Around 22,000 pre-construction units are scheduled to complete in the GTA this year, most of them sold at 2021–2022 prices and appraising well below what the buyer agreed to pay. If you are one of those buyers, you have probably had the same thought everyone has:
“What if I just walk away and lose my deposit?”
That is not how it ends. Forfeiting the deposit is the first payment, not the last one.
Why builders no longer let buyers walk
In a rising market, a defaulting buyer was a gift. The builder kept the deposit, resold the unit for more, and made money on the failure.
That arithmetic has reversed. Builders are sitting on unsold inventory in a market where units are worth less than the contracts written on them. Letting you out now means eating the difference themselves, on projects financed by construction loans that the bank still expects to be repaid. Suing you is not vindictive – it is the cheaper option for them, and it discourages the next twenty buyers in the same building from trying it.
What default actually costs
Your agreement of purchase and sale became firm and unconditional when the review period expired. Failing to close is a fundamental breach, and Ontario courts consistently award builders the following:
Your deposits. Forfeited immediately. On a $1,000,000 purchase with a 5% deposit structure, that is $50,000 gone before the claim even starts.
The resale shortfall. The builder resells and sues you for the gap between your price and theirs. In a soft market that number runs from $50,000 to well over $200,000. Courts award it as long as the builder acted reasonably – meaning they re-listed promptly and sold at a defensible price.
Carrying costs. Property taxes, utilities, insurance and construction-loan interest for the months the unit sat unsold. Commonly $5,000 to $20,000.
Their commissions and legal fees. A second real estate commission plus the cost of suing you, often $15,000 to $40,000.
A judgment on your credit file for six to seven years, which affects every mortgage, loan and line of credit you apply for.
The precedent buyers should read
In Mattamy (Jock River) Ltd. v. Ishola, 2024 ONSC 6231, the court ordered the defaulting buyer to pay $87,714.49 in damages plus interest – on top of the forfeited deposit.
That is the pattern, not the exception. Ontario courts have been clear: a drop in the market, a failed appraisal, or a lender changing its mind are not defences. A judge may be sympathetic. The judgment is the same.
Once judgment is issued, enforcement is straightforward – liens registered against any other property you own, garnishment of wages and bank accounts, and writs of execution.
Most of these claims take 12 to 24 months to resolve, which means the liability hangs over you for years.
“I no longer qualify for a mortgage on my pre-construction property – what are my options?”
This is the most common version of the problem, and it usually has more solutions than people expect. What it does not have is time. Every option below requires the builder’s cooperation, and cooperation evaporates once you have already missed a closing.
Extend the closing date. If your financing is delayed rather than dead, builders will often grant an extension for a daily fee. Expensive by the day, trivial next to litigation.
Assignment sale. Sell your contract to another buyer, with the builder’s consent. There is normally an assignment fee, and consent is discretionary – but a completed assignment can get you out with part or even all of your deposit. In a falling market you may need to accept less than you paid. Losing $30,000 on an assignment beats a $150,000 judgment.
Alternative financing. B-lenders and private lenders will fund deals the banks decline. Rates are high and terms are short. It buys you a completed purchase and the option to refinance later, which is usually better than a breach.
Bring in a co-borrower. Adding a qualified family member to the mortgage and to title solves a surprising number of appraisal-gap files.
Negotiated mutual release. Sometimes the builder will release you in exchange for keeping part of the deposit and nothing more. Clean break, no litigation, no judgment. This is easiest to negotiate before you are in default, and nearly impossible after.
Increase the down payment. If the appraisal came in $80,000 low, the lender will fund on the appraised value and the shortfall is yours to cover in cash. Unwelcome, but it is a known number rather than an open-ended lawsuit.
Act early – that is the whole advice
Options shrink week by week. A buyer who calls six months before occupancy has all of the above available. A buyer who calls after missing the closing date has one option: negotiating the size of the judgment.
The moment you suspect you cannot close – the appraisal came in low, the lender pulled back, your income changed – get your agreement reviewed. Most of the leverage in these files comes from approaching the builder with a proposal before you have breached anything.
Frequently asked questions
How do I get out of a pre-construction condo contract? Three routes: the 10-day statutory rescission period after signing, an assignment to another buyer with the builder’s consent, or a negotiated mutual release. Simply not closing is a breach, not an exit.
Can you cancel a pre-sale condo contract? Within the 10-day cooling-off period, for any reason. After that, only if the agreement or the Condominium Act gives you a specific right – for example where the builder materially changes the unit or misses the outside occupancy date.
How does an assignment sale work in Ontario? You sell your rights under the purchase agreement before closing. The builder’s consent is almost always required, there is normally a fee, and many agreements prohibit advertising the unit publicly – which is why assignments take far longer to sell than resale listings.
Do you pay capital gains on an assignment sale? Often not capital gains at all. The CRA frequently treats assignment profits as business income, fully taxable rather than half. GST/HST also generally applies to the assignment. Get tax advice before you list it.
What are the risks of an assignment? Builder consent can be withheld, the fee can be substantial, the pool of assignment buyers is small, and if the deal collapses you are back on the hook for the original closing. Start early – assignments take longer to sell than resale units.
Will the builder really sue me? In this market, routinely. Courts award the resale shortfall plus carrying costs and legal fees on top of the forfeited deposit, and market conditions are not a defence.
How long does the pre-construction phase take? Commonly three to five years from signing to final closing, and delays beyond that are normal. Interim occupancy sits between the two, and occupancy fees are payable throughout it.
What should I do first if I think I cannot close? Get your agreement reviewed while the closing date is still ahead of you. Extensions, assignments and mutual releases are all realistic before default and nearly impossible after it.
Talk to us before the closing date, not after
Zinati Kay has acted on GTA pre-construction transactions for over 25 years. We offer flat-fee contract reviews and we negotiate directly with builders’ counsel on extensions, assignments and mutual releases.
If your occupancy or final closing is coming and the numbers do not work, call now – while you still have something to negotiate with.
416-321-8766 · john@zinatikay.com
General information only, not legal advice. Speak to a qualified real estate lawyer about your specific agreement.