March 23, 2026
The Ontario real estate market has undergone a dramatic shift over the past several years. With fluctuating interest rates, tightened lending criteria, volatile property values, and increased financial pressure on buyers, failed closings—especially in pre-construction—have become significantly more common. What was once a rare and exceptional situation is now an increasingly frequent legal issue affecting buyers, sellers, lenders, and builders across the province. Over the last decade, especially during market downturn, stories about buyers walking away from purchases have resurfaced with force.
Many people assume that if they cannot close on their home, they will simply lose their deposit and walk away. Unfortunately, this assumption is dangerously incorrect. In Ontario, failing to close on a real estate transaction—whether a resale property or a pre-construction condominium—triggers severe legal, financial, and credit consequences. Courts consistently enforce purchase agreements, uphold deposit forfeiture, and award substantial damages to sellers and builders. These damages can run into hundreds of thousands of dollars and, in many cases, exceed the deposit several times over.
This article explains why failed closings occur, what the legal consequences are, how damages are assessed, what enforcement tools sellers and builders can use, what courts have said in recent case law, and what strategic options buyers can pursue to protect themselves when they realize they may not be able to close.
Why Failed Closings Are Increasing in Ontario
A real estate closing fails when the buyer cannot complete the purchase on the scheduled closing date. In the current market, the most common causes include loss of job or income, inability to satisfy lender conditions, debt-service issues caused by higher interest rates, insufficient funds for the cash shortfall, and low appraisals resulting in lower mortgage amounts than expected. For pre-construction buyers, long construction timelines mean many purchasers qualify easily when they sign the Agreement of Purchase and Sale but struggle to qualify years later when interest rates, lending rules, and market values have changed dramatically.
Banks in Ontario are required to lend based on the property’s appraised value, not the contract price. If a property appraises lower than what the buyer agreed to pay, the bank will lend less. As a result, buyers must suddenly produce tens or even hundreds of thousands of dollars more in cash to close the transaction. Many cannot. This gap—known as the appraisal shortfall—is one of the primary drivers of failed closings in today’s environment.
All of these market factors combined have resulted in a wave of buyers unable to complete their transactions. But regardless of the cause, the law is clear: buyers are held to the contract they signed, and courts do not excuse failed closings simply because market conditions changed or financing fell through.
Understanding Your Legal Exposure When You Cannot Close
Once a buyer submits an offer and the seller accepts it, the APS becomes a binding contract. At this point, both parties are legally obligated to perform, but the structure of that obligation places far more immediate and measurable risks on the buyer. Even if interest rates rise dramatically or the appraised value of the property drops, the buyer is still bound to close. When a buyer fails to close, they are in breach of the Agreement of Purchase and Sale. This breach entitles the seller to retain the deposit and sue for damages. The law’s purpose is to place the seller in the position they would have been in had the buyer completed the purchase. This means the buyer becomes responsible for any financial loss the seller suffers due to the failed closing.
Ontario courts have consistently reinforced this principle across decades of case law, showing little sympathy for buyers who default due to financing issues, market declines, or personal hardship. While judges may understand a buyer’s situation, their role is to enforce the contractual rights of the seller or builder, not to rewrite agreements because circumstances have changed. This means that in almost every failed-closing case, buyers not only lose their deposit but are also held liable for all additional damages flowing from their breach.
Damages Claimed by Builders
Many buyers believe their exposure is limited to the deposit. This is incorrect. The deposit is almost always just the beginning.
When you default on a pre-construction deal, you face:
1. Forfeiture of Deposits
This happens immediately and without negotiation.
2. Liability for the Price Gap
If the market declines and the builder sells for much less, you pay the difference. This is often hundreds of thousands of dollars.
3. Ancillary Damages
Courts routinely award:
4. Long-Term Credit Damage
A court judgment remains on your credit for six to seven years. This affects:
5. Enforcement Measures
Once a judgment is issued, builders can use:
The moment a buyer defaults, the seller is entitled to treat the contract as terminated and pursue damages. But damages are not limited to the deposit. In fact, the deposit is merely the security for performance. Actual damages far exceed the deposit itself. Damages can include the difference between the original purchase price and the eventual resale price, the seller’s carrying costs during the delay, legal fees, additional real estate commissions, mortgage interest, property taxes, utilities, and any other losses reasonably incurred due to the buyer’s failure to close. Case law across Canada, including leading decisions from Ontario courts, consistently upholds that sellers are entitled to be placed in the financial position they would have been in had the buyer closed on time.
Example of Damages that Arise in a Builder’s Deal
To illustrate the structure of buyer liability, consider a historically common scenario: A buyer purchases a home for $1,200,000 at the peak of a strong market, provides a $60,000 deposit, and waives all financing conditions because pre-approval seemed solid. Months later, interest rates rise unexpectedly, causing lenders to significantly tighten lending requirements. At closing, the lender’s appraisal values the property at only $1,050,000. The buyer’s financing is now short by $150,000. The buyer panics and fails to provide the closing funds. In the legal sense, the reason for default does not matter. The lender’s refusal to lend the full amount is not a legal excuse for failing to close. The court will not accept “my financing fell through” as a defence. Nor will the buyer’s subjective belief that the property is no longer worth what they offered. The buyer has assumed the risk when they signed the Agreement of Purchase and Sale.
