What Happens If a Buyer Doesn't Pay the Deposit in Ontario?

In Ontario, the deposit is usually due within 24 hours of the Agreement of Purchase and Sale being accepted, unless the agreement says otherwise. Sometimes a buyer wins a late-night bidding war, has buyer’s remorse the next day and decides not to pay the deposit, hoping that cancels the deal. It does not. Once the agreement is accepted, the buyer is bound by it. The seller can sue for the unpaid deposit, and for any loss if they have to sell to someone else for less.

This has become more common since offers started being made and accepted by email, as some buyers make offers on several properties at once and only follow through with one. Here is what to remember, whether you are a buyer or a seller.

Can a buyer cancel the deal by refusing to pay the deposit?

The answer is no. The buyer can be sued by the seller for any damages the seller suffers in selling to a different buyer.

What if the seller sells for more money? Can they still claim the deposit?

Yes. Even if the seller suffers no loss, they could still sue the buyer for the deposit that was not paid. Deposits work differently from most contract claims. Normally, a party who breaks a contract pays for the losses they cause. A deposit, though, is usually forfeited to the seller if the buyer fails to close, even when the seller has no actual loss, for example because they sold to someone else for more.

The BC Court of Appeal case Tang v. Zhang, which other provincial courts have relied on, confirmed that the seller is entitled to keep the deposit if the buyer is at fault. A buyer may get the deposit back in rare cases, such as when it is so large that a court considers keeping it “unconscionable”, and the circumstances of why the deal fell apart always matter.

How can sellers protect themselves?

Many listing agents ask buyers to bring certified funds or a bank draft when they present the offer, precisely so the buyer cannot try to cancel the following day. Sellers can also add stricter terms to the agreement, such as extra obligations on a buyer who fails to deliver the deposit after a firm offer.

If a buyer still does not pay, the seller can sell to someone else and then bring a claim for breach of contract, although the legal costs may make that not worthwhile. If you are selling, see why selling a home is easier when the legal work is predictable.

What can a buyer do if they cannot close?

The buyer can try to find another buyer to take their place through an assignment, if the agreement allows it. If other bidders were involved, one of them could be contacted to see if they would still be interested in taking over the contract. A buyer in this position should get legal advice right away.

Will the seller collect everything they are owed?

Not always. No two lawsuits are the same, and no buyer and seller are in the same circumstances. If the buyer is a first-time buyer with few assets, a seller may win a lawsuit but collect very little. If the seller knows the buyer has substantial assets, they will likely bring legal proceedings, as they will be confident in collecting what is owed.

Is it better to settle than sue?

In most cases, yes. Lawsuits are expensive, and they take an emotional toll as well. Think of how upset you get when you are given a traffic ticket and have to fight it in court. Now multiply the stress by one hundred. A court decision could also be made public, bringing you publicity you do not want. Figure out a fair settlement, if at all possible. For other ways a deal can go wrong, read 5 things for buyers and sellers to remember when things go wrong with their real estate agreement.

Talk to a Lawyer Before You Sign

It is always a good idea to consult a real estate lawyer before signing an agreement, whether you are buying or selling. Too often, a lawyer is only consulted once the deal is in place and the damage is done.

Buying or selling in Ontario? RealEstateLawyers.ca LLP serves buyers and sellers across Ontario and can review your agreement, including the deposit terms, before it becomes binding. Contact our team or get a quote.

Frequently Asked Questions

When is a deposit due in Ontario? When the agreement says the deposit is payable “upon acceptance”, it is due within 24 hours of the offer being accepted, unless the agreement sets a different deadline.

Can the seller back out instead? A seller is bound by the agreement too. Read can a seller cancel their real estate agreement? for when that can happen.

Does a buyer get the deposit back if the deal falls through? If a condition in the agreement is not met, such as financing or inspection, the deposit is usually returned. If the buyer simply fails to close, it is usually forfeited to the seller.

This article provides general information only and is not legal advice. For advice about your agreement, speak with a lawyer.