When Real Estate Deals Collapse: What Happens to Deposits and Damages in Ontario?
- Sahil Bhardwaj
- 2 days ago
- 4 min read
By Sahil Bhardwaj | Bhardwaj Law Professional Corporation
In Ontario’s fast-moving real estate market, a failed deal can create enormous financial consequences, especially for buyers who cannot close on time. Courts have repeatedly reinforced a strict approach: a defaulting buyer almost always forfeits their deposit, and in a falling market, may owe substantial additional damages.
If you are a buyer or seller facing a potential collapse, understanding these rules and acting quickly can save you from significant financial loss.
1. Why Courts Treat Real Estate Deposits Differently
Unlike other types of contracts, real estate deposits are not treated as ordinary security. The law views deposits as a sign of commitment to the deal and a guarantee of performance.
Ontario courts follow long-standing common law principles:
The seller keeps the deposit when the buyer defaults, even if the seller suffers no loss.
The deposit is considered non-refundable unless the contract expressly provides otherwise.
Courts rarely show sympathy to buyers who fail to close.
This strict treatment is rooted in cases like Tang v. Zhang, where the British Columbia Court of Appeal reaffirmed that a deposit is forfeited regardless of whether the seller profits from reselling the property. Ontario has repeatedly adopted this reasoning.
2. “Time Is of the Essence”: Why Even Small Delays Are Fatal
Most Agreements of Purchase and Sale (APS) include the clause:
“Time is of the essence.”
This makes deadlines strict. A buyer who misses a closing, even by minutes, risks losing the deal and the deposit.
In Union Eagle v. Golden Achievement, a global leading case cited in Ontario, a buyer lost a 10% deposit for being only 10 minutes late in a high-value transaction.
Ontario continues to follow this harsh approach. In Xu v. 2412367 Ontario Ltd., involving a $40M Markham development property, the buyer failed to deliver an additional deposit on time because his financing from another sale was delayed. The court enforced the deadline strictly, allowing the seller to terminate and retain the $1M deposit.
Buyers must be prepared, organized, and fully financed, no exceptions.
3. The Buyer Usually Loses the Deposit, Even When the Seller Suffers No Damage
A buyer who defaults cannot argue:
“The seller resold for more money.”
“The seller didn’t lose anything.”
“I tried my best.”
“It wasn’t intentional.”
Courts view the deposit as an automatic forfeiture, not tied to proven loss.
This means a buyer may lose tens or hundreds of thousands of dollars even in a rising market.
4. When the Market Drops: Buyers May Owe More Than the Deposit
When prices fall, buyers who walk away can face devastating consequences. If the seller resells for less, the buyer must usually pay the difference, plus expenses, including:
Carrying costs
Interest
Legal fees
Re-listing or staging expenses
Mortgage penalties
Additional damages proven by the vendor
Example – Albrechtsen v. Panaich:
The buyer agreed to pay $1,260,000 but defaulted when the market fell following the foreign buyer tax. The home resold for $910,000, a $350,000 drop.
Result: The buyer forfeited the $60,000 deposit and was ordered to pay an additional $300,000 in damages.
This is not unusual in cooling markets.
5. The Key Ontario Case: Azzarello v. Shawqi (2019 ONCA 820)
The Ontario Court of Appeal clarified one important issue:
When the seller suffers damages, the deposit must be credited toward those damages.
What happened? - Deposits and Damages in Ontario?
Purchase price: $1.55M
Deposit: $75,000
Default occurred as the market softened
Resale price dropped by about $275,000
Trial judge allowed the seller to keep the $75,000 deposit and ordered the buyer to pay $309,000 in damages without crediting the deposit
The Court of Appeal corrected this, stating:
A deposit must be applied to the damages the seller claims.
This decision prevents unfair “double dipping” and confirms that buyers will not be penalized beyond the compensatory purpose of damages.
However, it does NOT change the fundamental rule:
A defaulting buyer still loses the deposit, even when the seller suffers no loss.
6. Seller’s Duty to Mitigate: What Sellers Must Prove
The seller must show they took reasonable steps to resell the property:
Proper listing
Fair pricing for current conditions
Professional marketing
No intentional delay to increase damages
However, sellers do not need to wait for the market to rebound. Selling in a weak market, promptly and reasonably, is fully acceptable.
7. How Buyers Can Reduce Risk Before Signing
To avoid catastrophic loss, buyers should:
Confirm financing before waiving conditions
Understand bridge financing timelines
Avoid aggressive bidding beyond budget
Include conditional clauses where possible
Seek legal advice early
Review deposit terms carefully
Once the APS is firm, the deposit is at risk—with extremely narrow exceptions.
8. Practical Advice for Sellers
Sellers facing a default should:
Document all attempts to resell
Keep detailed records of expenses
Avoid unreasonable price reductions
Move quickly to mitigate losses
Seek legal advice before re-listing or negotiating release
A proper litigation strategy can significantly strengthen the seller’s position.
9. Conclusion: In a Failed Deal, the Financial Stakes Are Enormous
Ontario courts take real estate defaults seriously. For buyers, the consequences can include:
Losing the entire deposit
Being sued for hundreds of thousands in damages
Facing liens, injunctions, or collection efforts
Significant credit impact
For sellers, a properly managed response can ensure recovery of all losses.
Whether you are a buyer or seller, legal advice must be obtained early. A missed deadline, unread clause, or overlooked financing issue can cost more than most people expect.
Need Legal Guidance? We Can Help.
At Bhardwaj Law Professional Corporation, we advise buyers and sellers across Ontario on:
Failed real estate deals
Deposit disputes
APS enforcement
Damages claims
Injunctions and litigation strategy
If your deal is in danger of collapsing, or already has, contact us immediately. Found this blog on, Deposits and Damages in Ontario, useful, subscribe for more updates.
Visit www.bblaw.ca or call us today for a consultation.
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