When the seller resells the property for $1,050,000, the seller’s damages become clear: the $150,000 price difference between the original deal and the resale. But this is only the beginning. The seller must pay real estate commissions on the resale transaction, often close to $50,000 on a price of $1,050,000. The seller may incur a mortgage renewal fee or an interest penalty because they needed funds from the original sale to discharge a loan. They may have had to make several months of additional mortgage payments, property tax instalments, home insurance payments, and utility bills while waiting to resell. Legal fees for both the collapsed sale and the subsequent resale accumulate. These added expenses frequently add tens of thousands of dollars to the total damages. In this example, even a conservative calculation may see damages reach $225,000 or more—far greater than the $60,000 deposit. Courts in Ontario will allow the seller to sue the defaulting buyer for the difference. The deposit simply offsets the judgment; the buyer is still responsible for the remaining amount.
Ontario courts have repeatedly affirmed that deposits are forfeited automatically upon buyer default, even if the seller suffers no loss. However, if the seller suffers losses, the deposit is applied toward those losses, and the buyer must pay whatever remains. When real estate values drop significantly between the original sale date and the resale date—as occurred in 2017, again in 2020–2021, and again during rate hikes in 2022–2023—buyers who default can face catastrophic financial liability. In some cases, judgments exceeding $300,000 or even $500,000 have been issued against buyers who walked away because they could not secure financing or because the market declined. These situations are devastating, yet entirely avoidable with proper legal and financial structuring.
Risks in Pre-Construction Condominium Deals
Signing an Agreement of Purchase and Sale for a pre-construction condominium is entering into a binding contract. After the 10-day cooling-off period has passed, these contracts are firm and unconditional, and there is no financing condition or adjustment based on market value.
Financing risk is one of the principal causes of buyer default, and it remains a risk even when buyers have pre-approval letters. Pre-approval is not binding, and lenders routinely change their underwriting standards, especially during periods of rapid interest rate increases or market instability. A pre-approval obtained in January may be worthless by April if the lender has modified its risk calculations. Appraisals, too, can derail an entire transaction. Lenders typically lend based on the lower of the purchase price or the appraised value. If the appraisal is significantly below the purchase price, the buyer must provide the difference out of pocket. Many buyers who are unaware of this requirement, assume the bank will finance the full amount. When buyers are unable to cover the shortfall, the deal collapses.
Today’s buyers face unprecedented challenges. Appraisals have dropped across many condo markets by 6.5% or more, interest rates remain elevated, and lenders have tightened their approval criteria. Buyers who purchased pre-construction units several years ago at high market prices are now struggling to secure enough financing to close.
Where once the appraisal supported the contract price, many buyers now find themselves underfunded by tens or hundreds of thousands of dollars. Without additional cash, the deal collapses. Courts have repeatedly confirmed that none of these market realities excuse a failure to close.
The rise of assignment sales and pre-construction contracts adds another layer of complexity. Assignments are particularly sensitive to market fluctuations because the assignor (the original purchaser) often expects to profit from selling their contract to a new buyer. However, when markets shift downward, assignors can find themselves unable to assign their contract for the price they need. If they fail to close, they are liable not only for their deposit, but also for the developer’s damages, which may include the difference between the original sale price and the new sale price, occupancy fees, legal fees, and other losses. Developers, unlike ordinary sellers, often have broader contractual rights in the event of default, including the ability to charge administrative fees, interest, and costs in addition to damages. For buyers who purchased pre-construction units at the height of the market, failing to close may result in financial exposure far exceeding the original deposit.
If a buyer cannot close, the consequences are severe. Several recent Ontario decisions highlight how strictly courts enforce these agreements.
The Great Expense v. Sokoloff (2024): A Clear Example of Buyer Liability
In The Great Expense v. Sokoloff, the buyers agreed to close on a Muskoka property for $9.4 million. They could not secure adequate financing after their initial lender withdrew its approval. The buyers attempted to negotiate a lower price to reflect market conditions. The sellers refused and eventually re-listed the property.;
The buyers ultimately defaulted, the sellers sued, and the court found:
While the exact damages will be determined at a later trial, this case re-establishes a critical principle: even high-net-worth buyers cannot rely on failed financing as a defence. The Agreement of Purchase and Sale is binding, and market changes do not alter the buyer’s obligations.
This decision aligns with a long line of Ontario cases demonstrating the courts’ consistent treatment of failed closings.
Why Builders Are Pursuing Defaulting Buyers More Aggressively Than Ever
In past market conditions, especially during the real estate boom from 2016–2021, builders often allowed buyers to walk away from pre-construction deals with little more than a deposit forfeiture. This was because values had risen so dramatically that re-selling the property made the builder more money than the original deal would have produced. Allowing defaults was profitable.
