You’ve signed an offer on a home, but something has changed. Perhaps your financing fell through, the inspection uncovered a serious issue or you’re simply no longer confident that the property is right for you. Whatever the reason, you may be wondering if it’s too late to reconsider.
So, can a buyer back out of a real estate deal in Ontario? Sometimes, but it depends on the terms of the Agreement of Purchase and Sale. A buyer may have a way out if the offer contains an active condition that hasn’t been satisfied. Once the agreement becomes firm, however, walking away can lead to the loss of the deposit and potentially much greater financial consequences.
When Does an Offer Become Legally Binding in Ontario
An Agreement of Purchase and Sale generally becomes a binding contract once the buyer and seller have accepted and signed its terms. It establishes the purchase price, closing date, included items, conditions and other responsibilities of both parties.
This is why an offer should never be treated as a temporary way to hold a property while you decide what to do. Once the seller accepts it, you may be legally required to complete the purchase unless the agreement contains a condition or another provision that allows you to end it.
The specific wording matters. Before taking any action, have a real estate lawyer review the complete agreement, including its schedules, amendments and any notices that have already been signed.
Can a Buyer Back Out of a Conditional Offer
A conditional offer gives the buyer a set amount of time to confirm that certain requirements can be met. Common conditions may relate to:
- Securing suitable financing
- Obtaining a satisfactory home inspection
- Reviewing a condominium status certificate
- Selling the buyer’s current property
- Confirming that the property can be insured
- Completing legal or other due diligence
If a condition can’t be satisfied, the buyer may be able to end the transaction without completing the purchase. That doesn’t mean every conditional offer in Ontario gives the buyer an unlimited right to change their mind. The buyer must act honestly, follow the wording of the agreement and provide any required notice before the deadline.
Some conditions are drafted to give the buyer discretion, while others set out more objective requirements. A lawyer can explain what a particular condition permits and how it must be exercised.
Buyers should also be careful when waiving conditions. Once a condition has been waived or fulfilled, it generally can’t be relied on later as a reason to leave the deal.
What Happens When the Offer Becomes Firm
A firm offer has no outstanding conditions that would allow the buyer to end the transaction. The offer may have been firm from the beginning, or it may have become firm after the buyer waived or fulfilled the conditions.
At that point, changing your mind normally isn’t enough to cancel the purchase. The same is true if you find another property you prefer, become worried that you offered too much or experience an unexpected change in your personal circumstances.
One of the most common problems arises when a buyer waives the financing condition and then can’t obtain the mortgage needed to close. A mortgage preapproval isn’t necessarily a guarantee of final financing. The lender may still consider the property appraisal, the buyer’s income, employment, debts and other information.
If financing is denied after the agreement becomes firm, the buyer may still be responsible for closing.
Are There Other Reasons a Buyer May Be Able to End the Deal
Conditions aren’t the only factors that can affect a buyer’s rights. A lawyer may need to examine the situation if:
- The seller can’t provide clear title to the property
- The seller fails to meet an important obligation in the agreement
- The property is seriously damaged before closing
- Important information about the property may have been misrepresented
- The parties agree to cancel the transaction
- A statutory cancellation right applies to the purchase
These situations don’t automatically give the buyer permission to walk away. Depending on the agreement and what happened, the appropriate response might be an extension, compensation, a correction of the problem or termination of the transaction.
The safest step is to obtain legal advice before telling the seller that you won’t be closing.
What Are the Consequences of Backing Out of a Firm Deal
The consequences of backing out of a firm real estate deal in Ontario can extend well beyond disappointment or inconvenience. A buyer who refuses to close may be in breach of contract.
The Buyer May Lose the Deposit
The seller may be entitled to claim the buyer’s deposit when the buyer fails to complete a firm purchase. However, the deposit holder generally can’t release disputed funds simply because one party requests them. The money may remain in trust until the parties provide proper authorization or a court determines what should happen.
Paying a smaller deposit doesn’t necessarily limit the buyer’s liability to that amount.
The Seller May Claim Additional Losses
The seller may place the home back on the market after the failed closing. If it sells for less than the original buyer agreed to pay, the seller may seek the difference from that buyer.
Depending on the circumstances, the seller may also claim other losses connected to the failed transaction, such as additional mortgage payments, property taxes, maintenance expenses and legal costs. This means a buyer’s potential financial exposure can be much greater than the real estate deposit.
Legal Action May Follow
A seller may take legal action to recover their losses. In some circumstances, a party may seek an order requiring the transaction to be completed, although the remedies available will depend on the property and the facts of the case.
A buyer concerned about closing should get legal advice early. Waiting until the closing date leaves less time to explore possible solutions.
Can the Buyer and Seller Agree to Cancel the Transaction
A deal can be cancelled if both parties agree. This is usually documented through a mutual release that sets out how the transaction will end and what will happen to the deposit.
The seller isn’t required to release the buyer simply because the buyer asks. The parties may negotiate compensation, legal expenses or other terms before reaching an agreement.
A buyer should have a lawyer review any proposed release. Once it has been signed, it may affect the buyer’s rights and ability to bring a future claim.
What Should You Do If You’re Considering Backing Out
Don’t assume the transaction has ended or stop preparing for closing without legal advice. Instead:
- Contact a real estate lawyer as soon as possible
- Provide the complete Agreement of Purchase and Sale
- Share all schedules, amendments, waivers and notices
- Identify any approaching condition or closing deadlines
- Continue working with your lender if financing is the concern
- Keep records of relevant conversations and correspondence
- Avoid making promises or admissions to the seller
Early advice gives your lawyer more time to determine if a condition is available, assess the potential consequences and discuss an extension, amendment or mutual release when appropriate.
Understand Your Options Before You Act
Backing out of a real estate transaction isn’t as simple as notifying the seller that you’ve changed your mind. Your rights and potential financial exposure depend on the conditions, deadlines and other terms in your agreement.
If you’re buying a home in Barrie or nearby and have concerns about completing the transaction, contact Lamprey Law before taking your next step. Our real estate lawyers can review your agreement, explain your options and help you respond with a clear understanding of what may come next.