What Happens to Your Home Purchase If You Separate Before Closing?
You signed an Agreement of Purchase and Sale together.
Then, before closing, you separated.
The relationship may have changed, but the purchase contract does not necessarily change with it.
If both purchasers signed a binding Agreement of Purchase and Sale, they generally remain responsible for completing the transaction unless the agreement itself provides a way out, the seller agrees to change or terminate it, or another legal right applies.
That can create an immediate practical problem:
Who is going to complete the purchase, and can that person actually obtain the financing to do it?
Those questions should be addressed as soon as possible because the available options can become more difficult as the closing date approaches.
Does Separation Cancel an Agreement of Purchase and Sale?
Generally, no.
An Agreement of Purchase and Sale is a contract between the purchasers and the seller.
The fact that the purchasers' personal relationship has ended does not ordinarily release them from their contractual obligations to the seller.
Ontario courts have repeatedly dealt with purchasers who failed to complete real-estate transactions because their financing or circumstances changed. In Azzarello v. Shawqi, for example, the purchaser was unable to obtain financing and failed to close. The Court of Appeal upheld the seller's entitlement to damages arising from the failed transaction.
The legal question is therefore not simply:
“We separated. Do we still want the house?”
It is:
“What does the purchase agreement require us to do, and what options does the agreement or seller give us now?”
What Can Happen If the Buyers Do Not Close?
Failing to close can have significant consequences.
A purchaser who defaults may lose the deposit, subject to the agreement and the court's limited jurisdiction to grant relief from forfeiture.
Ontario's Court of Appeal has confirmed that a genuine real-estate deposit can generally be forfeited when a purchaser fails to complete the transaction, even where the seller ultimately suffers little or no financial loss, subject to equitable relief in appropriate circumstances.
The deposit may also not be the end of the exposure.
If the seller later resells the property for less, the defaulting purchasers can potentially be responsible for additional damages.
In Azzarello, the sellers recovered damages relating to the difference between the original purchase price and the lower resale price, along with qualifying consequential losses. The Court of Appeal held that the forfeited deposit had to be credited against the damages rather than recovered twice.
That means simply abandoning the purchase can be considerably more expensive than losing the deposit.
Can One Buyer Take Over the Purchase?
Potentially.
If one person wants to keep the property, the first question is whether they can finance the transaction alone.
That may require a fresh mortgage assessment based on that person's income, debts, support obligations, credit and the amount required to complete the purchase.
The second issue is contractual.
If both purchasers are named in the Agreement of Purchase and Sale, one person generally cannot simply remove the other purchaser's name by themselves.
The seller may need to agree to an amendment, assignment or other restructuring of the purchaser side of the contract, depending on the wording of the agreement.
So there are really two approvals to consider:
Will the lender finance one purchaser alone, and will the purchase agreement allow the transaction to be completed that way?
Both questions should be answered before the separation agreement assumes one person will keep the property.
Should You Get Mortgage Advice Before Deciding Who Keeps the Purchase?
Yes.
A family-law agreement might say that one spouse or partner will complete the purchase and take the property.
But that agreement does not force a bank to approve the mortgage.
The person keeping the purchase may now be qualifying on one income.
They may also have new child-support or spousal-support obligations. They may still be liable on another mortgage. Their available down payment may change once the parties' broader financial settlement is considered.
The proposed solution needs to be financially possible before it becomes a binding obligation between the separating parties.
That is why the mortgage professional, family lawyer and real-estate lawyer may all need to be working with the same basic plan.
Can Both Buyers Close and Then Sell the Property?
Possibly, but this should not be treated as the automatic fallback.
Both purchasers might decide to complete the transaction and later sell the property if neither can take it over alone.
Whether that makes financial sense depends on the circumstances.
They may have to qualify for and fund the original closing, pay Land Transfer Tax and legal costs, carry the property, and then incur another set of transaction costs when it is sold.
If the property is newly built or pre-construction, additional contractual, tax or occupancy issues may also arise.
So while closing and subsequently reselling may avoid the consequences of defaulting on the original purchase, it can create significant costs of its own.
Those numbers should be calculated before that strategy is adopted.
Can You Assign the Agreement to Someone Else?
Sometimes.
An assignment transfers the purchaser's contractual interest in the Agreement of Purchase and Sale to another purchaser.
But whether an assignment is allowed depends heavily on the agreement.
