When a real estate deal doesn’t close in Ontario, the consequences can be serious for both buyers and sellers. A failed closing may lead to the loss of a deposit, claims for damages, additional legal costs, or, in some cases, court proceedings.
Real estate transactions are legally binding once an Agreement of Purchase and Sale has been signed and all conditions have been satisfied or waived. If one party is unable or unwilling to complete the transaction, the other party may have legal remedies available.
What happens next depends on why the deal failed, which party was responsible, and the terms of the agreement.
Why Do Real Estate Deals Fail to Close?
There are many reasons why a transaction may fall apart before closing.
A buyer may be unable to secure financing, discover a problem with the property, or simply decide they no longer want to proceed. A seller may have difficulty clearing title, completing an agreed repair, obtaining required documents, or may attempt to back out of the sale.
- The buyer cannot obtain mortgage financing
- The property does not appraise for the expected amount
- A problem appears on title
- The buyer does not have enough money to complete the closing
- The seller cannot provide clear title
- One party does not meet a contractual obligation
- A condition in the agreement is not satisfied
- One party changes their mind after the agreement becomes firm
The legal consequences can be very different depending on whether the agreement was conditional or already firm.
Can a Buyer Back Out of a Real Estate Deal in Ontario?
A buyer may be able to walk away from a transaction if the Agreement of Purchase and Sale includes a condition that has not been satisfied.
For example, an offer may be conditional on financing, a home inspection, the sale of the buyer’s existing home, or another specified event.
If the condition is properly drafted and the buyer acts within the required timeframe, the agreement may come to an end without the buyer being in breach.
The situation changes once all conditions have been fulfilled or waived.
A firm Agreement of Purchase and Sale is generally a binding contract. A buyer who simply changes their mind or cannot obtain financing may still be required to complete the purchase.
This is one reason buyers should understand their financing position before making an unconditional offer.
What Happens to the Buyer’s Deposit?
The deposit is often one of the first concerns when a deal fails.
If a buyer breaches a firm Agreement of Purchase and Sale and does not close, the seller may seek to retain the deposit.
However, the deposit does not necessarily represent the full amount that could be claimed.
If the seller suffers additional financial losses because the transaction failed, the seller may also pursue a claim for damages.
For example, suppose a buyer agrees to purchase a home for $900,000 but fails to close. The seller later sells the property to another buyer for $825,000.
The seller may seek compensation for the difference in price, as well as certain additional losses associated with the failed transaction.
The outcome will depend on the facts of the case and the terms of the agreement.
Can a Seller Sue a Buyer Who Fails to Close?
Potentially, yes.
When a buyer fails to complete a binding transaction, the seller may have a claim for damages resulting from the breach of contract.
Those damages may include more than simply the difference between the original sale price and the eventual resale price.
Depending on the circumstances, a seller might also claim certain carrying costs or other expenses caused by the failed closing.
At the same time, sellers generally have an obligation to take reasonable steps to reduce their losses. This is known as the duty to mitigate.
That may mean putting the property back on the market within a reasonable period and making a genuine effort to obtain another buyer.
A seller cannot simply allow losses to grow unnecessarily and expect the original buyer to pay for all of them.
Can a Seller Back Out of a Real Estate Deal?
Sellers can also be in breach of an Agreement of Purchase and Sale.
Once a firm agreement has been signed, a seller generally cannot cancel the transaction simply because they have changed their mind, received a better offer, or decided they no longer want to move.
If the seller refuses to close, the buyer may have legal remedies.
Depending on the circumstances, the buyer may seek financial damages. In some cases, a buyer may ask a court to order the seller to complete the transaction.
This remedy is known as specific performance.
Specific performance is not automatic. Courts consider the circumstances of the transaction, including whether monetary compensation would be an adequate remedy and whether the property has characteristics that make it particularly important to the buyer.
What If Financing Falls Through Before Closing?
A failed mortgage approval is one of the most common reasons buyers find themselves unable to close.
However, losing financing does not automatically release a buyer from a firm purchase agreement.
