Failed real estate closing in Ontario

A failed real estate closing in Ontario is a breach of contract with an unusually large and unusually early consequence attached to it. There is no grace period. The day after the closing date, the arithmetic has already changed.

About this work

What happens on the day the deal does not close?

Nothing formal, which is part of why it goes badly. There is no filing, no hearing and no official notice. There is a closing date in the agreement, it passes, and the party who could not perform is in breach of contract from that moment.

In practice the lawyers exchange letters. One side tenders, or records that it was ready, willing and able to close and the other was not. The other asks for an extension. Whether an extension is granted is entirely a matter of agreement, and the price of one is usually a further deposit and a contribution to the costs the delay has caused.

The single most useful thing to do in the first 48 hours is preserve the record: what was sent, when, what the lender said and when it said it, and what each side was actually able to do on the day. A failed closing is litigated on whether each party was ready, willing and able to perform, and that is proved from contemporaneous documents rather than from recollection eighteen months later.

The second most useful thing is to stop the loss growing. A seller who does nothing for four months while the market falls has a larger claim on paper and a harder one to prove, for reasons the duty to mitigate makes obvious.

Written by the firm. Pending review by Kapil Rathod, Barrister and Solicitor, Law Society of Ontario licence 77122E.

What is at stake

Three separate exposures, and people usually only know about one

The deposit is what everybody asks about first. It is often the smallest of the three numbers, and on a falling market it is nowhere near the largest.

  1. The deposit

    Where a buyer fails to close, the general position is that a true deposit is forfeited to the seller, and the agreement of purchase and sale usually says so in terms. It is not automatic in every case: section 98 of the Courts of Justice Act allows a court to grant relief against penalties and forfeitures on such terms as to compensation or otherwise as are considered just.

  2. The difference in price

    This is the number that ends careers. A seller who resells for less than the contract price can claim the shortfall, credited with the deposit. On a property that has fallen in value between signing and closing, that difference can be many times the deposit, and it is a personal judgment against the buyer.

  3. The costs thrown away on both sides

    Bridge financing, storage, temporary accommodation, a second set of closing costs, carrying costs on a property that did not sell, and the cost of the resale itself. These are ordinary damages flowing from the breach and they are recoverable by whichever side did not cause it.

  4. And on the seller's side, the buyer's own claim

    A seller who cannot convey clear title or satisfy a valid requisition is the one in breach. The buyer's deposit comes back, and the buyer can claim the costs thrown away and the increased price of a comparable property. Section 99 of the Courts of Justice Act lets a court award damages in addition to, or in substitution for, specific performance.

Side by side

Which side failed to close?

6 points of difference

The remedies are not symmetrical, because the deposit sits on one side of the transaction and the land sits on the other.

The buyer fails to close

What happens to the deposit
Generally forfeited to the seller, subject to relief against forfeiture under s. 98 of the Courts of Justice Act
The main money claim
The seller's shortfall on a resale, plus costs thrown away, credited with the deposit
Is there a claim to the property itself
No. The seller keeps it and sells it again
Can anything be registered against title
No. A seller has no interest in land to protect and no basis for a certificate
Who has to mitigate
The seller, by relisting and taking reasonable steps to resell
How long to start it
Two years from discovery under s. 4 of the Limitations Act, 2002

The seller fails to close

What happens to the deposit
Returned to the buyer, and its return is not the limit of what the buyer can claim
The main money claim
The buyer's increased cost of a comparable property, plus costs thrown away
Is there a claim to the property itself
Specific performance may be sought, though damages in substitution are available under s. 99
Can anything be registered against title
A certificate of pending litigation may be sought, but only by court order under rule 42.01
Who has to mitigate
The buyer, by looking for a comparable property
How long to start it
The same two years, on the same presumption in s. 5(2)

The route

How does the process run?

6 stages, each with its own clock

The provisions below are Ontario statute and rules of court, named beside each point. What the agreement of purchase and sale itself says governs a good deal of this, and no two are identical, so it is read first.

