Backing Out of a Home Purchase in Ontario: Your Deposit, the Mutual Release and Your Options

Cold feet, a falling market, a lender that changes its mind or a problem in a condominium’s finances can all make a buyer want to walk away from a deal, and a seller whose buyer will not close needs to know where they stand. This article explains the main ways out of a purchase in Ontario, what happens to the deposit, how the mutual release works and what each side can do. For more on failed deals, see our articles on what happens when a buyer backs out of a Toronto deal and what to do if your deal collapses.

Is a Signed Agreement of Purchase and Sale Binding?

Yes. Once the buyer and seller have signed an agreement of purchase and sale, and its conditions are satisfied or waived, each side is bound to complete the deal on the closing date. If one side does not, the other may have remedies. The conditions in your agreement, such as a financing or home inspection condition, are the main way a buyer can end a deal without penalty, and they work only as the agreement words them. For what the agreement contains, see our guide to the agreement of purchase and sale.

Legitimate Ways Out of a Purchase

• A condition that is not satisfied. Many agreements make the deal conditional on financing, a home inspection, a lawyer’s review of a condominium’s status certificate or the sale of another home. Whether you can end the deal depends on how the condition is worded, its deadline and how the agreement says notice must be given. Read those terms with a lawyer before the deadline passes. For condominium purchases, see our status certificate guide.
• A new condominium: the 10-day right to rescind. A purchaser who receives a disclosure statement and the condominium guide from the developer may rescind the agreement before accepting a deed in registerable form. The written notice of rescission must be received by the developer or its lawyer within 10 days of the latest of three events: receiving the disclosure statement, receiving the condominium guide and receiving the agreement signed by both sides. The developer must then promptly refund all the money received from the purchaser and credited toward the price, with interest at the prescribed rate (section 73 of the Condominium Act, 1998). A material change to the disclosure statement has its own rules (section 74).
• An agreement with the seller. The buyer and seller can agree in writing to end the deal. This is usually done by signing a mutual release that also says who receives the deposit (see below).
• The seller’s breach. If the seller cannot or will not deliver what the agreement promises, the buyer may have its own remedies. That is a different situation from a buyer walking away, and we cover it in our article on suing for specific performance.

A change of mind, a drop in the market, a rise in interest rates or a lender’s refusal after your conditions have ended are not conditions in the agreement. Unless the agreement says otherwise, they do not by themselves give you a right to end it.

What Happens to the Deposit if the Buyer Does Not Close

The deposit is normally held in trust by a real estate brokerage. RECO explains that a deposit gives the seller security that the buyer is committed to the agreement (see the RECO Legal Corner on deposits).

In Ching v. Pier 27 Toronto Inc., 2021 ONCA 551, the Court of Appeal for Ontario restated the general rule it had taken from an earlier decision: when a purchaser repudiates the agreement and fails to close, the deposit is forfeited without proof of any damage suffered by the vendor, and a vendor that suffers no loss may still keep the deposit, subject to relief from forfeiture (paragraph 67). The court added that a forfeited deposit is not damages for breach of contract. It stands as security for the performance of the contract (paragraph 79).

The facts in Ching show how this plays out. The buyers had agreed to buy a new condominium unit in Toronto for $1,347,000, and the agreement said time was of the essence. They had paid a total deposit of $214,238.85. After repeated delays in the building’s completion, their mortgage approval was cancelled and the sale did not close. The buyers argued that the delays let them cancel the agreement and asked for their deposit back. The trial judge found that they had affirmed the agreement and refused relief from forfeiture, and the Court of Appeal found no error.

Relief From Forfeiture: Can a Court Return the Deposit?

Section 98 of the Courts of Justice Act says a court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just. In Ching, the Court of Appeal said relief from forfeiture is an equitable and discretionary remedy and is not simply a mathematical formula (paragraph 78).

The trial judge in Ching looked at whether the buyers’ conduct was reasonable, whether the purpose of the forfeiture was to secure payment of money and whether there was a substantial disparity between the deposit and the damage caused by the breach (paragraph 69). The Court of Appeal noted that other decisions on real estate deposits have worded the test differently (paragraph 71), so courts do not always describe it the same way. It also noted that the vendor had incurred expenses of about $227,000 because of the breach and may have gained about $100,000 from the transaction once the unit was resold, and it still would not interfere with the refusal of relief (paragraph 78).

Relief is not automatic, and a buyer who has simply decided not to close should not assume a court will return the deposit. The size of the deposit, the seller’s actual losses and the buyer’s conduct can all matter.

Who Holds the Deposit and How It Is Paid Out

• A brokerage holds a deposit in a real estate statutory trust account.
• When a deal fails, RECO says the brokerage can pay out the deposit only under a mutual consent or release form signed by both the buyer and the seller, or by following a court order.
• RECO’s consumer deposit insurance does not respond when the buyer and seller cannot agree on who gets the deposit, because the money is not missing. It is in dispute.
• If a brokerage holds a deposit for two years without a determination of who should receive it, RECO says the deposit is transferred to, and held in trust by, RECO, which can also release it only under a mutual release or a court order (see the RECO deposit insurance FAQ).

The Mutual Release

A mutual release is a document signed by both the buyer and the seller that ends the deal and says who receives the deposit. It lets the brokerage pay the deposit out without a court order. Because both signatures are needed, a refusal by either side leaves the money in trust.

Read any release carefully before you sign it. A release can give up more than the deposit, such as a claim for damages, and some releases deal with costs or confidentiality. If the other side will not sign, the usual options are to negotiate, for example an agreed division of the deposit, to have your lawyer write to the other side, or to start a court claim asking the court to decide who is entitled to the money.

