Backing Out of a Real Estate Deal in Ontario: What It May Actually Cost
This article is for informational purposes only and does not constitute legal advice. Every legal situation is unique — consult a licensed lawyer before making any legal decisions.
Quick Answer
The short version
- In Ontario, a buyer who fails to close on a firm Agreement of Purchase and Sale typically forfeits the deposit, which is often only the starting point.
- Forfeiting a deposit and paying damages are two separate things: a seller generally does not need to prove a loss to keep a deposit but does need to prove a loss to recover damages on top of it.
- Damages may include the shortfall if the property resells for less, along with carrying costs such as mortgage payments, property taxes, insurance, and utilities during the delay.
- Where the seller was using the sale proceeds to fund their own purchase, losses further down that linked chain may also be recoverable if they were reasonably foreseeable when the agreement was signed.
- Every claim turns on the wording of the agreement and the facts, so a buyer or seller facing a failed closing may benefit from speaking with an Ontario real estate lawyer before the closing date rather than after it.
Why the Deposit Is Not a Ceiling
Picture a common Ontario move. You sell your home, and two days later, you close on the next one. The proceeds from the sale pay for the purchase that follows. Most households cannot carry two properties at once.
Now imagine your buyer calls a week before closing to say their financing fell through.
That one call can start a chain reaction. You may now be unable to complete your own purchase, and the seller expecting your funds may then face losses of their own. The buyer who started it may be responsible for far more than the deposit.
Most people believe backing out costs them the deposit and nothing else. In Ontario, that belief is often wrong. This guide explains how the exposure works, whichever side of the deal you are on. See also our Ontario real estate law services.
Quick Start: Pick Your Path
Two situations bring people here. Start with the one that matches yours.
If you are the buyer
If you are the buyer who may not be able to close
- ▪Check whether your agreement still has unsatisfied conditions, or whether every condition has been waived.
- ▪Contact your lawyer and your lender today rather than on the closing date.
- ▪Read “What to Do if You Cannot Close on Time” below.
If you are the seller
If you are the seller whose buyer has not closed
- ▪Ask your buyer to put their statement in writing.
- ▪Speak to your lawyer about tendering and about any purchase of your own, and review our home sale closing checklist.
- ▪Read “What the Seller Has to Do Before Claiming Damages” below.
What a Firm Offer Actually Commits You To
A conditional offer contains conditions, such as arranging financing or reviewing a home inspection, that give the buyer a defined window to walk away without penalty. Waiving those conditions closes that window.
Tendering is the legal step each party takes on the closing date to demonstrate that it is ready, willing, and able to complete the transaction. Where a seller tenders and the buyer does not respond, a contractual breach is typically established.
There is no general cooling-off period for resale homes in Ontario. Understand what an Agreement of Purchase and Sale commits you to before signing.
Deposit Forfeiture and Damages Are Two Different Things
Ontario courts treat a deposit as security for performance rather than a limit on liability. In Azzarello v. Shawqi, the Court of Appeal for Ontario confirmed that where a buyer repudiates an agreement by failing to complete, the deposit is forfeited without proof of damage, subject to relief from forfeiture.
Damages rest on a different principle: the seller must prove what they lost. The largest component is usually the gap between the contract price and the market value at the closing date, supported by appraisal evidence, or the shortfall on a resale. Carrying costs during the delay may also form part of a claim.
The two can be pursued together. A forfeited deposit is typically credited against a damages award rather than kept on top of it, which is why a deposit reduces exposure without capping it. See our guides to deposit protection and contract disputes.
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Deposit Forfeiture Versus Damages: What Each One Requires
Two separate claims in Ontario, each with its own test. A seller may pursue both.
Deposit forfeiture
What it is
Money already paid by the buyer, kept by the seller when the buyer does not close.
Proof of loss
Generally not required.
What it may cover
The deposit amount set out in the agreement.
Can a court change it
Relief from forfeiture is possible under section 98 of the Courts of Justice Act, but Ontario courts have granted it only in exceptional circumstances.
Damages
What it is
Compensation for financial loss the seller is able to prove.
Proof of loss
Required.
What it may cover
The shortfall on a resale, plus carrying costs such as mortgage interest, property taxes, insurance, and utilities.
Can a court change it
An award may be reduced where the seller did not take reasonable steps to reduce the loss.
A forfeited deposit is typically credited against a damages award rather than kept on top of it, which is why a deposit may reduce exposure without capping it.
Sources: Courts of Justice Act, R.S.O. 1990, c. C.43, s. 98 (ontario.ca/laws); Varajao v. Azish, 2015 ONCA 218; Azzarello v. Shawqi, 2019 ONCA 820 (CanLII). General information only, not legal advice.