The contract may permit assignment, prohibit it, require the seller's written consent or impose assignment fees and other conditions.
This is particularly important with pre-construction purchases.
Ontario's Land Transfer Tax guidance expressly recognizes assignments of Agreements of Purchase and Sale, but the tax treatment of the eventual transaction can include both the original purchase consideration and consideration paid for the assignment.
The fact that assignment transactions exist does not mean every purchase agreement gives the buyer an unrestricted right to assign.
Read the actual assignment clause before assuming this is an exit option.
Can the Seller Agree to Let the Buyers Out of the Deal?
Yes, potentially.
The buyers and seller can sometimes negotiate a mutual release or another amendment to the transaction.
But the seller is not necessarily required to agree simply because the purchasers have separated.
The seller's position may depend on the market, how close the parties are to closing, whether another purchaser is available and what costs the seller has already incurred.
Any negotiated release should be properly documented and should address matters such as the deposit and whether the parties are releasing further claims against one another.
Until that is completed, the buyers should not assume that informal discussions with the seller have cancelled the original agreement.
What If You Bought a Pre-Construction Condo?
Pre-construction purchases require particular attention because there can be a long period between signing the agreement and actually acquiring title.
A couple may sign together and separate months or years before final closing.
Ontario law does provide an initial 10-day cooling-off period for qualifying new or pre-construction condominium purchases. During that statutory period, the purchaser can generally rescind the agreement in accordance with the Condominium Act, 1998.
But once that period has expired, separation itself does not create a new cooling-off period.
The purchase agreement and its accompanying disclosure and addendum become particularly important.
New-home agreements also contain specific provisions governing closing or occupancy dates and permitted delays. Tarion notes that the mandatory addendum forms part of the purchase agreement and establishes rules concerning anticipated and delayed closing or occupancy dates.
What Is Interim Occupancy?
For a pre-construction condominium, there may be a period between the date the purchaser is allowed to occupy the unit and the date title is actually transferred.
This is called interim occupancy.
During that period, the purchaser can occupy the unit but does not yet own it.
The Condominium Authority of Ontario explains that purchasers are generally required to pay an interim occupancy fee during this period, whether or not they actually move into the unit. The fee can include prescribed amounts relating to the unpaid purchase price, estimated municipal taxes and projected common expenses.
For separating purchasers, that creates another question:
Who is responsible for the interim occupancy obligations while the ownership and financing issues are being resolved?
That should be addressed explicitly rather than left until the occupancy date arrives.
Does the Mortgage Approval From When You Signed Still Apply?
Do not assume that it does.
With a pre-construction purchase, years can pass between signing and final closing.
Income can change. Employment can change. Interest rates can change. Debts can change.
Separation itself can create support obligations, divide assets and change the amount of income available to service the mortgage.
A purchaser who expected to qualify jointly may therefore discover that neither person can simply rely on the financing assumptions that existed when the agreement was originally signed.
Mortgage qualification should be revisited early if the purchase is still outstanding.
What Happens to the Deposit After Separation?
The deposit remains connected to the purchase contract.
It is not automatically returned simply because the purchasers have separated.
If the transaction closes, the deposit will ordinarily be credited toward the purchase price according to the agreement.
If the purchasers default, it may be forfeited and potentially credited against any additional damages payable to the seller.
A separate question arises between the two purchasers:
Who is ultimately entitled to the economic value of that deposit as between them?
That question should not automatically be answered by saying whoever wrote the cheque gets the money back.
For married spouses, property interests are considered within Ontario's broader equalization regime. Ontario generally uses an equalization of net family property rather than dividing each asset individually according to who originally contributed the money.
Common-law partners do not have the same statutory equalization regime, so ownership, contribution and any other property claims may be analyzed differently.
The separation agreement should therefore address the deposit expressly rather than assuming a particular split.
What If One Person Paid the Entire Deposit?
That is relevant information, but it does not automatically resolve the legal result.
The source of the funds may matter.
For example, the money may have come from one person's savings, a joint account, a gift, an inheritance or proceeds from another asset.
Whether and how that contribution affects the ultimate property settlement depends on the parties' marital status and broader financial circumstances.
The practical drafting point is simpler:
record where the deposit came from, what the parties agree will happen to it and how it will be treated if the transaction proceeds, is assigned, is terminated or fails to close.
