The best strategy depends on the wording of your agreement, the reason you cannot close, the time remaining, and your broader financial position. Haider Khan Legal P.C can help you determine your best course of action, and may be in a position to negotiate with the builder’s lawyer to obtain the best possible outcome.

1. Explore Alternative or Private Financing:

We can help you understand, from a legal perspective, options involving alternative lenders, private mortgages, bridge financing, or borrowing against another asset.

2. Request a Closing Extension:

If your financing problem is temporary, the builder may agree to extend the closing date. An extension may give you time to sell another property, obtain alternative financing, add a co-purchaser, or secure additional funds.

Builders commonly require an extension fee, reimbursement of carrying costs or legal expenses, an additional deposit, and a written amendment preserving their rights. The terms should be reviewed before you agree.

3. Add a Co-Purchaser or Guarantor:

A family member or another qualified person may be able to join the transaction and mortgage application. This can improve the combined income and debt-service calculations used by the lender.

Adding another purchaser requires the builder’s consent and appropriate documentation. It can also create ownership, tax, rebate, family-law, and liability consequences that should be considered before proceeding.

4. Request Vendor Take-Back Financing:

A vendor take-back mortgage allows the builder to finance part of the purchase price, often to address an appraisal gap. The purchaser closes and takes title, while the builder registers a mortgage for the unpaid portion.

The primary lender must usually approve any secondary financing. The interest rate, priority, repayment date, enforcement rights, and refinancing plan require careful review.

5. Seek the Builder’s Consent to an Assignment:

An assignment transfers the purchaser’s rights and obligations under the agreement to another buyer before closing.

Assignments are frequently restricted by the agreement. Builder consent, assignment fees, advertising limitations, tax consequences, and continuing liability may apply. Some agreements leave the original purchaser liable if the assignee later fails to close, so an assignment should not be treated as a complete release unless the documentation expressly provides one.

6. Negotiate a Mutual Release:

A mutual release can bring the transaction to an end and protect the purchaser against future claims arising from the failed closing.

The builder may demand forfeiture of the deposit and an additional settlement payment before agreeing to a release. Any settlement must clearly state that the purchaser is fully released from further liability. Surrendering the deposit without obtaining a written release may leave the purchaser exposed to a later damages claim.

7. Negotiate a Price Adjustment or Closing Credit:

In limited circumstances, a builder may consider reducing the purchase price or providing a credit on the statement of adjustments. Builders are not required to agree, and direct price reductions are uncommon because of their potential effect on other sales and property valuations.

A well-supported proposal may nevertheless be considered where it produces a better commercial outcome than default, resale, and litigation.

8. Move the Deposit to Another Unit:

If the builder has a less expensive unit available, it may agree to terminate the original agreement and apply some or all of the deposit toward a replacement purchase.

This is entirely subject to the builder’s agreement and the availability of a suitable unit. The replacement agreement and treatment of the original deposit must be documented clearly.

9. Close and Resell the Property:

If financing can be arranged, a purchaser may close and then sell the property. This can avoid an immediate breach but may create mortgage penalties, commissions, carrying costs, HST or GST rebate issues, and income-tax consequences.

Legal, mortgage, and accounting advice should be obtained before relying on this strategy.

A low appraisal, increased interest rates, unexpected closing costs, job loss, separation, or another change in financial circumstances does not automatically release you from your Agreement of Purchase and Sale.

Failing to close is generally a breach of contract. You may lose your deposit and face a claim from the builder for significant additional damages. However, depending on your agreement, financial circumstances, and how quickly you act, it may still be possible to negotiate an extension, assignment, financing arrangement, price adjustment, mutual release, or another resolution.

Pre-construction properties are often purchased several years before final closing. A buyer’s finances (and the real estate market) can change considerably during that period.

Common closing problems include:

• The lender’s appraisal is lower than the purchase price;

• The buyer cannot obtain a large enough mortgage;

• Interest-rate increases have reduced the buyer’s borrowing capacity;

• The buyer has experienced job loss, reduced income, illness, divorce, or separation;

• The buyer underestimated development charges, taxes, adjustments, legal fees, or other closing costs;

• Construction delays affected a previous mortgage approval;

• The buyer can no longer sell another property as expected;

• An investor purchaser cannot provide the required down payment; or

• The buyer no longer wants or can no longer afford the property.

Unfortunately, financial hardship, an appraisal shortfall, or a decline in the real estate market will not usually cancel a binding purchase agreement.

Generally, no. Once any applicable rescission period has expired, an Agreement of Purchase and Sale is normally a binding contract. A purchaser cannot ordinarily return the property to the builder as though it were a consumer product.

If you advise the builder that you will not close (or fail to provide the purchase funds on closing) the builder may treat the agreement as terminated because of your default. The builder may then retain the deposit, resell the property, and pursue you for its losses.

