Failing to close is not the same as walking away from a deal. An agreement of purchase and sale is binding once conditions are waived, and a buyer who cannot complete is in breach – with liability that runs well past the deposit.
What it costs a buyer
The deposit. Forfeited. On a Toronto purchase that is commonly 5% of the price.
The resale shortfall. The seller relists. If the property sells for less than your price, you owe the difference. In a soft market this is the largest number on the list, and Ontario courts award it routinely provided the seller acted reasonably in reselling.
Carrying costs. Mortgage interest, property taxes, utilities and insurance for the months the seller held the property waiting for a second buyer.
Their costs of reselling. A second real estate commission, and the legal fees of suing you.
A judgment on your credit file for six to seven years, affecting every mortgage and loan application afterwards.
The deposit is the entry fee, not the exit price.
Why sellers sue now when they used to shrug
In a rising market, a failed closing was rarely worth pursuing – the seller resold for more and kept the deposit. That has reversed. Sellers who accepted an offer at last year’s price and are now looking at a lower one have a real, quantifiable loss, and the case law is settled in their favour. Falling markets, failed appraisals and lenders changing their minds are not defences.
What to do before the closing date
Every option below needs the other side’s cooperation, and cooperation disappears the moment you are in default. The single most important thing is to act while the date is still ahead of you.
Ask for an extension. Sellers frequently agree, often for a per-diem fee covering their carrying costs. Expensive by the day, trivial against litigation. This is the most common solution and the easiest to obtain when requested early.
Fix the financing. If the lender pulled back on an appraisal, a B-lender or private lender may fund the deal at a higher rate. It is costly and short term, but it completes the purchase and leaves you free to refinance in a year.
Increase the down payment. Where the appraisal came in low, the lender funds on the appraised value and the gap is yours to cover in cash. Unpleasant, but a known number rather than an open-ended claim.
Add a co-borrower. Bringing a qualified family member onto the mortgage and title resolves many income-qualification failures.
Assign the agreement, if the contract permits it and the seller consents.
Negotiate a mutual release. Sometimes a seller will release you in exchange for the deposit and nothing further – a clean break with no judgment. Realistic before the closing date. Very difficult after.
If you are the seller and the buyer does not close
Do not simply keep the deposit and move on. Your obligation is to mitigate: relist promptly, at a defensible price, and document everything. A seller who leaves the property idle for months weakens the damages claim.
Instruct your lawyer to tender. Formally presenting the closing documents on the closing date proves you were ready, willing and able to complete. That evidence matters if the case goes to court.
Keep records of the relisting, showings, offers, and every carrying cost. The claim is built from those documents.
Deposits are not automatically yours. In Ontario a deposit held in trust is usually released only by mutual direction or a court order. Expect the buyer to resist.
Can a buyer back out before closing?
Only where the agreement allows it. During a conditional period – financing, inspection, status certificate – a buyer can walk away by not waiving the condition, and normally recovers the deposit.
Once the conditions are waived the agreement is firm. After that, “backing out” is breach, whatever the reason.
There is no general cooling-off period for resale homes in Ontario. Pre-construction condominiums are the exception: a 10-day statutory rescission period applies after signing.
Frequently asked questions
What happens if a buyer cannot close on the closing date in Ontario? They are in breach. The seller can grant an extension, or terminate and sue – keeping the deposit and claiming the shortfall on the resale plus carrying costs and legal fees.
Does the seller keep the deposit if the buyer backs out? Usually, but not automatically. A deposit held in trust is released only by mutual direction or a court order, so expect the buyer to resist. The deposit is also only the starting point of the seller’s claim, not the limit of it.
What is a liquidated damages clause? A term fixing in advance what a breach costs, commonly by stating the deposit is forfeited as agreed damages. Ontario courts enforce genuine pre-estimates of loss but will strike down clauses that operate as a penalty. Most residential agreements do not cap the seller’s damages at the deposit.
How close to closing can a buyer back out? Freely during the conditional period, by not waiving a condition. After the conditions are waived, not at all without consequences – whatever the reason.
What happens if a seller fails to close? The buyer can sue for damages, and because every property is treated as unique, can also seek specific performance – a court order compelling the sale. That remedy is not available to a seller against a buyer.
Can a closing date be extended? Only by agreement, recorded in a signed amendment. Ask as early as you can: a seller who has already booked movers and committed to their own purchase has far less room on the morning of closing than they had two weeks earlier.
Can Tarion delay a closing date on a new build? Tarion does not delay closings, but the Addendum sets out the builder’s permitted delays and the notice they must give. Where a builder misses a critical date without proper notice, delayed occupancy compensation may be payable and rescission rights can arise.
Is there a cooling-off period on a resale home in Ontario? No. Pre-construction condominiums have a 10-day statutory rescission period; resale purchases have none.
Call before the closing date, not after
LD Law LLP acts for buyers and sellers on Toronto and Ontario closings, including extensions, mutual releases, and claims arising from failed transactions.
If your closing is approaching and the financing is not in place, the options above are all still open to you. In a week’s time most of them will not be.
1551 Bloor Street West, Toronto · 416-747-9900
General information about Ontario law as of August 2026. Not legal advice.