Consequences for Purchasers Who Fail to Close on New Build Condos Under OREA APS

Understanding New Build Purchases and OREA APS

In Ontario, the purchase of a pre construction condo is governed by a detailed agreement of purchase and sale that is typically drafted using the Ontario Real Estate Association (OREA) Agreement of Purchase and Sale (APS). This agreement forms a legally binding contract once the buyer signed it, committing the buyer to complete the purchase on the agreed closing date. Unlike resale real estate transactions, a pre construction purchase involves unique risks tied to timelines, financing, and shifting real estate market conditions.

Under the OREA APS, the buyer agrees to pay the full purchase price on the closing date, subject to limited conditions. If the buyer fails to close, the innocent party, typically the builder or developer, may pursue a range of remedies. Ontario court decisions have repeatedly confirmed that the agreement of purchase is enforceable according to its terms, even where market conditions or personal circumstances have changed.

Common Reasons Purchasers Fail to Close on a New Build

Many home buyers underestimate the risks involved in a pre construction condo purchase. While enthusiasm is high at the time of purchase, circumstances may change before the closing date, sometimes years later.

Financing and Mortgage Issues

Financing remains the most common reason a buyer fails to close. Interest rates may rise significantly between signing and completion, affecting affordability and monthly mortgage payments. A lender may rely on a bank’s appraisal that comes in below the agreed purchase price or original purchase price, leaving a financial shortfall.

Changes in lending policies, reduced borrowing capacity, or reliance on one bank can also limit available financing options. Some buyers turn to private lenders, bridge financing, or alternative financing arrangements, often at higher cost. Where financing cannot be secured, the buyer’s breach becomes unavoidable.

Personal or Financial Circumstances

Unexpected changes in a buyer’s financial situation, such as job loss, illness, divorce, or obligations to family members, can impair the ability to close. A declining credit rating, increased debt, or the need to file a consumer proposal may further restrict future financing. In some cases, buyer’s remorse sets in when the real estate market softens and the market value falls below the purchase price.

External or Regulatory Factors

Construction delays, changes to municipal approvals, or unexpected developments charges can extend timelines and increase uncertainty. Although delays are common in pre construction, they rarely excuse a failure to close unless explicitly provided for in the agreement. Even where the seller fails to meet certain deadlines, the buyer must carefully assess whether termination rights truly exist.

Legal and Financial Consequences for Purchasers

The failed condo closing consequences can be severe. When a buyer fails to complete the purchase, the breaching party is exposed to significant legal consequences under Ontario real estate law.

Forfeiture of Deposits

The most immediate consequence is the forfeiture of the deposit amount. Ontario court rulings have consistently held that deposits serve as earnest money and may be retained by the innocent party without proof of loss. For many buyers, this results in a lost deposit worth tens or even hundreds of thousands of dollars.

Delayed Occupancy and Additional Fees

If a buyer fails to close on the scheduled closing date, the builder may incur additional costs, including extended carrying costs, utilities, insurance, and property taxes. These additional costs incurred may be claimed against the breaching party, along with administrative fees and real estate commissions payable on resale.

Claims for Damages

Beyond the deposit, builders often pursue damages where the unit is resold at a higher price loss or lower market value. If the new buyer purchases at a lower price, the original buyer may be required to pay damages equal to the difference between the original purchase price and the resale price, plus legal fees and ongoing carrying costs.

The Ontario Court held in several cases that where a party breaches a legally binding contract, the innocent party is entitled to be put in the position they would have been in had the agreement been performed.

Enforcement and Legal Remedies by Builders

When a buyer fails to close, builders have several legal options available.

Termination and Resale

The builder may terminate the agreement and resell the property to a new buyer. If the seller refuses to mitigate losses or delays resale unreasonably, this may affect damages, but the innocent party accepts wide discretion in timing under Ontario law.

Specific Performance

In rare cases, builders may seek specific performance, asking the court to compel the buyer to complete the purchase. While specific performance is less common for condominium units, it remains available where the property is unique or damages are inadequate.