Do not assume that your maximum loss is limited to the deposit. The financial consequences can be substantially greater.

A purchaser who repudiates an agreement and fails to close will generally forfeit the deposit, even if the seller cannot prove an equivalent financial loss.

In Azzarello v. Shawqi, 2019 ONCA 820, the Ontario Court of Appeal confirmed that a purchaser’s deposit is ordinarily forfeited when the purchaser repudiates the agreement and fails to complete the transaction. Relief from forfeiture may be available in limited circumstances, but it should not be assumed.

Similarly, in Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, the Court upheld the forfeiture of a $750,000 deposit after the purchaser failed to close because it could not obtain financing.

Whether relief from forfeiture may be available depends on factors including the amount of the deposit, the circumstances of the breach, the parties’ conduct, and whether forfeiture would be unconscionable.

Yes. Losing the deposit may be only the beginning of the purchaser’s potential liability.

If the builder resells the property for less than your contract price, it may claim the difference between the two prices.

For example, if you agreed to purchase a unit for $900,000 and the builder later resells it for $700,000, the alleged loss of bargain may be $200,000 before accounting for the deposit and other adjustments.

The builder may also claim expenses arising from the failed closing and resale, including:

• Interest and financing expenses;

• Property taxes;

• Condominium fees;

• Utilities and insurance;

• Maintenance and carrying costs;

• Appraisal expenses;

• Real estate commissions;

• Marketing and resale expenses; and

• Legal costs.

The basic purpose of contractual damages is to place the innocent party in the financial position it would have occupied if the transaction had been completed. The calculation is fact-specific, and the deposit must be properly accounted for when assessing the builder’s damages.

Usually, not by itself.

Unless the agreement contains an applicable financing condition or another contractual right to terminate, the purchaser generally bears the risk of obtaining financing. A bank’s refusal to provide a mortgage, or an appraisal below the purchase price, does not ordinarily excuse the purchaser from closing.

Ontario courts have also held that a decline in market value does not normally frustrate a real estate contract. In Forest Hill Homes v. Ou, 2019 ONSC 4332, the Court rejected the argument that falling prices and an inability to borrow the required funds radically changed the parties’ agreement.

Your agreement must nevertheless be reviewed carefully. A contractual provision, builder conduct, disclosure issue, title problem, statutory right, or other circumstance may affect your legal position.

If no negotiated or financing solution is available and you fail to close, the builder may:

• Terminate the purchase agreement;

• Claim the deposit;

• Resell the property;

• Sue for any loss on resale and additional expenses;

• Seek pre-judgment and post-judgment interest;

• Seek a portion of its legal costs; and

• Enforce a judgment against available income or assets.

Depending on the circumstances and applicable enforcement law, judgment-enforcement measures may include garnishment and proceedings against property or other assets.

A default should be treated as a last resort—not as a simple method of cancelling the transaction.

Yes. After a purchaser defaults, the builder or seller must take reasonable steps to mitigate its damages. This may include making reasonable efforts to resell the property.

The law does not demand perfect mitigation. It requires reasonable conduct assessed in the circumstances and without hindsight. The purchaser alleging a failure to mitigate generally bears the burden of proving that reasonable steps were not taken and that those steps would have reduced the loss.

A seller is also not ordinarily required to accept a lower offer from the defaulting purchaser merely to reduce its damages. The Ontario Court of Appeal addressed this issue in Azzarello v. Shawqi.

Evidence about the resale process, listing history, marketing, offers, appraisals, timing, carrying costs, and market value may become important if the builder’s damages are disputed.

Act before the closing date. Early intervention provides more time to investigate financing, approach the builder, assemble supporting documents, and negotiate a resolution. You should contact a legal professional experienced with failed real estate closings immediately.

Even if the closing date has already passed, prompt legal advice remains important. The builder may have delivered a default notice, imposed a deadline, begun taking steps to terminate and resell, or served you with a statement of claim.

Haider Khan Legal assists purchasers dealing with anticipated and actual failures to close pre-construction properties in Ontario. Depending on the circumstances, our legal services may include:

• Reviewing the Agreement of Purchase and Sale, amendments, notices, and closing documents;

• Identifying the purchaser’s obligations and potential defences;

• Assessing deposit exposure and possible builder claims;

• Communicating and negotiating with the builder’s lawyer;

• Requesting an extension or other closing accommodation;

• Reviewing proposed assignments, amendments, or mutual releases;

• Negotiating a settlement intended to limit future liability;

• Responding to demand letters and default notices;

• Assessing claimed resale losses and mitigation efforts; and

• Representing the purchaser in eligible Ontario civil proceedings.

Every failed-closing matter is different. Our approach begins with the contract, the evidence, and the client’s immediate financial objectives.