If You Are the Buyer and Want Out

1. Read the agreement now: the conditions and their deadlines, how notice must be given, the closing date, the deposit clause and whether time is of the essence.
2. If a condition has not been satisfied, give notice in the way the agreement requires, before the deadline.
3. If this is a new condominium, check the 10-day rescission window right away. It is short and is counted from the latest of three events.
4. Do not stop communicating or miss the closing date without advice. If you do not close without a legal excuse, expect the seller to claim the deposit and possibly more.
5. If you want to negotiate an exit, ask your lawyer to propose a mutual release in writing. A seller may agree to release some or all of the deposit but is not required to.
6. Keep your records: the agreement, amendments, notices and emails.

If You Are the Seller and the Buyer Will Not Close

1. Check that the buyer’s conditions were satisfied or waived and that your own obligations are ready, such as the documents and the delivery of the property as the agreement requires. A seller who is not ready to close can face a claim of its own.
2. Have your lawyer send a written notice, so the record of who did what and when is clear.
3. Do not expect the brokerage to release the deposit on your request. It needs a release signed by both sides or a court order.
4. Keep records of your losses, such as the cost of reselling and of carrying the property, and talk to your lawyer before you relist or sign a new agreement. The result of the resale was one of the things the court weighed in Ching.
5. Watch the time limit. A claim must generally be started within two years after the day it was discovered (see below).

Can a Seller Back Out of the Deal?

A signed agreement binds the seller as well as the buyer. A seller who refuses to close without a right to do so under the agreement or the law may face a claim by the buyer. A court that can order specific performance, which means ordering a seller to complete the sale, can also award damages in addition to it or in place of it (section 99 of the Courts of Justice Act). Specific performance is not automatic. See our article on suing for specific performance.

Time Limits and Which Court Decides

Under the Limitations Act, 2002, a proceeding generally cannot be started after the second anniversary of the day the claim was discovered (section 4). A claim is discovered on the earlier of the day the person first knew of the loss, that an act or omission caused it, whose act or omission it was and that a proceeding would be appropriate, and the day a reasonable person in the same circumstances ought to have known (section 5). When the clock starts can be argued, so do not wait.

A claim for a deposit or for damages is a civil claim. The Small Claims Court can hear claims for the payment of money up to $50,000, not counting interest and costs. For more than that, a claim goes to the Superior Court of Justice, or the claimant can give up the amount above $50,000 to stay in Small Claims Court (see Ontario.ca). Which court is right depends on the amount and the issues, so ask a lawyer.

Frequently Asked Questions

Can I back out of an accepted offer in Ontario?

Only if the agreement or the law gives you a way out, such as a condition that is not satisfied, the 10-day right to rescind a new condominium purchase, or a release signed by the seller. Once your conditions are satisfied or waived, a buyer who does not close without a legal excuse risks losing the deposit.

Do I lose my deposit if I back out?

If you repudiate a binding agreement and fail to close, the Court of Appeal for Ontario has said the deposit is forfeited without proof of the seller’s loss, subject to a court’s discretion to grant relief (Ching v. Pier 27 Toronto Inc., 2021 ONCA 551). If you validly end the deal under a condition or a statutory right, the agreement or the law deals with the return of your money. For a new condominium rescinded under section 73, the developer must promptly refund the money with interest.

Can the seller keep my deposit if the seller lost nothing?

The Court of Appeal has said a vendor that suffers no loss may nevertheless keep the deposit, subject to relief from forfeiture. A court has discretion to grant relief, but it is not a formula, and the buyer should not count on it.

Can the brokerage return my deposit if I ask?

Not on your request alone. RECO says the brokerage can pay out the deposit only under a mutual consent or release signed by both the buyer and the seller, or under a court order.

What if the other side refuses to sign the mutual release?

The deposit stays in trust. Your lawyer can negotiate, write to the other side or start a court claim asking the court to decide. RECO says that if a brokerage holds a deposit for two years without a determination, the deposit is transferred to RECO, which can release it only under a mutual release or a court order.

Can a seller back out of a contract before closing in Ontario?

A signed agreement binds the seller too. A seller who refuses to close without a right to do so may face a claim by the buyer, which can include a claim for specific performance or damages (Courts of Justice Act, section 99).

Is there a cooling-off period when I buy a resale home?

The 10-day right in section 73 of the Condominium Act, 1998 applies to a new condominium unit bought from the developer. For other purchases, whether you can end the agreement depends on the conditions in it.

How long do I have to sue over a failed deal?

Generally two years from the day the claim was discovered, under sections 4 and 5 of the Limitations Act, 2002. Get advice early, because when the clock starts can be disputed.

Which court hears a deposit dispute?

The Small Claims Court can hear claims up to $50,000, excluding interest and costs. Larger claims go to the Superior Court of Justice, or the claimant can give up the excess to stay in Small Claims Court.

Related: our articles on a buyer backing out, a collapsed deal and specific performance, our agreement of purchase and sale guide, our status certificate guide and our real estate litigation service.

Talk to a real estate lawyer about your property. Call (647) 696-8069 or book a free consultation. We serve clients in English, Hindi and Punjabi.

Legal Information, Not Legal Advice. This article is general information about backing out of a home purchase in Ontario, based on the Courts of Justice Act, the Condominium Act, 1998 and the Limitations Act, 2002 as shown on Ontario.ca on October 30, 2026, a decision of the Court of Appeal for Ontario and guidance from the Real Estate Council of Ontario. Your agreement and your facts decide your rights, so speak with a real estate lawyer before you act.