That avoids having to reconstruct the issue much later.
What Should the Separation Agreement Say About the Outstanding Purchase?
If the home purchase has not yet closed, it should not be treated as a minor item in the financial disclosure.
The agreement should address the transaction directly.
It may need to specify which person intends to complete the purchase, the deadline for obtaining financing, whether seller consent or an assignment is required, who is responsible for further deposits and adjustments, what happens if financing cannot be obtained, and how the original deposit will be treated between the parties.
For a pre-construction property, it may also need to deal with assignment restrictions, occupancy obligations and future builder payments.
The separation agreement and the Agreement of Purchase and Sale should be reviewed together.
Otherwise, one document may require something that the other document does not permit.
What If Neither Person Can Afford to Close?
That is when urgent legal advice becomes particularly important.
The possible options depend on the contract and timing.
The parties may investigate assignment, seek a negotiated release, ask the seller to amend the purchasers, arrange alternative financing or consider completing and subsequently selling the property.
None should be assumed to be available without checking the Agreement of Purchase and Sale.
Simply allowing the closing date to arrive without a plan can convert a difficult financing problem into a contractual default.
Does a Falling Market Make a Difference?
It can make the financial consequences of a failed closing significantly worse.
If a purchaser fails to close and the seller subsequently resells at a lower price, the difference can form part of the seller's damages where the legal requirements are met.
That is exactly what occurred in Azzarello v. Shawqi.
A falling market therefore does not necessarily give the purchaser a way out.
It can increase the financial exposure associated with not completing the transaction.
This is why a deposit should not be viewed as the purchaser's maximum possible loss.
What Should You Do First?
Start with the actual purchase contract.
Confirm who the purchasers are, whether the transaction is conditional or firm, the closing or occupancy dates, whether assignment is permitted and what amendment or consent rights exist.
Then confirm financing.
If one person wants to keep the property, determine whether they can actually qualify alone and what the lender needs.
At the same time, the family-law agreement should deal with the deposit, future payments and responsibility for the transaction if the proposed solution does not work.
The purchase contract, mortgage financing and separation agreement need to describe a plan that can actually be completed.
Frequently Asked Questions
Does separation cancel a home purchase in Ontario?
Generally, no. If the purchasers are already bound by an Agreement of Purchase and Sale, their separation does not ordinarily cancel their contractual obligations to the seller.
Can one spouse or partner take over the purchase?
Potentially. That person may need to qualify for financing alone, and the seller may need to agree to amend or otherwise restructure the Agreement of Purchase and Sale.
Can we lose our deposit if we do not close?
Yes. A purchaser who breaches a binding purchase agreement can potentially forfeit the deposit. Additional damages may also be payable depending on the seller's loss.
Is the deposit the most we can lose?
No. If the seller suffers damages—for example, because the property later sells for less—the purchaser may potentially be liable beyond the deposit.
Can we assign a pre-construction purchase?
Possibly, but it depends on the purchase agreement. Many builder agreements impose restrictions, require consent or charge assignment-related fees.
Is there a cooling-off period for a pre-construction condo?
Yes. Ontario generally provides purchasers of qualifying new or pre-construction condominium units with a 10-day statutory rescission period after receiving the required agreement and disclosure materials. Separation after that period does not create a new right to cancel.
If I paid the whole deposit, do I automatically get all of it back after separation?
Not necessarily. The answer between the separating purchasers depends on factors such as marital status, the source of the funds, ownership and the broader property settlement.
What if neither of us can qualify for the mortgage anymore?
The Agreement of Purchase and Sale should be reviewed immediately to determine whether options such as an assignment, negotiated release, amendment or another financing arrangement may be available.
Deal With the Purchase Before the Closing Date Deals With It for You
Separation changes the relationship between the purchasers.
It does not automatically change their contract with the seller.
If a home purchase is still outstanding, the Agreement of Purchase and Sale, financing and separation terms should be reviewed together while there is still time to determine which options are actually available.
Willing Law Professional Corporation assists clients in Windsor, Windsor-Essex and across Ontario with residential real-estate transactions arising during separation.
If you have separated before a pending home purchase has closed, contact Willing Law directly at 519-980-3476 or info@willinglaw.com to review the real-estate implications of the transaction.
This article provides general legal information only and is not legal, mortgage or financial advice. Reading it does not create a solicitor-client relationship.
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