Nihang Law Professional Corporation · Law Society of Ontario
How Far a Defaulting Buyer’s Liability May Reach
The principle comes from a long-standing rule of contract law. A party who breaches a contract may be liable for losses flowing naturally from the breach, and for losses both parties could reasonably have contemplated at the time. Genuinely unforeseeable losses are typically too remote.
Applied to a linked move, the reasoning is straightforward. A sale and a purchase closing days apart is common in the GTA. Where the facts made that chain foreseeable, the losses it produces may not be deemed too remote.
Ontario courts have ordered defaulting buyers to pay damages well beyond the deposit, based on appraisal evidence and each agreement’s wording. Our property and real estate disputes team acts on both sides of these claims.
Nihang Law Professional Corporation
How a Missed Closing Travels Down a Linked Chain
Money from one sale is often the money funding the next purchase, so a single default may reach a transaction the defaulting buyer never signed.
Stage A
Buyer agrees to purchase from Seller
A deposit is paid and a closing date is set. The agreement becomes firm once every condition has been satisfied or waived.
Proceeds from this sale are expected to fund the next purchase ↓
Stage B
Seller agrees to buy their own next home
The closing is scheduled days later, on the assumption the first sale completes. Same-week closings are common across the Greater Toronto Area.
Where the chain was foreseeable, loss may pass down it ↓
Stage C
Buyer does not close
The Seller may be unable to complete Stage B, and may in turn face a claim from their own seller. Losses further down the chain may fall within the claim against the original buyer.
Whether a downstream loss is recoverable typically turns on foreseeability at the time the agreement was signed. Every chain is different, and no outcome follows automatically from this structure.
Illustrative structure only; no figures are plotted. Foreseeability principle from Hadley v. Baxendale as applied in Ontario failure-to-close cases (CanLII). General information only, not legal advice.
Nihang Law Professional Corporation · Law Society of Ontario
What the Seller Has to Do Before Claiming Damages
The Supreme Court of Canada addressed where this burden sits in Southcott Estates Inc. v. Toronto Catholic District School Board. The onus rests on the defaulting party to show the seller failed to make reasonable efforts, not on the seller to prove otherwise.
For a buyer facing a damages claim, mitigation is one of the few practical levers. Our civil litigation team can assess whether it is a live issue.
When a Court May Return a Deposit
The Court of Appeal for Ontario set out a two-part test in Varajao v. Azish. A buyer must show the forfeited amount was out of proportion to the seller’s loss, and that keeping it would be unconscionable. Reported decisions have upheld forfeiture even where the seller resold at a profit.
Buyers more often argue that a sudden financing refusal or a market drop frustrated the contract. Ontario courts have consistently rejected that argument, because a change in the market is not typically the kind of unforeseeable event that transforms an agreement.
What to Do if You Cannot Close on Time
The window that matters is before the closing date. Options narrow once it passes.
- 1Tell your lawyer the moment financing looks uncertain.A lawyer who hears this three weeks ahead has options that one who hears on closing day does not.
- 2Go back to your lender before assuming the deal is finished.A larger down payment, a co-signer, or a different term may close a gap.
- 3Ask about an extension in writing.Sellers sometimes agree to move a closing date, occasionally for a fee or a larger deposit.
- 4Explore a mutual release.Where both sides accept that the deal cannot proceed, a negotiated release may settle the deposit question without litigation.
- 5Document every change in a signed amendment.A verbal understanding to extend is difficult to rely on later.
- 6Keep communications in writing and do not go silent.Emails and texts often become the evidence.
Our home purchase closing checklist sets out what to have in place beforehand.
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The Days Around a Closing You May Not Be Able to Complete
The useful window sits before the closing date. Each day of silence tends to remove options rather than preserve them.
As soon as financing looks uncertain
Contact your lawyer and your lender. This is the widest point in the window, and the options narrow from here.
Well before the closing date
A written extension or an amendment to the agreement may be negotiable, sometimes in exchange for a fee or a larger deposit.
Days before closing
A mutual release may still be possible where both sides accept the transaction cannot proceed.
The closing date
Each side either tenders, showing it is ready, willing, and able to complete, or fails to close.
After the closing date
Deposit and damages questions may arise, and the seller’s duty to take reasonable steps to reduce the loss begins.
Relative timing only; no fixed dates are shown, and every agreement sets its own deadlines. Ontario Superior Court of Justice (ontariocourts.ca); OREA Form 100 completion provisions. General information only, not legal advice.
