What Can Happen If You Back Out Of A Real Estate Deal In Ontario?

In Ontario, if a buyer or seller backs out of a firm real estate agreement of purchase and sale ("APS") after it has been signed, the legal and financial repercussions can be severe, and it is recommended that you see a lawyer to discuss your specific situation immediately.

The following is a sample of some of the consequences and legal principles that may apply in these types of circumstances:

1. Breach of Contract

A signed APS is a legally binding contract. If the buyer or seller refuses to close without a valid contractually permitted reason, they are in breach of contract.

2. Possible Remedies for Breach of Contract

a. Specific Performance By The Seller

• The buyer can sue to force the seller to complete the sale.

• This remedy is especially available for unique or irreplaceable properties (e.g. heritage homes, investment properties in prime locations).

• The court may order the seller to transfer the property even if it’s already sold to someone else (unless the new buyer is a bona fide purchaser for value without notice).

b. Damages (Financial Compensation)

If specific performance is unavailable or impractical, the buyer or seller can sue for damages, including:

• Price differential: If the buyer had to purchase a comparable property for more money, or the seller had to sell for less money, then they can claim the difference.

• Lost deposits on new properties due to financing delays or inability to close.

• Out-of-pocket expenses: Appraisal fees, inspection fees, legal fees, mortgage rate lock losses, moving/storage costs, etc.

• Consequential damages: In some cases, courts have awarded damages for mental distress or business losses (though this is less common).

3. Good Faith and Fair Dealing

Ontario courts require parties to perform contracts honestly and in good faith. Buyers or sellers who attempt to back out of a real estate transaction without a valid reason, and engage in actions such as accepting a better offer or avoiding a previously agreed-upon price, may be subject to punitive damages, particularly if their conduct is deemed deceptive or manipulative.

Bottom Line

If a buyer or seller in Ontario backs out of a signed real estate deal, the consequences may include a lawsuit with claims for specific performance and/or financial damages stemming from the contractual breach.

Contact us today to discuss your situation in a real estate dispute with a paid online consultation. We can be reached at www.bprlitigation.com or by email at justin@bprlitigation.com. We would be happy to arrange a consultation to assist you further and address your specific questions and needs.