APS Deposit Clauses: Your Rights When the Seller Backs Out

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TL;DR

When a seller defaults on a signed APS in Ontario, the buyer has the right to their full deposit back — and can go further, pursuing specific performance (forced completion of the sale) or damages including the price difference if they had to buy elsewhere at a higher cost.

Every Agreement of Purchase and Sale in Ontario contains a deposit clause specifying the amount, delivery method, timing, and what happens to the deposit if the deal falls apart.

Amount: Typically 1%–5% of the purchase price. On a $1M home, that’s $10,000–$50,000. A higher deposit signals buyer seriousness and can strengthen your offer in multiple-offer situations.

Timing: The deposit is due within 24 hours of offer acceptance, delivered as a certified cheque or bank draft (or wire transfer where accepted). Missing this deadline is treated as buyer default — the seller can void the contract.

Where it’s held: The deposit goes into the listing brokerage’s real estate trust account — regulated under REBBA. It is not the seller’s money. The brokerage holds it in trust until closing, at which point it’s credited toward the purchase price.

The “non-refundable” misconception: Many buyers hear that a deposit is “non-refundable” once conditions are waived. This applies when the buyer defaults. When the seller defaults, the entire framework is different — the deposit must be returned, and the buyer has additional legal remedies.

Seller defaults are less common than buyer defaults but do occur, usually in rising markets when sellers realize they’ve agreed to a price below current value:

Seller’s remorse after price appreciation: The most common scenario. Prices surge between offer acceptance and closing. The seller refuses to provide documents to their lawyer, delays the closing, or simply tells their agent they won’t complete the transaction.

Inability to discharge existing mortgage: If the seller’s mortgage balance exceeds the sale price (underwater mortgage), or if there are liens on title that can’t be resolved, the closing may fail through no malicious intent — but the buyer still has legal recourse.

Double-contracting: In rare cases, sellers accept offers from two buyers (intentionally or through administrative error). This creates serious legal exposure for the seller and their agent.

Misrepresentation discovered post-signing: If the seller concealed material defects and the buyer discovers this before closing, the seller may be in breach of their disclosure obligations under the contract.

When a seller defaults on a firm APS, Ontario law gives buyers several powerful remedies:

1. Deposit recovery: The deposit held in the listing brokerage’s trust account must be returned to the buyer. The brokerage cannot release it to the seller without the buyer’s signed consent (a “Mutual Release”) or a court order. If the seller refuses to sign a mutual release, the deposit stays in trust until the dispute is resolved — the seller cannot access it.

2. Specific Performance: Ontario courts can order a seller to complete the sale on the contract terms. This remedy is uniquely powerful in real estate because courts recognize that every property is unique — money alone can’t compensate you for the loss of a specific home. Courts have granted specific performance orders in GTA cases where sellers tried to back out during hot markets. This is time-sensitive; engage your lawyer immediately.

3. Damages for the price difference: If you elect not to pursue specific performance and instead purchase a comparable property, you can sue the defaulting seller for the difference. Example: your original deal was at $950,000; the equivalent property now costs $1,080,000 — you can claim $130,000 in damages, plus legal costs, moving costs, carrying costs, and other direct expenses caused by the seller’s breach.

4. Recovery of transaction costs: Inspection fees, mortgage application fees, rate-lock fees, legal fees incurred before the default — these are claimable as direct damages from the defaulting seller.

Critical First Step

Prevention is better than litigation. Here’s what a good buyer’s agent and lawyer will help you do at the contract stage:

Request a Seller Property Information Statement (SPIS): While not legally mandatory in Ontario, a signed SPIS creates a paper trail of the seller’s representations. If they later claim they didn’t know about a defect they disclosed on the SPIS, that’s a misrepresentation claim.

Document everything: Every communication with the listing agent — emails, texts, even WeChat messages — should be preserved. In a dispute, these records often determine outcomes.

Ensure clear, unambiguous contract language: Vague clauses about included chattels, repair obligations, or closing date flexibility become battlegrounds. Your agent should draft or review these with precision.

Have your lawyer review the APS during the condition period: This is particularly important for older homes, properties with renovation history, or any deal where you have any doubt about the seller’s circumstances. A $500 legal review during the condition period can save you from a $50,000 dispute after closing.

Seller Default: Buyer’s Response Path

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