Anticipatory Breach and Repudiation

Where a buyer communicates an inability or unwillingness to close before the closing date, this may constitute an anticipatory breach or anticipatory repudiation. Ontario Court decisions confirm that clear evidence of anticipatory repudiation allows the innocent party to terminate early and pursue remedies without waiting for the actual closing date.

Repeated findings of anticipatory breach emphasize that statements, conduct, or failure to secure financing can trigger immediate legal action.

Steps for Purchasers to Mitigate Liability

A buyer facing difficulty closing should act promptly to reduce potential consequences.

Assignment Sale

An assignment sale may allow the original buyer to transfer the purchase to a new buyer before closing. While not always permitted, an assignment sale can limit exposure to damages, particularly in a declining real estate market. Builders often charge fees and require approval, but this option may preserve future financing prospects and reduce harm to the credit rating.

Renegotiation and Communication

Open communication with the builder or real estate agent may allow for extensions, revised financing arrangements, or alternative closing structures. While not guaranteed, proactive engagement can sometimes prevent escalation.

Consumer Proposals and Insolvency Planning

In more severe cases, a consumer proposal may be considered. While this can address unsecured debt, it does not automatically eliminate liability under a purchase and sale agreement and may negatively affect credit rating and future financing.

The Role of a Real Estate Lawyer

Given the complexity of real estate transactions, early advice from a real estate lawyer is critical. An experienced real estate lawyer can review the agreement of purchase, assess exposure, and advise on legal options such as assignment sale, settlement negotiations, or defence strategies.

A real estate lawyer can also evaluate whether the builder properly mitigated losses, whether claimed additional costs are reasonable, and whether the party’s liability has been overstated. In litigation, an experienced real estate lawyer can represent the buyer before the Ontario Court, challenge claims for carrying costs, legal fees, and resale losses, and assess whether specific performance is appropriate.

Key Takeaways for Purchasers Facing Closing Risks

Failing to complete the purchase of a pre construction condo can expose a buyer to serious and lasting legal consequences. When a buyer fails to meet their own obligations under a purchase and sale agreement, the resulting breach may lead to forfeiture of deposits, claims for damages, and extended litigation before the Ontario Court. These risks are heightened in a shifting real estate market, particularly where rising interest rates, tightened lending policies, and declining market value affect affordability and financing.

Each agreement of purchase is fact-specific, and outcomes depend on the wording of the agreement, the conduct of the breaching party, and how the innocent party responds to the breach. What may appear to be an unavoidable financial setback can, in some circumstances, be mitigated through early legal intervention, negotiation, or alternative strategies such as an assignment sale.

This content does not constitute legal advice and is provided for general informational purposes only. Purchasers who are unable to close, or who anticipate difficulty meeting a scheduled closing date, should seek timely advice from an experienced real estate lawyer to assess risk, protect their interests, and determine the most effective course of action based on their individual circumstances and the governing agreement.

Why Choose Chand & Co.

Our firm represents purchasers and developers in complex real estate disputes arising from failed new build condominium closings. We understand that a failure to close can carry significant financial and legal exposure, and we approach each matter with a strategic, results-driven mindset.

Clients choose our firm because we offer:

• Focused Litigation Experience:
  • We regularly act in disputes involving breached agreements of purchase and sale, deposit forfeiture, damages claims, and builder enforcement actions before the Ontario courts.
• Practical, Strategic Advice
  • We assess risk early and provide clear guidance on liability exposure, negotiation strategies, and litigation outcomes, allowing clients to make informed decisions under pressure.
• In-Depth Knowledge of Pre-Construction Disputes
  • Our experience with new build condominiums allows us to identify issues unique to pre-construction purchases, including financing shortfalls, resale losses, and mitigation arguments.
• Client-Centred Representation
  • We understand that failed closings often arise from unforeseen personal or financial challenges. Our approach is direct, professional, and focused on protecting our clients’ long-term interests.

If you are facing a failed closing or anticipate difficulty completing a new build condominium purchase, timely legal advice can be critical. Our firm is well positioned to guide you through the process and advocate effectively on your behalf.