What are the Legal Implications When a Buyer Withdraws from a Real Estate Transaction

In Ontario's dynamic real estate market, both buyers and sellers must understand the binding nature of an Agreement of Purchase and Sale (APS). Once signed and all conditions are satisfied, the APS commits both parties to its terms, leaving little room for unilateral withdrawal without consequences. Although there are exceptions, most residential real estate purchases do not offer a cooling-off period, meaning parties cannot back out without potential penalties simply due to a change of heart.

Consequences for Buyers Backing Out

If a buyer decides to withdraw from the deal after all conditions have been met, several repercussions may follow:

Forfeiture of Deposit: The initial deposit, often a significant sum, is typically forfeited to the seller as compensation for the time the property was off the market.

Legal Action for Additional Damages: Should the seller incur further losses—such as a lower resale price, additional carrying costs, or legal fees—they may pursue the buyer for these damages. For instance, in Gamoff v. Hu, the buyers backed out after offering $2.25 million on a property. The sellers resold it for $1.77 million and successfully sued the original buyers for the $470,000 difference, in addition to retaining the $30,000 deposit.

Legal Avenues for Withdrawal

While the APS is binding, certain conditions or contingencies within the agreement may provide lawful exit strategies:

Unmet Conditions: Common contingencies include financing approval, satisfactory home inspection, or the sale of the buyer's existing property. If such conditions aren't fulfilled within the specified timeframe, the party protected by the condition may withdraw without penalty.

Mutual Agreement: Both parties can mutually agree to terminate the contract, potentially negotiating terms that address any incurred expenses or losses.

Mitigating Risks

To navigate the complexities of real estate transactions and minimize potential disputes:

Engage Legal Counsel: Retain legal counsel to guide you through the process and provide clarity on your obligations and rights.

Thoroughly Review Contracts: Ensure all terms, conditions, and contingencies are clearly outlined and understood before signing.

Affordability: It is important to understand how much you can truly afford before putting in an offer. At the very least, you should get a mortgage pre-approval and consider selling your house first so there are no surprises.

Let’s Make Your Residential Real Estate Dreams a Reality

Contact us today at 905-412-2288 or ppatel@pmplaw.ca to schedule a consultation and experience the PMP Law difference. Let’s make your residential real estate journey seamless, stress-free, and successful.