How Pre-Construction Deposits Work in the GTA — and Exactly How Much Tarion Protects
Arthur Zhao · AZ Real Estate Partners
Is your pre-construction deposit safe? The short answer: protected, but capped. In Ontario, deposits on new condominium units must be held in a lawyer’s trust account under the Condominium Act, and Tarion deposit protection covers condominium units up to $20,000 (plus limited accrued interest); any amount above $20,000 is protected only if the builder posts separate Excess Condominium Deposit Insurance (ECDI). Freehold homes work differently: for agreements signed on or after January 1, 2018, a deposit is covered up to $60,000 if the price is $600,000 or less, and 10% of the purchase price to a maximum of $100,000 if the price exceeds $600,000 — according to Tarion (2025).
A resale purchase has a single deposit. Pre-construction does not — it uses a staged deposit schedule, paid in installments on fixed dates written into the Agreement of Purchase and Sale. That cash-flow structure is the most fundamental difference between buying new and buying resale.
One typical rhythm I see across GTA projects (and this is an industry range, not a rule — every builder and project differs):
- On signing: roughly 5%
- Within 30 days: another ~5%
- At 90 / 180 / 365-day milestones: ~5% each
- Before occupancy: cumulatively around 15%–20%
What I tell clients: don’t fixate on the headline “20% down.” Copy every individual date and amount into your own calendar. Pre-construction often runs three to five years from signing to closing, and whether you can produce each installment on schedule determines whether you end up in default.
Your cheques are not handed straight to the builder to spend. Under the Condominium Act, 1998, condominium deposits must be held by a prescribed trustee (usually a lawyer) in a separate trust account. That first layer is statutory — it doesn’t depend on Tarion.
So what does Tarion do? It provides a second-layer backstop: if a deposit isn’t properly placed in trust, or the builder fails to return it, Tarion provides condominium deposit protection up to $20,000 (according to Tarion 2025, plus limited accrued interest).
The catch: your total deposits usually far exceed $20,000. What protects the excess? If the builder wants to use those funds for construction before the building is registered, it must first obtain Excess Condominium Deposit Insurance (ECDI), held by the trustee. In other words, protection above $20,000 comes from the ECDI policy, not from Tarion. That’s why I have clients ask their lawyer at signing whether the project carries ECDI and for how much.
Freehold homes (including freehold townhomes) follow a different Tarion rulebook, with much higher limits. For agreements signed on or after January 1, 2018:
- Price $600,000 or less: deposit protection up to $60,000
- Price over $600,000: 10% of the purchase price, to a maximum of $100,000
(For older agreements signed before January 1, 2018, the cap is $40,000.) These figures are according to Tarion (2025).
Why is freehold coverage higher than condo? Freehold deposits generally are not subject to a mandatory trust the way condo deposits are, so the exposure is larger — and Tarion’s direct protection limit is set higher to fill that gap. For freehold pre-construction clients, I run both tiers first so we know the worst-case recovery up front.
ℹ️ Key risk: if the builder cancels or goes bankrupt, how much comes back?
Plenty of GTA pre-construction projects have been delayed or outright cancelled in the past couple of years. If a builder cancels, defaults, or becomes insolvent, you should in principle get your paid deposits back — but whether you recover the full amount, and how fast, depends on whether the money sat in trust and whether ECDI was in place.
Hold onto this hard ceiling: Tarion’s direct deposit protection is capped at $20,000 for condos and a maximum of $100,000 for freehold homes (according to Tarion 2025). If you’ve paid $150,000 on a condo and the builder neither placed it in trust nor secured adequate ECDI, the amount above $20,000 is not backstopped by Tarion — you join the line of bankruptcy creditors, which often means cents on the dollar after a long wait.
This is exactly why I insist on confirming the deposit-holding arrangement before any money changes hands, not just the floor plan and the price.
ℹ️ 2025 onward: freehold buyers must notify Tarion within 45 days
This one is specifically for freehold buyers. Per legal summaries of the change, as of July 1, 2025, purchasers of new freehold homes must notify Tarion of the transaction within 45 days of signing the agreement of purchase and sale. Tarion has built in a transition period, and the accompanying deposit-coverage changes are being phased in (different sources cite implementation dates between 2026 and 2027 — confirm the current date on Tarion’s site).
