What Happens When A Buyer Can’t Close

When a buyer cannot close a real estate transaction in Ontario, the situation can lead to significant financial and legal repercussions. Here’s a breakdown of what happens and what both buyers and sellers need to know:

Forfeiture of Deposit

The first consequence is the loss of the buyer’s deposit. Ontario law dictates that if a buyer cannot close, the deposit is generally forfeited to the seller as compensation for the time the property was off the market. The deposit is intended as a commitment to the purchase and compensates the seller for the time the property was off the market. However, this forfeiture is not always automatic. The deposit is held in trust by the brokerage, and the seller may need a release or court order to access it if the buyer refuses to release the funds. Most cases favour the seller when the buyer defaults.

In summary, the deposit is usually forfeited, but the outcome can vary depending on the circumstances and whether the seller has suffered significant losses.

Further Financial Liabilities

Beyond the deposit, a buyer may also be liable for any financial losses the seller incurs due to the failure to close. This could include the difference between the original sale price and a subsequent lower sale price if the property is relisted, as well as carrying costs such as property taxes, utilities, and real estate commissions.

Mitigation of Damages

Sellers have a legal obligation to mitigate their losses by attempting to resell the property at a reasonable market price. Courts will consider whether the seller acted reasonably in their efforts to limit damages, but the buyer remains responsible for any difference between the original price and the new sale price.

Legal Actions and Lawsuits

Buyers who fail to close may face legal action from the seller. Courts in Ontario typically rule in favor of sellers if they can demonstrate that the buyer breached the contract. Buyers cannot simply back out of a deal due to changing market conditions or failure to secure financing.

Avoiding Legal Troubles

Buyers who find themselves unable to close should immediately seek legal advice and explore options such as negotiating an extension or a mutual release. While negotiating, buyers should be aware that even if a seller grants more time to close, further penalties or non-refundable deposits may be required.


The inability to close a real estate transaction is a serious issue with financial and legal consequences. Buyers must take proactive steps to ensure they meet all obligations, and sellers should act quickly to mitigate their losses. Consulting with a real estate lawyer is crucial to navigating these situations effectively.