Today, the situation is the opposite. Many markets—especially the GTA—have seen price declines. Builders are sitting on significant unsold inventory, carrying large construction loans with high interest rates, and facing pressure from lenders and trade partners. A buyer walking away today often means the builder will suffer a substantial loss. It is no longer in the builder’s financial interest to release buyers easily.
As a result, builders are now pursuing full damages through litigation far more frequently. The courts are consistently awarding these damages, provided the builder acted reasonably in attempting to mitigate their losses.
Recent Case Law on Pre-Construction Defaults
Ontario courts have issued several important decisions confirming builders’ rights in failed closings:
In Mattamy (Jock River) Ltd. v. Glover (2024), the Court reaffirmed that builders are entitled to recover substantial damages when a purchaser fails to close, provided they take reasonable steps to mitigate their losses. The decision illustrates that a builder must adjust listing prices to reflect current market conditions, actively market the property, and give genuine consideration to reasonable offers received. When these steps are taken, the builder’s actions will be viewed as reasonable, and the resulting damages—often significant—will be fully upheld by the Court.
Lecco Ridge Developments Inc. v. Vaquero (2022 ONSC 6547)
The buyer defaulted. The court confirmed:
Mattamy (Jock River) Ltd. v. Ishola (2024 ONSC 6231)
The buyer defaulted. The court confirmed:
Tabrizi v. Majesty Development Group Inc. (2022 ONSC 1933)
The buyer defaulted. The builder was awarded:
Together, these cases establish a consistent pattern: courts protect builders, enforce the contract strictly, and award damages as long as the builder acts reasonably.
The Heavy Cost of Choosing Bankruptcy
Some buyers begin to consider bankruptcy when confronted with the possibility of six-figure damage awards, but it is important to understand that bankruptcy truly is a last resort. Although a bankruptcy discharge can eliminate unsecured judgment debts, the consequences are significant and long-lasting. You will lose your deposit entirely, your credit will be damaged for many years, and you must disclose all of your assets to the trustee. Depending on your income, you may also be required to make surplus-income payments for an extended period. In some professions, a bankruptcy filing can even affect your licensing or employment status. While bankruptcy may be the only viable path for certain individuals, it should never be the first solution pursued. Far better outcomes can often be achieved through early legal intervention, negotiation, or alternative financing before considering such a drastic step.
Role of Lawyers in Default Situations
Many buyers assume their lawyer can negotiate an extension or prevent them from losing their deposit if things go wrong. But lawyers cannot unilaterally change contract terms or override the APS. Extensions require mutual agreement, and sellers have no obligation to grant them. Even if the buyer’s lawyer requests more time because of financing delays, lenders changing terms, bank errors, or last-minute issues, the seller may refuse and proceed with a default notice. Lawyers can advise, strategize, communicate, and try to negotiate, but they cannot alter the fundamental contractual risk that rests on the buyer.
At the same time, a lawyer’s guidance is critical because the period immediately before closing is often filled with panic, misinformation, and fear-driven decision-making. A well-prepared lawyer helps buyers understand their obligations months before closing. They ensure buyers are aware of appraisal risks, lender funding risks, down payment verification, title insurance provisions, and the necessity of maintaining stable financial behaviour leading up to closing. A large percentage of failed deals arise from avoidable issues: buyers who take out new loans before closing, buyers who change jobs, buyers who overestimate how much financing they will obtain, or buyers who rely on family gifts that suddenly fall through. In all these situations, legal advice combined with proper mortgage planning prevents disaster.
The Support You Need from Bradshaw & Mancherjee
Today, buyers face challenges that are completely outside of their control, but the law remains firm: if you cannot close, you may be held responsible for substantial financial losses far beyond your deposit. Builders’ claims can easily add up to tens or even hundreds of thousands of dollars. Once a builder starts legal action, your options become limited, and the outcome becomes much harder to influence.
This is exactly why getting legal help early is so important. At Bradshaw & Mancherjee, we focus on stepping in before the situation escalates. Our goal is to protect you and to explore every possible alternative to minimize your financial exposure. With experience dealing directly with builders, builder’s lawyers, lenders, and assignment buyers, our team knows how to negotiate practical solutions that can genuinely make a difference. Depending on your circumstances, we may be able to negotiate more time for your closing, help you secure alternate or short-term financing, assist in finding an assignment buyer, or pursue solutions toward a mutual release to release you from the deal. These solutions only work when they are pursued early, and they require knowledgeable legal guidance—not last-minute scrambling.
Conclusion: Protecting Yourself in a High-Risk Market
If you are worried that you may not be able to close, you shouldn’t wait until the builder issues a default notice or takes legal steps. The sooner you reach out, the more strategies we can explore to protect you. Contact Bradshaw & Mancherjee as soon as concerns arise, and we will help you understand your options, communicate with the builder, and work toward the best possible outcome. You don’t have to face this alone, and getting the right legal advice early can make all the difference.
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