01

There is no grace period

The agreement of purchase and sale

The closing date in the agreement is the date. Where a party cannot close on it, the other side may agree to extend, and frequently does in exchange for a further deposit or a contribution to costs, but it is not obliged to. Absent an agreement to extend, failing to close is a breach.

02

A court can relieve against forfeiture of a deposit

Courts of Justice Act s. 98

The deposit is not always simply gone. A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just. It is a discretionary remedy argued on the facts rather than a right, and the size of the deposit relative to the seller's actual loss is usually at the centre of it.

03

Damages can replace specific performance

Courts of Justice Act s. 99

A court that has jurisdiction to grant an injunction or order specific performance may award damages in addition to, or in substitution for, it. A buyer who wants the property rather than money still has to show the property is genuinely unique to them, and the court can order money instead.

04

A certificate of pending litigation is a court order, not a filing

Rule 42.01(1), (2), (3)

A certificate under section 103 may be issued by a registrar only under an order of the court. The claim for it has to be in the originating process, together with a description of the land sufficient for registration, and the motion may be brought without notice.

05

And registering one without a real claim is actionable

Courts of Justice Act s. 103(4), (5)

A party who registers a certificate without a reasonable claim to an interest in the land is liable for any damages sustained by any person as a result of its registration, and the amount may be determined in the same proceeding. A certificate on title stops a sale, which is exactly why the exposure for registering a bad one is real.

06

Two years, presumed to run from the closing date

Limitations Act, 2002 s. 4 and s. 5(2)

The basic limitation period bars a proceeding after the second anniversary of the day the claim was discovered, and a person is presumed to have discovered it on the day the act or omission took place unless the contrary is proved. On a failed closing that day is rarely in doubt.

Before the meeting

What to bring to the first meeting

6 things to bring

Bring what you have and say what is missing. A meeting with the papers in front of it settles in one sitting what two telephone calls will not.

  • ✓The agreement of purchase and sale, with every amendment and waiver
  • ✓The scheduled closing date, and what actually happened on it
  • ✓The correspondence between the two lawyers in the closing week
  • ✓Anything from your lender, including a refusal or a changed approval
  • ✓The deposit: how much, who holds it, and what the agreement says about it
  • ✓If there has been a resale or a replacement purchase, the price and the date

Our approach

A clear path forward

The same four steps on every matter, whether it is a refusal at the Federal Court or a ticket at the Provincial Offences court.

Book a consultation
01

Understand

We take the full history and read the documents before offering an opinion. Most bad advice comes from acting on half the facts.

02

Assess

You get a candid read on strength, timeline and cost, including when the honest answer is that you do not need to hire anyone.

03

Act

We prepare the application, the defence or the appeal properly the first time, because fixing a weak record later is harder and dearer.

04

Report

You hear from us at each stage, and you hear what a wait actually means rather than a date chosen to sound better.

Reported decisions

What has this work produced?

7 allowed of 22 reported since 2023

Public judgments of the Federal Court with Kapil Rathod as counsel of record, each checkable by citation on the court's own site. The rest were dismissed and are listed with these ones.

All case outcomes, including the client accounts

Where to go next

A failed real estate closing in Ontario is decided by the agreement, the resale price and what each side did in the weeks afterwards.

The deposit is the question everybody asks about and rarely the largest number, and there is no grace period to wait out.

The litigation practiceSmall Claims CourtBook a consultation

Common questions

What do people ask about failed closings?

8 answered here

Written to be read once and acted on rather than to be rung about. Each answer is complete where the law allows a complete answer.

Is the deposit simply gone?

Usually, if the buyer is the party who failed to close, and that is what the agreement of purchase and sale generally provides. A true deposit is forfeited on the buyer's default, and it stands as security for performance rather than as a part payment that has to be returned.

It is not absolute. Section 98 of the Courts of Justice Act gives a court power to grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just. Whether that power is exercised turns on the facts, and the argument is strongest where the deposit is very large in proportion to the loss the seller actually suffered.

