Rules on Deposits for Home Purchases in Ontario

Recently, there has been an increase in clients selling their homes, and many have questions about handling deposits in the event of buyer default. Here’s a brief overview:

1. Can the seller refuse to return the deposit if they have not suffered a loss due to buyer default? The purpose of a home purchase deposit is to ensure the buyer fulfills the contract, not to compensate for losses incurred by buyer default. Therefore, if the buyer refuses to fulfill the contract, even if the seller relists the property and sells it for a higher price, the seller can refuse to return the deposit.

2. Can the buyer immediately get their deposit back if the seller defaults? Although, theoretically, if the buyer fails to complete the property transfer, it constitutes a fundamental breach, giving the seller the right to keep the deposit, this doesn’t mean the buyer can immediately retrieve the deposit. The real estate brokerage will insist that deposits can only be released to the seller when both parties have signed a Mutual Release, or there is a court ruling or mutual agreement. If the buyer refuses to sign the Mutual Release, the brokerage must keep the deposit in a trust account until a court ruling is made. If the seller believes their losses exceed the deposit amount, they can also refuse to sign the Mutual Release and sue for a refund in court.

3. If the seller's losses exceed the deposit amount, can the deposit be credited against the compensation owed? Although the deposit is not considered compensation for the seller's losses, the court will take the deposit into account when calculating the final compensation amount.

4. Is the contract invalid if the buyer fails to pay the deposit within the specified time after the offer is accepted? The contract remains valid, and the seller can pursue the buyer for the deposit and claim damage for breach of contract.

5. If the buyer defaults for their own reasons, can they request a partial refund of the deposit from the court? Courts generally do not intervene in the amount of the deposit, but if the deposit paid by the seller is deemed excessive, the court may reduce it based on the circumstances.

Disclaimer:

1. This blog is for reference only and does not constitute legal advice. For specific issues, please consult your lawyer.

2. The copyright of this blog belongs to Zeng Law Professional Corporation, Ontario, Canada. Without authorization, reproduction, reprinting, excerpting, or other means of copying, publishing, or distributing is prohibited.