When Deals Stall: Managing Buyer Default in Real Estate Development

Guest Expert Series

As part of our ongoing Guest Expert Series, Finalyze CFO collaborates with industry specialists to explore the operational, legal, and financial challenges shaping real estate and construction today. This series is designed to give developers, investors, and operators practical insight into the risks, decisions, and strategies that influence long-term project and portfolio performance.

In this collaboration, litigation lawyer Ocean Enbar shares legal perspectives on failed closings, appraisal gaps, and buyer default risk in Ontario real estate development, and how these disputes increasingly intersect with financing, liquidity, and capital planning considerations.

Buyer default has become one of the defining risks in Ontario real estate development.

Across condominium, freehold, and purpose-built rental projects, developers are increasingly dealing with failed closings as appraisals fall short and financing conditions tighten.

For developers, a missed closing is not just a legal issue. It directly affects project cash flow, financing assumptions, and capital planning across the development lifecycle.

How Ontario’s Failed Closing Environment Has Changed

For much of the last decade, Ontario developers worried about getting to market. Between 2023 and 2026, the bigger concern became getting to the closing table. Across pre-construction condominium projects, purpose-built rentals, and freehold developments, buyers who signed at peak pricing are now struggling to close as appraisals fall short and borrowing power compresses. Files that once moved from conveyancing to occupancy are now moving from conveyancing to litigation.

For developers, a single buyer default is rarely an isolated issue. Missed closings can delay project cash flow, affect lender reporting, and place pressure on future phases of development.

From a financial strategy perspective, buyer default creates pressure beyond the individual unit. Delayed closings can reduce available liquidity and create uncertainty around project-level cash flow assumptions. For developers managing multiple phases or leveraged projects, even a small number of failed closings can affect broader capital planning decisions.

An under-used tool at the front end of a dispute is a request for a statutory declaration. A sworn declaration that the buyer is ready, willing, and able to close helps a developer distinguish a negotiation tactic from a true repudiation. The same exchange also creates an opportunity to request disclosure regarding the buyer’s assets, often negotiated as a condition of granting an extension. This can provide valuable insight into recovery prospects, particularly where the purchaser is a numbered company or an individual of questionable means.

How Key APS Provisions Are Interpreted in Court

“Time is of the Essence” Clauses

A “time is of the essence” clause, found in most agreements, does not independently impose a deadline. Instead, it establishes the consequences of missing a deadline already contained in the agreement. Courts generally enforce these clauses strictly. Builders can therefore expect courts to uphold termination rights where a purchaser misses a closing deadline, even by a narrow margin.

However, the clause cuts both ways. A builder relying on it must itself be ready, willing, and able to close on time.

Deposit Forfeiture

If a buyer walks away, Ontario courts generally allow the builder to retain the deposit without requiring proof of actual loss. Courts typically grant relief from forfeiture only when the deposit is grossly disproportionate to the damages and retaining it would be unconscionable. A threshold the Court of Appeal has described as exceptional. Deposits in the range of 5–10% are rarely disturbed.

Assignment and Nominee Structures

Investor purchasers often buy through corporations or reserve the right to direct title to a nominee. When these transactions fail, disputes frequently centre around identifying the proper contracting party and understanding the assignment chain. Agreements, amendments, assignment addendums, and consents should preserve the builder’s ability to pursue all parties involved in the transaction if default occurs.

Building Your Position Before a Dispute Escalates

Purchasers often repudiate an APS before the closing date through their words or conduct. Once they clearly indicate they cannot or will not complete the purchase, the builder is generally released from the obligation to formally tender on closing.

Common examples include requests for extensions accompanied by admissions that financing is unavailable, or communications asserting the APS is void. Courts have treated these situations as anticipatory breach. Builders should ensure all such conduct is documented carefully and preserved in writing.

Litigation-ready correspondence restates key dates, expressly reserves rights, and asks the purchaser to confirm its position within a defined timeline. If the conduct is treated as repudiation, the vendor should clearly state whether it accepts or rejects that repudiation. Builders should assume every communication may eventually be reviewed by a judge.

Common documentation gaps often undermine enforcement efforts. Examples include undocumented extensions, unsupported deposit increases, informal assignment consents, and poorly recorded tendering processes. In litigation, these gaps can materially weaken a builder’s position.

Enforcement: How Damages Are Calculated and Recovered

For builders, damages generally fall into two categories. These include carrying costs and the difference between the contract price and market value at the date of breach, less the retained deposit.

However, fair market value and mitigation efforts often become the central issues in litigation. Courts expect builders to re-list and re-sell properties in a commercially reasonable manner. Where re-listing aligns with industry standards and the resale is conducted at arm’s length, courts are more likely to recognize the resulting shortfall as recoverable damages.

From a capital planning perspective, litigation exposure is only part of the issue. Developers must also evaluate how carrying costs, delayed cash inflows, and resale timing affect project economics. This becomes especially important when financing structures and future phases depend on predictable closings.

Using Litigation Tools Strategically

Builders’ primary litigation risk in failed closings is often enforcement and recovery. Although purchasers cannot legally reorganize their affairs to avoid creditors, some attempt to transfer assets or reduce accessible equity before judgment is issued.

A Certificate of Pending Litigation (CPL) is a court-ordered notice registered on title. It can effectively freeze a property while litigation proceeds. Although CPLs are commonly associated with purchasers preserving claims against property, developers may also use them strategically where asset dissipation is a concern.

Where the purchaser is a numbered company with limited assets, builders sometimes attempt to pursue principals personally. Ontario courts impose a high threshold for piercing the corporate veil; an issue substantial enough to warrant its own discussion.

What This Means for Developers

• Buyer default is both a legal and capital risk. A proactive and structured litigation strategy helps reduce the financial pressure created by failed closings.
• Early documentation materially affects outcomes. Clear correspondence and properly documented extensions often carry more weight than arguments made months later during litigation.
• Legal strategy directly impacts financing and project performance. Developers should align transactional counsel, litigation counsel, and financial advisors before defaults begin affecting lender relationships.
• Developers should also treat failed closings as a liquidity-planning issue. Scenario modelling, lender communication, and cash reserve planning can materially reduce downstream pressure when defaults begin to accumulate.

This article is for informational purposes only and does not constitute legal advice. Contact Ocean Enbar at oenbar@PowellLitigation.com or visit www.oceanenbar.com for legal guidance regarding failed closings and related litigation matters.

About Ocean Enbar

Ocean’s work for his clients is anchored in an ROI framework: legal costs are always framed as an investment, and every matter is assessed for cost-risk, leverage, recovery potential, and enforcement strategy, before the investment is made. He transparently advises on the most effective pathways to resolution and zealously fights for his clients’ interests before all levels of court, including the Superior Court of Justice, Divisional Court, and Court of Appeal. Ocean practises with Powell Litigation and may be contacted by visiting oceanenbar.com

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