With today’s slower real estate market, home purchasers and builders alike are seeing the value of their pre-construction homes, townhomes or condominiums plummet before the deal has closed. We are often asked to help purchasers back out of the deal or negotiate for a new closing price for the home. We are also sought out by builders when they see this happening with their purchasers. Can a purchaser be legally or financially successful in doing this? Sometimes. However, it can be costly and difficult.

Your purchase agreement is binding

In many cases, there is little incentive for the builder to agree. Why would they? In good faith, the builder sold the home at a higher price at the time the purchase agreement was entered into. Today, the market is not as strong in certain areas. The builder may not be able sell the property at the same price if they took the property to market today. The builder may have a solid agreement in place that guarantees their right to the original price and the original purchaser. Unless they don’t. And that’s where a lawyer can help.

There are many reasons why an agreement may not be enforceable. For example, have there been multiple delays in construction? Did the builder fail to give proper notice of the delays? Is there something the purchaser expected as part of their purchase that is no longer included, such as certain amenities or other features in a condo? Each case is different and needs to be considered based on the facts of the case. However, it is important to understand that short of a fundamental breach of the contract by the builder, backing out of the deal may be very difficult or even impossible.

For homes, townhomes and condos purchased with conditions, it is often much easier for the purchaser to get out of the deal. This depends on the wording of the conditions and whether or not the conditions have been satisfied. When there are no conditions for the purchase, it is much more complicated to untangle the deal.

What happens to your deposit if you terminate the purchase?

Despite the wording in many purchase agreements, the builder does not have an automatic right to keep the deposit when the purchaser terminates the contract. This is particularly so when the deposit was given to a real estate brokerage to hold in trust. The Real Estate and Business Brokers Brokers Act governs the use and release of those deposit monies – as does the Condominium Act.

The Tarion Addendum, which forms a key part of every purchase agreement for new homes and condos in Ontario, also protects the deposit monies and directs that in certain conditions it must be returned to the purchaser. This is regardless of what is stated in the purchase agreement.

Knowing what to do

For the builder or vendor of a pre-construction home, they have a number of options and rights if the purchaser wants to get out of the deal. However, they also have a public image and reputation to protect. The last thing a builder should want is for the unhappy purchaser to start speaking poorly about them on social media. So, what is a builder to do to protect both their reputation and profit margins in these situations?

In some cases, it makes sense for them to try to enforce the agreement. However, if it is clear that this purchaser cannot close the deal due to the poor financial position of the purchaser, the builder may simply want to cut its losses early on. One way to do this is to put the property up for sale and try to sell it for as close to the original selling price as possible.

All parties to legal proceedings need to mitigate or minimize their damages. You can’t just sit back and watch the losses add up and hope to recoup it in litigation. You need to take action – such as putting the property up for sale again. If the eventual sale results in a lower sale price, then you may be able to recoup the difference from the original purchaser who breached the first agreement.

Each case is different. If you are a purchaser or a vendor of a new home in today’s market, you would be better protected by contacting an experienced litigation lawyer at the first sign of trouble to try to stave off financial losses and costly litigation. It may cost you more upfront, but it will likely save you money over the long run.

The lessons to be taken from this?

For the purchaser, regardless of your resolve or the resolve of your lawyer to get you out of your purchase agreement, it is not always possible. However, if you and your builder are willing to compromise, you may be able to negotiate a reasonable solution.

For the vendor, you may be in a strong legal position that you can rely on. At the same time, sometimes being open to negotiation can save you energy, your reputation and much aggravation in the long run.


To discuss your unique situation, please call (416) 953-3334 or send an email to: info@siskinddoyle.com today.


NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Siskind Doyle LLP professionals will be pleased to discuss resolutions to specific legal concerns you may have.