The Deposit Diaries

What Really Happens When Real Estate Transactions Go Sideways in Ontario

By Mirjana (Mira) Markovic

Buying a home should be a very exciting time. You find the one, sign the papers, and start planning where the couch will go.  You may even add a proud “SOLD” selfie to your photo collection. However, sometimes the deal does not close, the dream dies, the champagne remains corked, and the deposit becomes the main character in a legal thriller.

The Great Divide: Resale v. Pre-Construction

Let us start by splitting the world of real estate heartbreak into two camps:

1. Resale, where you are buying from a pre-existing homeowner.

2. Pre-Construction, where you are buying from the builder something that does not exist yet, except for a gleaming brochure and an artist’s rendering of “lifestyle living.”

The rules on what happens to your deposit if the deal fizzles are very different between resale and pre-construction properties.

Resale: The Hostage Situation

In a resale transaction, your deposit sits in trust with a listing brokerage or the seller’s lawyer, who acts as a referee holding the money until the closing day.

If the transaction fails to close, the drama begins:

• The deposit does not automatically go to the seller, and the buyer cannot just take it back. Both parties must sign a mutual release.
• If one party refuses to sign the mutual release, the deposit is uncomfortably parked in limbo until someone sues and a Court decides who wins.

Yes, the sellers may have a claim to keep the deposit as liquidated damages (i.e., “You breached the agreement, I am keeping the consolation prize”). Meanwhile, the buyers claim it back, arguing, “You did not fulfill your end”. Result? A lawyer’s feast.

At this point, your deposit is less of a down payment and more of a hostage with competing ransom notes.

Pre-Construction: The Developer’s Playground

Pre-construction buyers, on the other hand, live on dreams, floor plans, and faith. However, if things go sideways, such as delays, financing issues cancellations, the deposit story changes.

The deposits held in trust are protected under the Ontario Condominium Act and the Tarion Warranty (for freehold and condominium projects). Sounds comforting, right? It is…sort of.

If the buyer defaults, the builder can usually keep part or all of the deposit as damages. However, if the builder cancels the project or fails to close, you are entitled to your deposit back, but with a sprinkle of interest and a side of paperwork.

However, in a shocking twist of fate, deposit protection does not mean emotional protection when you are still waiting for your refund cheque six months later. Why? Well… builders like to take their time.

The Ontario Reality Check

In Ontario, deposits do not get returned automatically. They go into a legal hibernation until either the buyer and seller or a judge decides their fate.

So before you sign, walk or retain a lawyer, understand the deposit clauses, take your time to inquire about who is holding the deposit and under what conditions, read the fine print located in the Agreement of Purchase Sale (really, read it), get legal advice before you assume anything, and keep that champagne on ice until the keys are actually in your hand because in Ontario, real estate is not just location, location, location it is also, litigation, litigation, litigation.

I hope that this article has provided you with some helpful information. If you have any questions, please do not hesitate to contact me directly at mira@sorbaralaw.com.

 

You can find more on the Tarion deposit protection by clicking here