If an offer was made conditional on financing and that condition is still in effect, the buyer may have options under the terms of the agreement.
But if the financing condition was waived or the buyer submitted an unconditional offer, the buyer may still be legally required to complete the purchase even if the lender later refuses financing.
Financing problems can arise for many reasons, including:
- A lender changing its approval
- A property appraisal coming in lower than expected
- Changes in the buyer’s employment or income
- New debt taken on before closing
- Issues discovered with the property
- Changes to lending requirements
Buyers should avoid assuming that a pre-approval guarantees that funds will be available on closing day.
What Happens If There Is a Problem With Title?
Not every failed or delayed closing is caused by a buyer or seller simply refusing to proceed.
Sometimes a legal problem arises with the property itself.
Title issues may include unpaid liens, errors in ownership records, old mortgages that have not been discharged, easements, boundary issues, or other claims affecting the property.
Depending on the issue, the seller may be required to correct the problem before closing.
Some title problems can be resolved quickly. Others may require more time, negotiation, title insurance, or legal proceedings.
The terms of the Agreement of Purchase and Sale will often play an important role in determining what must be corrected and what happens if the issue cannot be resolved before closing.
Can the Closing Date Be Extended?
Sometimes the best solution is not to terminate the transaction but to give the parties more time.
A buyer and seller may agree to extend the closing date if, for example, financing is delayed, documents are missing, or a title issue needs additional time to resolve.
An extension should be documented properly.
It may also include new terms, such as reimbursement of certain costs or other conditions agreed to by the parties.
Neither side should assume that an extension has been granted simply because discussions are taking place. Any change to the closing date should be clearly confirmed in writing.
What Should You Do If You Think the Deal Will Not Close?
Timing matters when a real estate transaction is at risk.
If you believe you may not be able to close, or you have reason to believe the other party will not close, speak with a real estate lawyer as early as possible.
Waiting until the scheduled closing day can reduce the options available.
A lawyer may review the Agreement of Purchase and Sale, identify the obligations of each party, communicate with the other side, and help determine whether the transaction can still be completed.
Depending on the situation, the parties may be able to negotiate an extension or another solution before the deal collapses completely.
If the transaction cannot be saved, getting legal advice early can also help protect your position if a dispute develops.
Failed Closings Can Have Consequences Beyond the Property
A failed real estate deal can affect more than one transaction.
For example, a seller may be relying on the sale proceeds to purchase another property. A buyer may have already sold their existing home or arranged movers, insurance, financing, or other commitments.
When one transaction fails, the financial consequences can sometimes spread to other deals.
This is why real estate transactions should be treated as binding legal commitments rather than informal arrangements that can easily be cancelled.
Get Legal Advice Before a Closing Problem Gets Worse
If a real estate deal doesn’t close in Ontario, the legal and financial consequences will depend on the agreement, the reason the transaction failed, and the actions taken by both parties.
A failed closing can lead to disputes over deposits, damages, financing, title issues, and other losses. In some situations, early legal advice can help keep the transaction together. In others, it can help protect your rights after the deal has fallen apart.
If you have questions about a real estate transaction, contact us or speak with Samantha Machado at 905-798-5770 about your transaction.
For further assistance, review our Real Estate Law services or read our law guide: Beyond the Standard Closing: A Guide to Real Estate Transactions in Ontario.
Quick FAQ
Yes. If a buyer fails to complete a firm Agreement of Purchase and Sale, the seller may be entitled to keep the deposit. Depending on the circumstances, the seller may also pursue additional damages if their financial losses are greater than the deposit amount.
If the deal is still conditional on financing, the buyer may have options under the agreement. If the financing condition has been waived or the offer was unconditional, the buyer may still be required to close even if their lender withdraws financing.
Generally, a seller cannot simply walk away from a firm Agreement of Purchase and Sale because they change their mind or receive a better offer. If the seller refuses to close, the buyer may have legal remedies, including a claim for damages and, in some cases, specific performance.
