July 15, 2025
When a buyer fails to complete a real estate transaction, the seller is usually entitled to retain the deposit and sue for damages. If the deposit is less than the damages, the amount of the deposit is subtracted from the damages. If the damages are less than the deposit, the seller usually still retains the deposit.
THE ISSUE
What happens where the deposit is significantly more than the damages?
THE CASE
The Ontario Superior Court case of Arista Homes (Boxgrove Village) Inc. v. Ding reviews the law in this area.
The purchase price of the home was $1,368,286.92. Deposits were paid totalling $107,280.68.
The buyer failed to complete the purchase. The seller resold the property at a loss of $27,788.42. The issue in the case was who gets the balance of the deposit, $79,492.26.
The right of the seller to retain the deposit is known as forfeiture, a concept well established in law. This is distinguished from the right of the buyer to a return of the deposit, which normally happens when the failure to close is through no fault of the buyer. When the failure to close is the fault of the buyer, but they want the deposit back, they apply for relief from forfeiture. That was what happened in this case.
The judge applied the test for relief from forfeiture as set out in a recent Ontario Court of Appeal decision. Relief from forfeiture is available where:
- The sum forfeited is out of all proportion to the damages.
- It is unconscionable for the seller to retain the money.
The Superior Court judge concludes that the effect of the Court of Appeal decision is that where the buyer is at fault “it is all but impossible for the buyer to recover the deposit.”
In this case, the deposit was 7.7 per cent of the purchase price. Prior decisions have found deposits of 8.3 per cent, 20 per cent and 25 per cent to be proportionate.
As to unconscionability, the judge refers back to a 2018 Court of Appeal decision which states that: “the finding of unconscionability must be an exceptional one, strongly compelled on the facts of the case.”
The judge further explains that:
Where there is no flagrant disproportionality between the purchase price and the deposit, the court looks to other indicia of unconscionability: inequality of bargaining power, a substantially unfair bargain, the relative sophistication of the parties, the gravity of the breach, the conduct of the parties, etc.
This case was distinguished from a 2024 case where the buyer was a vulnerable widow working two jobs while undergoing cancer treatment, and the seller was found to have deliberately misled the buyer. That is the sort of facts that lead to a finding of unconscionability.
A failure to obtain financing in an unconditional deal is NOT unconscionability.
The seller got to retain the deposit.
TAKEAWAYS
- It is all but impossible for a buyer to obtain a return of their deposit if they fail to close a home purchase through their own fault.
- Where the agreement of purchase and sale is unconditional, or conditions have been waived, failure to close will likely be found to be the buyer’s fault.
- Unconscionability is a requirement for relief from forfeiture, and it requires there to be an exceptional situation.
- Unconditional offers are risky, as is waiving conditions prematurely.
WHAT WEILERS LLP CAN DO TO HELP YOU
If you are uncertain about the terms of your agreement of purchase and sale, our real estate lawyers would be happy to explain them to you. All that we ask is that you hire us to close the deal on your behalf if you go ahead.
If you are in the unfortunate position of not being able to close, our real estate lawyers will do their best to extract you from the deal at the lowest possible cost.
If you are sued, our litigation lawyers are here to help.
If you have any questions about your real estate deal, give us a call. We might be the right lawyers for you.