assignment without consent.

Summary

A firm APS binds the buyer. A buyer can leave without penalty only where the contract or the law allows it, for example when a condition fails on time, a valid title objection is not fixed, vacant possession is not available, or the property is substantially damaged. Resale buyers have no cooling-off period, while buyers of new condos have a 10-day rescission right. A buyer who backs out without a legal right will usually forfeit the deposit and may owe the seller more, including the price shortfall and carrying costs. Courts rarely return a forfeited deposit, and sellers are rarely able to force a buyer to close. The basic limitation period for claims is two years. LMS Lawyers can review your agreement and your options before you take a step you cannot undo.

Sources

This article is intended for general information purposes only and describes Ontario law as of October 2026. It does not constitute legal advice and does not create a lawyer-client relationship between LMS Lawyers and the reader. For advice specific to your situation, please consult a licensed lawyer.