When a Buyer Walks Away From a Firm Deal (or You Need To): Deposits, Lawsuits and Mutual Releases in Ontario

Quick answer: In Ontario, a firm agreement of purchase and sale is binding. If a buyer refuses to close, the seller can usually keep the deposit, resell the home, and sue for the difference between the original price and the resale price, plus carrying costs and legal fees, after giving credit for the deposit. The deposit is not a “cap” on what a buyer can owe. Sellers have a duty to reduce their losses (resell reasonably and promptly). Both sides can often save time and money with a negotiated mutual release.

Key takeaways

• Buyers: losing your deposit is often the best case, not the worst.
• Sellers: don’t release the deposit or sign anything before talking to your lawyer, and relist quickly.
• Most of these disputes settle. Paperwork and timing decide who comes out ahead.

Why this is a 2023–2026 problem

Many buyers firmed up at peak prices in early 2022 with closings months later. When prices fell and rates rose, some couldn’t get enough financing to close. In 2026, with GTA prices still down year-over-year, this is still happening.

If you’re the seller: what you can claim

Example:

Courts look at whether the seller mitigated (reduced) their losses, for example by relisting promptly at a fair price.

Seller’s step-by-step

1. Confirm the default in writing through your lawyer, who sends a tender (proof you were ready to close).
2. Don’t hand back the deposit. It’s usually held in trust by the buyer’s brokerage, and releasing it normally requires both parties’ signatures or a court order.
3. Relist quickly with a realistic price.
4. Keep receipts for everything: mortgage interest, utilities, insurance, staging and legal fees.
5. Decide: settle or sue. Small Claims Court handles claims up to $50,000. Larger claims go to the Superior Court.

If you’re the buyer and can’t close: your realistic options

1. Act early. Weeks before closing, not days. Tell your lawyer immediately.
2. Try every financing route: another lender, an alternative (“B”) lender, a co-signer, a gift from family, or a short private loan.
3. Ask the seller for a short extension, in exchange for a larger deposit or paying their costs.
4. Propose a mutual release: you forfeit some or all of the deposit, and maybe pay a bit more, and in return the seller releases you from future claims. That certainty is often worth paying for.
5. Ask whether you can assign the agreement, if it allows it. It’s uncommon in resale, but some agreements permit it.
6. Never just stop responding. Silence makes a lawsuit more likely and settlement harder.

What a good mutual release includes

• Who gets the deposit (or how it’s split).
• A full release of all claims by both sides.
• No admission of liability (optional).
• Signatures from all buyers and sellers, plus the brokerage authorization to release the deposit.

Have a real estate lawyer draft it. A two-line email is not a release.

Can a buyer ever back out legally?

Usually only if:

• A condition wasn’t met or waived (financing, inspection, status certificate, sale of the buyer’s property) before its deadline.
• The seller breached the agreement, for example by failing to provide clean title, or if the home was substantially damaged before closing.
• There was misrepresentation (for example, a hidden defect the seller knew about and denied).
• In a new condo from a builder, during the 10-day cooling-off period.

Resale homes in Ontario have no cooling-off period. Once firm, they’re firm.

How to prevent this (for both sides)

Sellers

• Ask for a larger deposit (5% is common, often split into two payments in a soft market).
• Look at the buyer’s pre-approval and closing timeline, not just the price.
• Avoid very long closings with weak buyers.

Buyers

• Keep a financing condition, or at least get a written pre-approval with the appraisal risk discussed.
• Don’t firm up for more than an appraiser is likely to support. Ask your agent for comparable sales.
• Leave a cash buffer of 5–10% for low appraisals and closing costs.

FAQ

Can the seller keep my deposit if I can’t close?
Generally yes, and they may also sue for further losses beyond the deposit.

How long does a seller have to sue?
Ontario’s general limitation period is 2 years from when the claim was discovered. Speak with a lawyer promptly.

Is the deposit automatically released to the seller?
No. It typically requires both parties’ written agreement or a court order.

Can I back out of a firm offer on a resale home?
Not without consequences, unless a condition, a seller breach or misrepresentation gives you a legal basis.

General information only, not legal advice. Outcomes depend on the facts and your agreement, so consult a real estate lawyer.

Sources: Ontario: Suing someone in Small Claims Court ($50,000 limit since Oct 2025) · GTA market data, September 2026 (WOWA)