Nihang Law Professional Corporation · Law Society of Ontario
Common Mistakes That Turn a Failed Closing Into a Larger Claim
- ▪Waiving the financing condition to make an offer more competitive. A pre-approval is not final funding approval, and once the condition is gone, so is the protection.
- ▪Treating the deposit as the worst case. A buyer who believes their exposure is capped may stop negotiating while a resolution is available.
- ▪Waiting until the closing date to raise the problem. Extensions and releases become harder to negotiate afterwards.
- ▪Going quiet when the other side’s lawyer makes contact. Silence tends to remove options rather than preserve them.
- ▪Scheduling a sale and a purchase with no buffer. Same-week closings may leave no margin to absorb a delay anywhere in the chain.
- ▪Relying on a verbal agreement to extend. Changes generally need to be in writing and signed by both parties.
Conditional offers are the lawful way out. Our guide to conditional offers and escape clauses explains how they operate.
Frequently Asked Questions
If I back out of buying a house in Ontario, do I only lose my deposit?
Can a seller in Ontario sue me for more than the deposit I paid?
What kinds of costs can a seller claim if the buyer does not close?
My buyer failed to close, and now I cannot complete my own purchase. What are my options?
Is there a cooling-off period for buying a house in Ontario?
Can I get my deposit back if my mortgage financing fell through?
Where would a claim about a failed closing in Ontario be heard?
Talk to a Lawyer Before the Closing Date
The deposit is where the cost of a failed closing starts. A seller may recover proven losses on top of a forfeited deposit, and where a sale and purchase were linked, those losses may go further than most people expect.
None of that means the situation is hopeless. Extensions, mutual releases, and mitigation arguments are real, and easier to pursue before a closing date.
Facing a closing that may not complete?
Qasim Ali, Principal Lawyer at Nihang Law, and the team act for buyers and sellers across Toronto, Scarborough, Brampton, and the rest of the GTA, handling the real estate and litigation sides of a failed closing together.
Contact Nihang LawThis article is for informational purposes only and does not constitute legal advice. Every legal situation is unique — consult a licensed lawyer before making any legal decisions.
About the author
Qasim Ali
Principal Lawyer · Nihang Law Professional Corporation · Toronto & Scarborough, Ontario · Law Society of Ontario
Qasim Ali is the Principal Lawyer at Nihang Law Professional Corporation, serving clients across Toronto, Scarborough, and the broader Greater Toronto Area. He provides full-service legal representation across immigration, real estate, family law, criminal law, civil litigation, employment law, wills and estates, and business law.
Nihang Law is particularly recognized for its depth in immigration and real estate law, a combination that serves newcomers and growing families navigating both legal systems at the same time.
Learn more about Qasim Ali →Sources & References
- Courts of Justice Act, R.S.O. 1990, c. C.43, s. 98 (relief against penalties and forfeitures) — https://www.ontario.ca/laws/statute/90c43
- Small Claims Court Jurisdiction and Appeal Limit, O. Reg. 626/00, as amended by O. Reg. 42/25 (limit raised to $50,000 effective October 1, 2025) — https://www.ontario.ca/laws/regulation/000626
- Limitations Act, 2002, S.O. 2002, c. 24, Sch. B — https://www.ontario.ca/laws/statute/02l24
- Condominium Act, 1998, S.O. 1998, c. 19, s. 73 (ten-day rescission period, new condominium purchases) — https://www.ontario.ca/laws/statute/98c19
- Varajao v. Azish, 2015 ONCA 218 (two-part test for relief from forfeiture) — https://www.canlii.org/en/on/onca/doc/2015/2015onca218/2015onca218.html
- Azzarello v. Shawqi, 2019 ONCA 820 (deposit forfeited on repudiation without proof of damage) — https://www.canlii.org/en/on/onca/doc/2019/2019onca820/2019onca820.html
- Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51 (duty to mitigate; onus on defendant) — https://www.canlii.org/en/ca/scc/doc/2012/2012scc51/2012scc51.html
- Forest Hill Homes v. Ou, 2019 ONSC 4332 (market change does not frustrate an agreement; damages measure) — https://www.canlii.org/en/on/onsc/doc/2019/2019onsc4332/2019onsc4332.html
- Paradise Homes North West Inc. v. Sidhu, 2019 ONSC 1600 (market change is not a radical change to the contract) — https://www.canlii.org/en/on/onsc/doc/2019/2019onsc1600/2019onsc1600.html
- Ontario Superior Court of Justice — civil claims information — https://www.ontariocourts.ca/scj/
- Law Society of Ontario — finding and working with a lawyer — https://lso.ca/public-resources
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