The practical effect: buyers who give timely notice qualify for the maximum coverage above; those who miss the deadline may fall into a capped special-fund pool where claims are paid proportionally and individual limits can shrink. Condominium buyers are not affected by this change. My standard reminder to freehold pre-construction clients now is simple: within 45 days of signing, notify Tarion.
A resale deposit follows entirely different logic. You pay it to the listing brokerage, which holds it in its regulated real estate trust account, usually as a single sum (commonly around 5% of the purchase price in the GTA), credited toward your down payment at closing.
Three core differences:
- Who holds it: resale sits in a RECO-regulated brokerage trust account; pre-construction sits in a lawyer’s trust (condos) or may go directly to the builder (freehold).
- Protection mechanism: resale relies on RECO’s consumer deposit insurance; pre-construction relies on Tarion plus ECDI, with the explicit caps above.
- Time exposure: a resale deposit is locked for weeks to a few months; pre-construction installments sit with the builder for three to five years — a far longer exposure.
In short: a resale deposit is shorter, more standardized, and held inside a brokerage regulatory framework; a pre-construction deposit is larger, longer, and capped — so the diligence should be proportionally heavier.
- Is this a condo or a freehold home? The protection rules and caps differ completely.
- The staged deposit schedule: can I produce each installment on its date?
- Whose trust account holds the deposit? Is it spelled out in the agreement?
- For condos: does the project carry ECDI, and does it cover my total deposits?
- For freehold: do I plan to notify Tarion within 45 days?
- Have I checked the builder’s Tarion registration, project track record, and HCRA licensing status?
None of this is scare tactics — it’s pricing the worst-case recovery up front. Pre-construction itself is fine; the danger is not knowing the exact line your money is protected to.
Frequently Asked Questions
Q: Is my deposit on a pre-construction condo guaranteed safe?
Under the Condominium Act, condo deposits must be held in a lawyer’s trust account — that layer is statutory. Even if something goes wrong, Tarion provides condominium deposit protection up to $20,000 (according to Tarion 2025). But protection above $20,000 comes from the builder’s separately purchased Excess Condominium Deposit Insurance (ECDI), not from Tarion, so it’s worth having your lawyer confirm the project carries adequate ECDI.
Q: How much Tarion deposit protection does a freehold home get?
According to Tarion (2025): for agreements signed on or after January 1, 2018, a price of $600,000 or less is covered up to $60,000; a price over $600,000 is covered at 10% of the purchase price to a maximum of $100,000. That’s far higher than the $20,000 condo limit, because freehold deposits generally are not subject to a mandatory trust, so the exposure is larger.
Q: If the builder goes bankrupt, do I get my full deposit back?
In principle all paid deposits should be returned, but whether you recover the full amount, and how fast, depends on whether the money was in trust and whether ECDI was in place. Tarion’s direct protection has hard caps — $20,000 for condos and a maximum of $100,000 for freehold homes (according to Tarion 2025). Anything above those caps without trust or ECDI backing leaves you as a bankruptcy creditor, where recovery is often partial and slow.
Q: What's the difference between a pre-construction deposit and a resale deposit?
A resale deposit is typically a single sum (commonly around 5% of the price in the GTA) held in a RECO-regulated brokerage trust account, locked for only weeks to a few months. Pre-construction uses a staged schedule (often cumulating to around 20%), paid in multiple installments, with money sitting with the builder for three to five years, protected by Tarion plus ECDI subject to caps. Pre-construction is larger, longer, and capped.
Q: Is it true that freehold buyers must notify Tarion within 45 days?
Yes. Per legal summaries, as of July 1, 2025, buyers of new freehold homes must notify Tarion of the transaction within 45 days of signing. Buyers who give timely notice qualify for the maximum deposit coverage; those who miss the deadline may fall into a capped special-fund pool with proportionally reduced limits. The accompanying coverage changes have a transition period — confirm the current date on Tarion’s site. Condominium buyers are not affected.
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