Buyer Walking Away From Closing Toronto

Buyer Walking Away From Closing in Toronto: What Sellers Need to Know

When a buyer walks away from a real estate closing in Toronto, the impact can be significant. Real estate transactions are legally binding contracts, and a buyer’s failure to close is a breach of contract that exposes them to serious financial and legal consequences. For sellers, understanding your rights and remedies is critical.

This post outlines what happens when a buyer defaults on a firm Agreement of Purchase and Sale (APS), what legal options a seller has under Ontario law, and how an experienced real estate lawyer can help you respond effectively.

Legal Impact of a Failed Closing in Ontario

In Ontario, once a firm APS is signed, both parties are legally bound to complete the transaction. The closing date is typically strict – unless there’s a contractual condition (such as financing or inspection) not fulfilled, a buyer who fails to close is in breach.

The law is clear: when a buyer defaults, the seller has the right to retain the deposit and potentially seek further compensation for losses.

The Role of the Deposit in Ontario Real Estate

The deposit is typically 5–10% of the purchase price and is held in trust until closing. If the buyer fails to close, the deposit is usually forfeited to the seller.

Even if the seller resells the property at the same or higher price, Ontario law generally allows the seller to keep the deposit. It’s not just a partial payment – it’s a security for performance and compensation for lost opportunity.

While courts have the discretion to grant relief from forfeiture in rare cases (e.g., if the deposit is disproportionately large and the seller suffered no losses), such rulings are uncommon. In most cases, the deposit belongs to the seller.

Suing the Buyer for Additional Damages

If the deposit doesn’t fully cover the seller’s financial loss, additional damages may be sought. These damages can include:

• Loss of bargain: the difference between the original sale price and the price the property ultimately sells for
• Carrying costs, such as mortgage interest, property taxes, condo fees, and utilities during the delay
• Additional legal or real estate fees, including commissions, legal services, and any marketing needed to relist the home
• Logistical costs: like moving expenses or storage if the seller had prepared for a timely closing

For example, if a home was to be sold for $1,000,000 and was later resold for $950,000, the buyer may be liable for the $50,000 shortfall, plus other related expenses.

Seller’s Duty to Mitigate Losses

Ontario law requires the seller to make reasonable efforts to minimize losses after the buyer defaults. This “duty to mitigate” typically means relisting and attempting to sell the property within a reasonable time.

Sellers are not required to act perfectly, but they must act reasonably. Courts will look at whether the seller took genuine steps to secure a resale. A buyer who alleges the seller failed to mitigate must prove that better outcomes were realistically available.

What Happens to the Deposit?

Although the seller is legally entitled to the deposit, it is held in trust and cannot be released without both parties’ consent or a court order. If a buyer refuses to sign a mutual release, legal action may be required to obtain the deposit.

Courts will generally enforce the forfeiture unless the amount is excessively large compared to the seller’s actual losses, and the result would be “unconscionable.” In practice, this standard is rarely met.

Consequences for the Buyer

Buyers in breach of a firm APS face steep consequences:

• Loss of deposit: The full amount is typically forfeited
• Liability for damages, including price shortfalls and carrying costs
• Litigation risks: If sued, the buyer may also be ordered to pay the seller’s legal costs

A failed deal can lead to court judgments, damaged credit, and long-term financial consequences. Buyers often default due to financing problems, but these do not excuse performance unless the APS included a financing condition that remained unfulfilled.

Limited Defenses for Buyers

There are very few valid reasons for a buyer to legally walk away from a firm deal. Common buyer mistakes or regrets (such as interest rate changes or market drops) are not acceptable reasons to default.

Only contractual conditions that were not waived, misrepresentation by the seller, or exceptional equitable relief can potentially protect the buyer. In the absence of these, the buyer is liable for breach.

Negotiating Solutions Before Litigation

Sometimes, practical resolutions can avoid litigation. For instance:

• Closing extensions: A buyer might request more time in exchange for an additional deposit or compensation for carrying costs
• Settlement offers: A buyer may offer to forfeit the deposit without court proceedings
• Vendor take-back mortgage: In rare cases, a seller may agree to finance part of the purchase if that facilitates closing

While such solutions can work in good faith, they should only be considered with proper legal advice and documentation.

The Importance of Legal Representation

If you’re a seller facing a failed closing, engaging a knowledgeable real estate lawyer is essential. A lawyer can:

• Declare the buyer in default properly
• Document and calculate losses accurately
• Initiate legal proceedings for deposit recovery and damages
• Negotiate from a position of strength
• Defend against any improper claims by the buyer

At Mayfair Law Group, our real estate lawyers understand both the practical and legal complexities of failed closings. We can manage the process from start to finish, whether that means negotiating a resolution or pursuing a court judgment.

Trust Mayfair Law Group to Protect Your Interests

Selling a property is stressful enough. When a buyer backs out at the last minute, the uncertainty can be overwhelming. At Mayfair Law Group, we’re here to make sure you don’t navigate it alone. From recovering your deposit to pursuing damages, our team is experienced in real estate law and focused on achieving the best result for you.

Let us handle the legal process so you can move forward confidently.

Speak With a Real Estate Lawyer Today

Contact Mayfair Law Group for a consultation and find out how we can protect your rights as a seller in Toronto.

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