If you sign an agreement to buy a property in Ontario and then fail to close, the seller can usually keep your deposit, even if the seller lost nothing. A courtroom battle over that rule reached the Ontario Court of Appeal in Redstone Enterprises Ltd. v. Simple Technology Inc. (2017 ONCA 282). The court backed the seller, and the case still guides how Ontario judges treat deposits today.
Here's what happened, what the court decided, and what it means if you're buying a home.
The facts
The deal involved a warehouse in Brantford, Ontario, priced at $10,225,000. The buyer planned to start a marijuana grow-op there, which required financing and a Health Canada licence.
The agreement required initial deposits of $300,000. When the Health Canada licence took longer than expected, the buyer paid another $450,000 to get an extension of the closing date. That brought the deposits to $750,000.
In the end, the buyer couldn't get the financing or the licence, and the deal never closed. The buyer refused to release the deposits, so the seller went to court for a declaration that it could keep them.
What the first judge decided
Ontario courts have the power to relieve a buyer from losing a deposit in some cases. Section 98 of the Courts of Justice Act lets a court grant relief against penalties and forfeitures on terms it considers just.
To win that relief, the buyer must meet a two-part test: the amount the buyer would lose must be out of proportion to the seller's damages, and it must be unconscionable for the seller to keep the deposit. In plain terms, "unconscionable" means so unfair that a court shouldn't allow it.
The first judge found no evidence of whether the seller lost any money. He decided that $750,000 reached a level where keeping all of it became unconscionable without that evidence, so he let the seller keep only $350,000.
What the Court of Appeal decided
The Court of Appeal reversed that decision. It held that the lack of evidence about the seller's damages did not make the forfeiture unconscionable.
The court gave an important reason. Land deposits are an exception to the usual rule that money forfeited after a breach must reflect a fair estimate of the other side's damages. A seller can keep a deposit even if the amount has no link to the seller's expected losses.
When a deposit isn't grossly out of proportion, the court looks at the whole situation. It considered these factors:
Neither side had an advantage in bargaining power.
Both parties were sophisticated.
The parties negotiated in good faith.
No fiduciary relationship existed between them.
As closing approached, the buyer raised weak complaints to escape the deal, while the seller stayed ready to close and was willing to extend the date for free.
The total deposit was slightly more than 7% of the price, which was not an unfair range.
The court said a finding of unconscionability happens only in exceptional circumstances. A seller who drives a hard bargain on deposits is not, by itself, acting unconscionably.
Why this matters if you're buying a home
Redstone involved a commercial deal between sophisticated companies, so a home buyer's situation can look different. Still, the case shows how Ontario courts think about deposits, and a few lessons apply to anyone buying:
Your deposit is at real risk if you fail to close. Once your agreement is firm, the seller can generally keep the deposit, even without proving a loss.
Courts rarely give deposits back. The buyer in Redstone lost a large sum because the court saw no exceptional unfairness.
Extensions can cost you more. The buyer paid $450,000 for extra time and still couldn't close. Think carefully before you pay to delay a closing.
A seller who stays ready to close helps their own case. If you try to escape a deal with weak complaints, a court may not look kindly on it.
Your financing condition protects you. If your financing fails after you remove that condition, you're in a binding contract. Our article on what happens if your mortgage falls through before possession covers that risk.
Other cases fill in the picture. The Court of Appeal has found a deposit so large that it was unconscionable in Scicluna v. Solstice Two Limited (2018 ONCA 176), so Redstone doesn't mean every deposit is safe to forfeit. Each case depends on its facts.
What to do if you can't close
If you think you might not be able to close, talk to a lawyer right away, before your closing date and before you pay anything extra for a delay. Early advice gives you more options, such as negotiating with the seller, arranging other financing, or understanding your exposure under your agreement.
Worried about an upcoming closing? Contact us, and we'll review your agreement and explain where you stand.