n a constantly shifting real estate market, buyers and sellers sometimes have second thoughts about their agreements. Maybe prices dropped, financing fell through, or personal circumstances changed. But before you decide to back out of a real estate deal in Ontario, it’s crucial to understand the legal consequences. Walking away could lead to serious financial penalties and even legal disputes.
Buyers: What Happens if You Back Out?
When a buyer signs a Purchase and Sale Agreement (PSA), it’s a legally binding contract. If you back out without a valid reason or condition, like failing to secure financing, you can face penalties.
- Loss of Deposit: Typically, you’ll lose your deposit. In Ontario, deposits can range from 5% to 10% of the purchase price—a significant amount.
- Potential Lawsuit: The seller can sue you for damages if they sell the property for less than your agreed price. You might have to cover the difference and legal costs.
Sellers: The Risks of Reneging
Sellers can also face consequences if they try to walk away from a deal after signing a PSA.
- Buyer’s Damages: If the buyer has invested in inspections, appraisals, or mortgage applications, they can sue for those costs.
- Court Orders: In some cases, a buyer can ask the court to enforce the sale, forcing you to complete the deal even if you want out.
Legal Grounds for Backing Out
Sometimes, there are legitimate reasons for withdrawing, such as:
- Unmet Conditions: If financing, home inspection, or sale-of-property conditions aren’t met, the contract may allow you to exit without penalties.
- Mutual Agreement: Both parties can agree to cancel the deal, often with terms negotiated by their lawyers.
Why Legal Advice is Essential
Before making a decision, consult a real estate lawyer. They can help you understand your contractual obligations, explore your options, and possibly negotiate a solution. Backing out isn’t always straightforward—having the right legal support can save you from costly mistakes and unnecessary stress.
In real estate, understanding your commitment is key. Think twice, get advice, and stay protected.