Can't Close on Your Pre-Construction Condo? Here's What Ontario Buyers Need to Know
Purchasing a pre-construction condominium is an exciting milestone. Whether you're buying your first home, investing for the future, or purchasing a property for your children, pre-construction projects offer the opportunity to secure today's price and move into a brand-new unit years later.
However, many purchasers underestimate one important fact: when the closing date finally arrives, you are legally obligated to complete the purchase. If you cannot close, the financial consequences can be far more serious than simply losing your deposit.
As Ontario real estate lawyers, we regularly receive calls from purchasers who are only weeks away from closing and have discovered they cannot obtain financing or no longer have sufficient funds to complete the purchase. By that stage, the options are often limited.
Why Do Purchasers Fail to Close?
Unlike a resale home purchase, a pre-construction condominium may not close for three, four, or even five years after the agreement is signed. During that time, many things can change.
Some of the most common reasons purchasers are unable to close include:
Interest rates have increased significantly, reducing mortgage affordability.
The property's appraised value is lower than the original purchase price, resulting in a financing shortfall.
Employment or income has changed since the agreement was signed.
The purchaser has taken on additional debt, affecting mortgage qualification.
Unexpected closing costs leave the purchaser without enough funds to complete the transaction.
Many buyers qualify for a mortgage when they first purchase the unit but forget that they must qualify again when the condominium is ready to close.
Losing Your Deposit Is Only the Beginning
One of the biggest misconceptions is that if a purchaser cannot close, the builder simply keeps the deposit and resells the unit.
Unfortunately, that is rarely the end of the matter.
Builders are generally entitled to retain the purchaser's deposit. Depending on the project, deposits often total 15% to 20% of the purchase price, representing a substantial financial loss.
However, the builder may also pursue additional damages if the resale of the unit does not fully compensate for its losses.
For example:
Original purchase price: $900,000
Builder resells the unit: $830,000
Difference: $70,000
The builder may seek to recover that $70,000 from the original purchaser, in addition to retaining the deposit.
Additional Claims Can Increase Your Liability
Many purchasers are surprised to learn that the builder's claim may extend beyond the difference in purchase price.
Depending on the circumstances and the terms of the Agreement of Purchase and Sale, the builder may also seek compensation for expenses such as:
Legal fees
Marketing and resale costs
Additional carrying costs while the unit is being resold
Interest and other contractual damages
Every agreement is different, but the financial exposure can be significant.
Can You Simply Walk Away?
Some purchasers hope the builder will agree to terminate the agreement and return their deposit through a mutual release.
While builders occasionally negotiate settlements, they are under no obligation to do so.
In fact, builders often have strong legal rights under the Agreement of Purchase and Sale. Whether they choose to exercise those rights depends on the circumstances, including market conditions and the financial impact of the purchaser's default.
How Can You Protect Yourself?
The best way to avoid these problems is to plan well before closing.
When purchasing a pre-construction condominium, buyers should:
Review the Agreement of Purchase and Sale with an experienced real estate lawyer before signing.
Budget not only for the purchase price but also for land transfer tax, development charges, legal fees, Tarion enrolment fees, and other closing adjustments.
Speak with a mortgage professional well before occupancy and again several months before final closing to confirm financing remains available.
Avoid making financial decisions that could negatively affect mortgage qualification before closing.
Planning ahead can significantly reduce the risk of unpleasant surprises when the builder is finally ready to transfer title.
A pre-construction condominium purchase is a significant financial commitment that extends far beyond signing the Agreement of Purchase and Sale. Because several years may pass before closing, your financial circumstances, lending conditions, and the real estate market can change dramatically.
If you are unable to close, the consequences may include losing your deposit, being responsible for the builder's financial losses, and potentially facing legal action. Simply walking away from the transaction is rarely an option.
The best way to protect yourself is to understand your obligations before signing the agreement and to seek legal advice early if concerns arise during the construction period or before closing. Whether you are reviewing an Agreement of Purchase and Sale or preparing for an upcoming closing, we are here to help you understand your rights, minimize your risks, and ensure your transaction proceeds as smoothly as possible.
Author:
Rina You
Partner