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Your House Burns Down Between Offer and ClosingBuyer Rights Under Ontario Law
Sounds like a horror scenario, but OREA’s standard form has explicit clauses for it. Understanding “risk allocation” and “substantial damage” determines whether you walk away with your money or take possession of damaged property.
Who’s responsible if a house burns down between offer firm and closing?
Under Ontario’s OREA Standard Form of Agreement of Purchase and Sale, damage occurring between offer firm and closing — fire, flood, leaks, structural failure — is at the seller’s risk. The seller must hold all insurance policies and proceeds in trust until closing. If the damage is substantial, the buyer has two legal options: (1) terminate the agreement and recover all deposit money paid (without interest); or (2) complete the purchase and receive the insurance proceeds. If damage isn’t substantial, the buyer typically must complete but can require seller to fund repairs from insurance or accept a price adjustment. All decisions and notices must flow through lawyers, in writing, on tight timelines.
Five steps a buyer must take in order after damage
Notify your lawyer within 24 hours
First call after learning of damage: your lawyer. They assess whether the damage is “substantial,” then deliver formal written notice to the seller’s lawyer. Never contact the seller directly — all communications must run through counsel to preserve legal evidence.
Request the insurance policy and claim status
Your lawyer requests from the seller’s lawyer: (1) the seller’s home insurance policy, (2) the insurer’s claim file and adjuster’s report, (3) the claim amount and payout schedule. This determines which option (terminate or complete) makes more financial sense.
Assess whether damage is substantial
OREA doesn’t define “substantial,” but industry standards: (1) repair cost exceeds 10-20% of price, (2) structural impact (foundation, load-bearing walls, major roof loss), (3) smoke/water through whole house, (4) municipal closure of property. Single-room or minor exterior damage typically isn’t substantial.
Make your choice in writing (via lawyer)
Within a reasonable time (typically 5-15 days as recommended by counsel), choose: terminate or complete. Your lawyer drafts the formal notice. Without written notice, no choice is made — exceeding the window may forfeit some rights.
If completing: oversee repair + collect insurance
If completing the purchase, options include: (1) seller repairs with insurance funds before closing (may delay closing), (2) closing with insurance proceeds credited or held in escrow, buyer repairs after. Lawyer drafts the adjustment clause.
Three scenarios — three reasonable choices
Substantial damage + market dropped: terminate
If damage is severe and the market dropped 10%+ since signing, terminate and recover deposit. Buy a comparable home at lower cost without rebuilding hassle.
Minor damage + market rose: complete + adjustment
Single-room damage and rising market — completing is better. $50K insurance credit puts cash in your pocket; finding a replacement home is harder and more expensive.
Insurance shortfall: negotiate or terminate
If seller’s insurance is limited (co-insurance, low caps, excluded perils), proceeds may not cover repairs. Lawyers negotiate seller covering the gap, buyer accepting partial cost, or terminating.
My five rules for between-firm-and-closing damage
- Get your own insurance binder at firm—OREA covers seller’s trust, but a $50-150 binder doubles your protection.
- Communicate only through lawyers—direct contact with seller can hurt your legal standing.
- Get independent damage assessment—don’t accept the seller’s repair-cost estimate at face value.
- The decision window is tight—5-15 days typical; missing it can forfeit termination rights.
- Preserve all written evidence—policy, repair estimates, emails, municipal reports — for potential litigation.
Five common buyer pitfalls in damage situations
- Assuming the seller pays automatically—OREA gives you trust over insurance, not seller’s cash.
- Verbal repair agreements—non-written, non-lawyer-signed agreements are legally void.
- Waiting for insurance to settle—claims can take 2-6 months — beyond your decision window.
- “Looks fine after repair” isn’t compliance—substantial damage carries lifetime disclosure obligation.
- Settling for partial deposit return—OREA returns “all monies paid without interest or deduction”.
Frequently Asked Questions
If damage is partial, can I demand the seller fix it before closing?
Without specific clauses, no. But typically lawyers negotiate: seller repairs with insurance proceeds, closing date extended. Both sides accept this; written amendment to the agreement is required.
Should I get my own insurance after offer firm?
Strongly yes. Even with OREA’s seller-risk clause, if the seller’s insurer goes bankrupt, cancels, or denies the claim, you’re exposed. Ask your insurance broker for a binder ($50-150) covering the period from firm to closing. Double protection.
What about natural disasters (storm, snow load)?
Same principle. OREA’s clause covers “buildings…at the risk of Seller” for any damage between firm and closing. Fire, flood, storm, snow load — buyer has same two options: terminate or complete + insurance.
What if the insurance company stalls?
Insurers have a reasonable time (typically 30-60 days). If it exceeds your closing date, lawyers negotiate: (1) extend closing until claim settles, (2) closing with seller’s funds escrowed against expected proceeds. All in writing.
Can the seller secretly repair without telling me?
No. Any material change requires immediate disclosure. Concealing repairs constitutes misrepresentation. If discovered, the buyer can demand price reduction, terminate, or sue for fraud. Disclosure obligation begins the moment seller learns of damage.
Contact Arthur Zhao
Worried about the 45 days from firm to closing?
I’ve helped clients navigate between-closing damage scenarios — from damage assessment through lawyer/insurer coordination to terminate-or-complete decisions. Don’t DIY this — a professional team is your safety net.
🌐 arthurzhao.realtor · ✉️ arthurzhaorealtor@gmail.com
Arthur Zhao · Real Estate Broker · FRI · ABR · SRS · PSA · MCNE · E-PRO · GUILD Elite
VP & Branch Manager, Bay Street Group Inc.
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VP & Branch Manager, Bay Street Group Inc.
为大多伦多地区客户服务的双语经纪。专注于为首购、投资者和跨境家庭提供有结构的策略。先看透，再落笔。Bilingual broker serving the Greater Toronto Area. Specialty: structured strategy for first-time buyers, investors, and cross-border families. Knowledge before commitment.
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