It is also not the end of the exposure. Forfeiting the deposit does not discharge the buyer from the rest of the damages. Where the seller resells for less, the shortfall is claimed and the deposit is credited against it, which means a buyer who walked away thinking the deposit was the price of walking away can face a judgment for a great deal more.

Where the seller is the party in breach, the deposit comes back to the buyer, and that is the starting point rather than the settlement. The buyer's own losses are claimed on top of it.

Should you register something against the property?

A buyer whose seller refused to close often wants a certificate of pending litigation registered immediately, because it stops the seller selling to anybody else. Sometimes that is exactly right. It is never something you simply do.

Rule 42.01(1) of the Rules of Civil Procedure provides that a certificate of pending litigation under section 103 of the Courts of Justice Act may be issued by a registrar only under an order of the court. Rule 42.01(2) requires the claim for it to be included in the originating process, with a description of the land sufficient for registration. The motion may be made without notice under rule 42.01(3), and the order then has to be served forthwith.

The exposure sits in subsection 103(4). A party who registers a certificate without a reasonable claim to an interest in the land is liable for any damages sustained by any person as a result of its registration, and under subsection 103(5) that liability can be determined in the same proceeding. A certificate stops a closing, and a stopped closing generates quantifiable loss very quickly.

So the question is whether there is a genuine claim to an interest in the land, which in practice means whether specific performance is realistically available. Since a court can award damages in substitution under section 99, a buyer who really wants a certificate has to be able to say why money is not an adequate answer for this particular property.

How are the damages worked out, and what does mitigation change?

The measure is what puts the innocent party where performance would have put them. For a seller whose buyer walked, that is generally the contract price less what the property actually fetched on a resale, plus the costs thrown away, credited with the deposit. For a buyer whose seller walked, it is generally the cost of a comparable property above the contract price, plus the costs thrown away.

Both figures are subject to the duty to mitigate. The innocent party has to take reasonable steps to reduce the loss: a seller relists and sells, a buyer looks for something comparable. Reasonable is the standard, not perfect, and the party in breach is the one who has to show that reasonable steps were not taken.

That allocation matters more than it sounds. It means a seller does not have to prove they did everything right before recovering. It means a buyer arguing the seller sat on the property for a year and sold into a worse market has a real point, and has to make it out.

Neither party is obliged to accept a fresh offer from the other. An offer to buy the same property again at a lower price, or to sell it at a higher one, is a new bargain, and refusing it is not a failure to mitigate. Both sides remain held to the agreement they actually made.

Am I given extra time if I cannot close on the closing date?

No. There is no grace period. The other side may agree to extend and often will, usually in exchange for a further deposit and a contribution to the costs the delay causes, but it is under no obligation to. Without an agreement to extend, failing to close on the date is a breach of contract.

Is losing the deposit the worst that can happen to a buyer?

No, and that assumption is what makes these cases so damaging. The deposit is credited against the seller's damages rather than replacing them. Where the property resells for less than the contract price, the buyer can be liable for the shortfall and the costs thrown away, which on a falling market can be several times the deposit.

Can a court order the seller to complete the sale?

It can order specific performance, but it is not the default. The buyer has to show that the particular property is genuinely unique to them and that damages would not be an adequate answer, and section 99 of the Courts of Justice Act lets the court award damages in addition to, or in substitution for, specific performance.

Should I put a certificate of pending litigation on the property?

Only where there is a real claim to an interest in the land, and only by court order. Rule 42.01(1) requires an order for a registrar to issue one, and subsection 103(4) of the Courts of Justice Act makes a party who registers one without a reasonable claim liable for the damages it causes. A certificate that stops a sale creates loss very quickly.

How long do I have to bring the claim?

Two years, under section 4 of the Limitations Act, 2002, running from the day the claim was discovered. Section 5(2) presumes discovery on the day of the act or omission unless the contrary is proved, and on a failed closing the date the deal was supposed to complete is rarely in dispute.

Speak to someone this week

Bring the agreement of purchase and sale and the closing week correspondence. A failed real estate closing in Ontario gets more expensive while it is left alone.

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