APS Deposit Clause ExplainedWho Gets the Deposit on Buyer Breach?
Arthur Zhao · AZ Real Estate Partners
AZ AZ Real Estate Partners Real Estate Law · APS Clauses
AZ Real Estate Partners
APS Deposit Clause ExplainedWho Gets the Deposit on Buyer Breach?
If a buyer walks away, does the deposit automatically go to the seller? The answer is more nuanced than most people think.
Trust Account
Buyer Breach
TRESA Rules
What Is the APS Deposit Clause?
The deposit clause in an Agreement of Purchase and Sale (APS) specifies the good-faith payment a buyer submits after offer acceptance — the amount, the deadline, and who holds it. Under Ontario’s TRESA (Trust in Real Estate Services Act), deposits must be held in a brokerage’s trust account and cannot be released unilaterally by any party before a lawful authorization.
How the Deposit Flows
Offer Accepted — Deposit Due Within 24 Hours
The standard OREA APS requires the buyer to deliver the deposit by the end of the next banking day after acceptance — by bank draft or certified cheque, not personal cheque.
Deposit Enters the Brokerage Trust Account
Typically the listing brokerage holds the deposit in trust, though the APS can specify the buyer’s brokerage. The trust account is strictly regulated by TRESA and audited by RECO.
Normal Closing: Deposit Applied to Purchase
Before closing, the brokerage releases the deposit to the buyer’s lawyer, where it is applied as part of the down payment to complete the transaction.
Breach Occurs: Deposit Frozen
If either party breaches, the brokerage cannot decide on its own to give the deposit to anyone. It stays in trust until a Mutual Release is signed or a court issues an order.
Three Possible Outcomes After a Breach
Mutual Release
Both parties negotiate and sign a written Mutual Release specifying how the deposit is split — all to the seller, all returned to the buyer, or divided. The brokerage acts on the agreement.
Court Order
If parties can’t agree, the seller (or buyer) sues in Small Claims Court (under $35,000) or Ontario Superior Court. The brokerage releases the deposit as directed by the court order.
Unresolved Dispute
Without a Mutual Release or court order, the deposit can sit in trust for months or years. RECO requires brokerages to report and account for long-held trust funds.
Brokerage Legal Obligations Under TRESA
| Obligation | Requirement |
|---|---|
| Prompt Deposit | Must deposit received funds into trust by the next banking day — no delay permitted |
| Separate Trust Account | Trust funds must be kept entirely separate from the brokerage’s operating funds |
| No Unilateral Release | Only a signed Mutual Release or court order authorizes the brokerage to release the deposit |
| Record Keeping | All trust transactions must be documented and available for RECO audit at any time |
When Buyers Are at Risk of Losing Their Deposit
- Firm offer breach: Walking away from a firm (no-condition) offer almost certainly means the deposit goes to the seller
- Waived conditions: If the buyer waived conditions (e.g., home inspection) and then backs out, it’s treated as a breach
- Financing failure after waiver: A financing condition protects the buyer if used properly — but if waived and the mortgage falls through, the deposit is at risk
- Late deposit: Failing to deliver the deposit on time gives the seller grounds to void the contract
Deposit Amount: Market Norms & Strategy
3%–5%
Typical Ontario deposit range
24 hrs
Standard APS payment deadline
No Min
No legal minimum required
Deposit Strategy Tips
- A higher deposit (5%+) in a competitive market signals strong commitment and can tip a tie-break in your favour
- The deposit is not an extra cost — it counts toward your down payment at closing
- The higher the deposit, the greater your exposure on breach — only offer what you’re fully committed to
- Pre-construction deposits are typically 15%–20% paid in stages — review the builder’s contract carefully
Frequently Asked Questions
Who holds the deposit in an Ontario real estate transaction?
Under Ontario’s TRESA, the deposit must be held in a brokerage’s trust account — it cannot go directly to the seller or a sales representative personally. Typically the listing brokerage holds it until the closing date.
Does the seller automatically get the deposit if the buyer backs out?
No. When a buyer breaches the APS, the deposit does not automatically transfer to the seller. The seller must obtain either a signed Mutual Release from both parties or a court order before the brokerage can release the deposit.
What does the deposit clause in an OREA APS say?
The standard OREA APS deposit clause specifies the deposit amount, the payment deadline (typically by the next business day after acceptance), which brokerage’s trust account holds it, and that its disposition on breach is governed by Ontario law.
What is the difference between a deposit and a down payment?
A deposit is the up-front good-faith payment made shortly after the offer is accepted — it counts toward the total down payment. The down payment is the total buyer equity at closing (purchase price minus the mortgage loan). The deposit is part of, not in addition to, the down payment.
How much deposit is typical in Ontario?
There is no legal minimum, but market convention in Ontario is 3%–5% of the purchase price. In competitive Toronto markets, a higher deposit (5% or more) signals strong buyer commitment and can help in multiple-offer situations when other terms are equal.
Free Consultation
Unsure How to Structure Your Deposit?
I walk through every APS clause with my buyers before they sign — so you know exactly what you’re committing to.
Arthur Zhao · Real Estate Broker · FRI · ABR · SRS · MCNE · E-PRO · CLHMS & GUILD Elite · REAIS
VP & Branch Manager, Bay Street Group Inc.
Arthur Zhao
Real Estate Broker · FRI · ABR · SRS · PSA · MCNE · E-PRO · CLHMS & GUILD Elite · REAIS
VP & Branch Manager, Bay Street Group Inc.
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