Purchase and Sale Disputes – What Happens When a Home Sale Falls Apart
Purchase and sale disputes arise when a buyer or seller cannot, or will not, complete an Agreement of Purchase and Sale as agreed. The dispute may involve a failed condition, undisclosed property defect, title problem, deposit, missed closing date, or a party simply refusing to close. The legal consequences depend on the terms of the agreement and the circumstances surrounding the breakdown.
At Gionet Fairley Wood LLP, we work with clients across Barrie, Simcoe County, Muskoka, and Grey Bruce County who are trying to understand what their legal rights are when a real estate deal falls through.
What Are Purchase and Sale Disputes in Ontario?
The Agreement of Purchase and Sale (“APS”) is the contract between a home buyer and seller that sets out the price, closing date, deposit amount, and any conditions attached to a real estate transaction. Once both parties sign and any conditions are satisfied or waived, the agreement becomes firm and binding, and both the buyer and the seller are expected to close on the agreed date.
Real estate disputes that require legal intervention often arise when the parties disagree about whether the agreement was properly terminated, whether one party breached its obligations, or what consequences should follow from a failure to close.
Can You Back Out of a Purchase and Sale Agreement in Ontario?
Whether a buyer or seller can back out of a purchase and sale agreement depends largely on the terms of the agreement and whether it has become firm. While a buyer may be able to terminate the agreement if a condition, such as financing or a home inspection, has not been satisfied and the condition is properly invoked within the required deadline, that right generally disappears once the conditions have been waived or fulfilled. At that point, simply changing your mind is not usually enough to end the agreement without consequences.
A buyer or seller may still have legal options if the other party has breached the agreement or if circumstances have changed in a way that affects the parties' ability to complete the transaction. In some cases, the parties may agree to a mutual release, while other situations may involve a dispute over the deposit, damages, or whether the agreement can be enforced.
The wording of the APS and the circumstances surrounding the breakdown are critical, so it is important to get legal advice before refusing to close or taking steps to terminate the agreement.
Misrepresentation or Failure to Disclose by the Seller
A seller's disclosure obligations can become important when a property has a hidden defect that a buyer could not reasonably discover through ordinary inspection. Ontario law distinguishes between patent defects, which are apparent on reasonable inspection, and latent defects, which are not readily apparent. A seller may face liability where, for example, a known latent defect makes the property unsafe or unfit for habitation, or where the seller actively conceals a problem or makes a material misrepresentation.
When a seller misrepresents the condition of the property or actively conceals a known problem, the buyer may have grounds to walk away from the deal or pursue damages after closing once the issue becomes known. These claims often turn into litigation because they depend on proving what the seller knew and when, which is rarely a simple question to answer.
Title Problems Discovered Before Closing Can Cause Purchase and Sale Disputes
Before closing, a buyer's lawyer conducts a title search to confirm the seller can transfer clear ownership. That search sometimes turns up problems nobody expected, such as an unregistered lien, an old easement, a boundary that does not match the survey, or unpaid property taxes attached to the title. These issues can delay a closing or derail it entirely, and they often lead to disagreement over who is responsible for the cost and time needed to fix them.
A seller who cannot clear title by the closing date may be found in breach even if the delay was unintentional, which frequently pushes the parties toward negotiation or litigation to sort out the consequences.
What Happens When a Buyer Backs Out Without a Valid Reason
When none of these circumstances apply and a buyer or seller simply changes their mind, backing out of a real estate deal without a legal basis puts that party in breach of contract. For a buyer, one of the most immediate risks is losing the deposit. Depending on the circumstances and the terms of the agreement, a seller may be entitled to claim the deposit and may also pursue additional damages.
If the deposit does not cover the seller's actual losses, the buyer may also be responsible for additional damages, including the difference between the original sale price and a lower resale price, carrying costs such as mortgage interest and property taxes during the delay, and legal or real estate fees tied to relisting the property. In rare cases a court may even order the buyer to complete the purchase, though this remedy is uncommon and reserved for unusual circumstances.
Can a Seller Back Out of an Agreement of Purchase and Sale?
A seller generally cannot simply change their mind once an APS is firm. A seller who refuses to close, sells the property to someone else, or fails to deliver clear title is also at risk of litigation. Buyers in this position may seek the return of their deposit along with damages, and in some cases may ask a court for specific performance, which would force the seller to complete the sale. Sellers considering a change of plans or facing a title problem they cannot resolve in time, should speak with a lawyer before the closing date arrives.
What Happens to the Deposit When a Deal Falls Apart?
The deposit sits at the center of most real estate disputes because money has already been exchanged. When a withdrawal is supported by a valid reason, whether a properly invoked condition, a seller's misrepresentation, or a title defect the seller could not resolve, the deposit is typically returned. When a party defaults on a firm agreement without that kind of justification, the other side usually keeps or recovers it.
Deposit funds are held in trust by a lawyer or brokerage and cannot be released to either side without written consent or a court order, which is why disagreements over entitlement to the deposit are one of the more common purchase and sale disputes we see in our practice.
What Happens If Something Makes the Deal Impossible?
Not every failed deal involves a clear breach on either side. Buyers and sellers sometimes agree in writing to release each other from the agreement, often because personal circumstances changed on one side. A properly documented mutual release can end the transaction without a dispute, although disagreements over how the deposit should be split are still common.
In rarer situations, an event outside anyone's control, such as the property being destroyed by fire before closing, can frustrate the contract and make performance impossible through no fault of either party. The death or incapacity of a party to the agreement raises its own questions about whether an estate trustee or a person named under a power of attorney has the authority to complete the transaction, and these situations require legal guidance to resolve properly.
How Can Real Estate Disputes Be Resolved?
Purchase and sale disputes do not always have to end in court. Many buyers and sellers reach a resolution through negotiation, such as extending the closing date to allow more time to clear a title issue, agreeing to a price adjustment to reflect an undisclosed defect, or settling on damages without formal litigation.
When a resolution cannot be reached informally, mediation or a court application may be necessary to determine who is entitled to the deposit and whether further damages apply. Every situation is different, and the right approach depends on the specific facts that led to the breakdown.
How to Reduce the Risk of a Purchase and Sale Dispute
The best way to reduce the risk of a purchase and sale dispute is to address potential problems before the APS becomes firm. Buyers benefit from a thorough home inspection, a full title search conducted well before closing, and legal review of the agreement before signing. Sellers benefit from disclosing known material defects up front, confirming clear title early in the process, and working with legal counsel who can respond quickly if an unexpected issue arises.
When You Need a Lawyer For Purchase and Sale Disputes
If your APS is at risk of falling apart, getting legal advice can help you understand your rights before you take a step that could affect your deposit or expose you to a claim for damages. Our experienced real estate litigators can assess the agreement, the circumstances surrounding the dispute, and your options for resolving it.
We serve clients in Barrie, Simcoe County, Muskoka, Grey Bruce County, and throughout Ontario. Call us at 705-468-1088 or reach out through our website to arrange a consultation.
The information provided in this blog is for general informational purposes only and should not be construed as legal advice. If you have legal questions, we strongly advise you to contact us.