What Happens If a Buyer Backs Out, Delays, or Fails to Close on a Home Sale?

Can a seller keep the deposit and sue a buyer who fails to close?

Usually yes, in Ontario. When a buyer breaches a signed agreement of purchase and sale by refusing, delaying, or otherwise failing to close, the standard contract terms found in Ontario agreements provide for forfeiture of the deposit plus liability for “all associated costs, losses and damages arising from the default,” and courts have enforced those terms as written (Dicenzo (Linden Park) Holdings Inc. v. Sadeghyar). In a separate Ontario case, a seller who sued for forfeiture of a $100,000 deposit and damages for breach of contract had the buyer’s competing claim dismissed and the seller’s counterclaim granted, subject to proving the damages amount (DHMK Properties Inc. v 2296608 Ontario Inc.).

This is a contract remedy, not a criminal or regulatory penalty: the seller has to actually pursue forfeiture and damages through negotiation or a court claim, and the buyer can contest the amount, the cause of the default, or whether the seller acted reasonably afterward.

Where this differs by jurisdiction

The core legal tools, deposit forfeiture, a damages claim, and the possibility of a court ordering specific performance, come from general contract law and a binding Supreme Court of Canada precedent, so they apply nationally, including in both Ontario and Alberta (Semelhago v. Paramadevan). The Ontario cases cited above give a clear picture of how Ontario courts apply these principles to a defaulting resale buyer. No equivalent Alberta court decision addressing this exact fact pattern (a resale buyer’s default and the resulting deposit-forfeiture and damages consequences) was located for this article, so the Alberta position on that specific scenario is not asserted here and should be confirmed separately if it matters to your situation.

Alberta does have one statutory protection that Ontario’s general common law does not: for new-home purchases (including new condominiums), a buyer can cancel or rescind the purchase agreement within 10 days of signing it, without the forfeiture and damages consequences that apply to a later default (Buying a New Home Document Checklist, CPLEA). This right is narrow: it applies to new-home purchases under Alberta’s New Home Buyer Protection Act, not to resale homes, and it only lasts 10 days from signing.

What flips the outcome: specific performance and the mitigation duty

Specific performance, a court order forcing the sale to actually go through instead of awarding money, is not available automatically. The Supreme Court of Canada has doubted that specific performance is available to a purchaser as a matter of law in real property cases, treating it instead as a discretionary remedy (Semelhago v. Paramadevan), a point later confirmed in Ontario as still governing the analysis (Datta v. Eze). Even where a claimant seeks specific performance, courts have allowed damages to be assessed as of the date of trial rather than the closing date, which matters if property values moved in the meantime (Semelhago v. Paramadevan).

A second factor that can reduce what a seller recovers is the duty to mitigate. In one Ontario case, the defaulting buyer argued the seller’s damages claim should be dismissed or reduced because the seller refused a post-default offer to complete the original agreement, on the theory that refusing a reasonable chance to reduce the loss can undercut the damages claim (DHMK Properties Inc. v 2296608 Ontario Inc.).

What a seller (or buyer) can actually do next

For a seller facing a buyer who has backed out, delayed past the closing date, or refused to close, the practical options based on the case law above are:

1. Retain the deposit under the agreement’s default clause, if one exists.
2. Resell the property and pursue the buyer for the net shortfall (resale price below the contract price, plus carrying costs) if that shortfall exceeds the deposit.
3. Consider whether a reasonable settlement or completion offer from the buyer should be accepted, since refusing one can be raised later as a failure to mitigate.
4. In rare cases involving a unique property, ask a court to consider specific performance instead of damages, understanding that this remedy is discretionary, not guaranteed.

For a buyer, the main statutory exit outside of contract negotiation is Alberta’s 10-day new-home cancellation right; outside that narrow situation, backing out of a signed agreement exposes the buyer to the deposit-forfeiture and damages consequences described above.

A worked example

A buyer in Ontario signs an agreement of purchase and sale for $750,000 with a $50,000 deposit and a standard clause providing that a defaulting purchaser forfeits the deposit and is liable for associated losses. The buyer fails to close. The seller relists and eventually resells the property for $699,900, incurring $27,162 in resale and carrying costs. The seller keeps the forfeited $50,000 deposit and separately claims the shortfall between the original contract price and the resale price plus carrying costs as damages, following the same approach used in a comparable Ontario case where net damages of $218,804 were agreed between the parties after the deposit was forfeited (Dicenzo (Linden Park) Holdings Inc. v. Sadeghyar).

Common mistakes

• Assuming the forfeited deposit is the seller’s only recovery. Ontario case law shows sellers can keep the deposit and still sue for the remaining shortfall when actual losses exceed the deposit amount.
• Refusing a reasonable post-default offer to complete without considering mitigation. A seller who turns down a workable offer from the defaulting buyer risks having their damages claim challenged or reduced for failing to mitigate (Ontario).
• Treating specific performance as an automatic right. Both the Supreme Court of Canada and the Ontario Court of Appeal treat it as discretionary, not guaranteed, so a non-breaching party cannot assume a court will force the sale through.
• Confusing Alberta’s new-home 10-day cancellation right with a general right to back out of any resale deal. That statutory right applies only to new-home and new-condominium purchases under Alberta’s New Home Buyer Protection Act, not to ordinary resale transactions.