For transactional real estate lawyers, deposit structures are routine clauses in agreements of purchase and sale. But what happens when a buyer pays the first installment and then fails to pay the second? Can the seller terminate the agreement and sue for the unpaid portion? The recent Ontario Superior Court decision in Datamy Inc. v. Yung, 2025 ONSC 2860, provides crucial clarity on this issue.
The Facts
Datamy Inc., a small family-run home builder, listed a newly constructed detached home in Toronto for $3,499,900 in January 2023. After negotiations, the parties executed an agreement of purchase and sale on February 7, 2023, for $3,250,000.
The deposit structure was straightforward but staged:
- $20,000 within one business day of acceptance
- $140,000 within five business days of acceptance
Notably, the buyers removed all conditions relating to financing and inspection from their final offer.
The buyers paid the first $20,000 installment on February 8, 2023. However, they failed to pay the $140,000 second installment by the February 14 deadline. The seller’s lawyer notified the buyers, who did not have legal representation, that they were in default and offered a one-day extension until February 15 at 2:00 p.m.
When the buyers neither responded nor paid, the seller terminated the agreement on February 15 at 2:14 p.m. and immediately relisted the property. The seller sold to a third party the very next day for $3,200,000, i.e., $50,000 less than the original contract price.
On March 6, nearly three weeks after the termination, the buyers suddenly expressed willingness to complete the transaction, but only with a $20,000 price reduction. The seller declined and commenced litigation.
The Legal Question
The central issue was whether the seller could sue for the unpaid $140,000 deposit installment, or whether damages were limited to the actual losses suffered, which was approximately $94,767 after accounting for the price difference, increased real estate fees, legal costs, and crediting the first deposit paid.
The Court’s Analysis
Justice Charney granted summary judgment in favour of the seller for the full $140,000 unpaid deposit, relying heavily on the British Columbia Court of Appeal’s decision in Argo Ventures Inc. v. Choi, 2020 BCCA 17.
The court emphasized several key principles:
- Sellers Can Sue for Unpaid Deposits That Were Due When the Contract Was Breached
The law is clear that when a seller’s right to a non-refundable deposit has accrued before accepting the buyer’s repudiation, the seller can sue for the unpaid amount. As the BC Court of Appeal stated in Vanvic Enterprises Ltd. v. Mack (1985), when repudiation occurs, “the right to the non-refundable deposit had already accrued to the plaintiff. The acceptance of the repudiation by the plaintiff did not affect that right.”
- The Commercial Purpose of Deposits
Deposits serve a vital commercial function beyond mere damages. They provide security for performance and “encourage parties to complete their contracts.” As stated in the English case Griffon Shipping LLC v. Firodia Shipping Limited, a deposit “is a guarantee that the purchaser means business.” The commitment to pay a deposit has independent value, distinct from its actual receipt.
- Timing Distinctions Don’t Matter
The defendants argued that Argo Ventures was distinguishable because their case involved two installments rather than a single deposit. Justice Charney rejected this argument, finding “no legal principle that would lead to a different result” based solely on this factual distinction.
Relief from Forfeiture Rejected
The defendants also sought relief from forfeiture, arguing that $140,000 was disproportionate to the seller’s actual losses. The court firmly rejected this argument.
At only 5% of the purchase price, the total deposit of $160,000 was “at the lower end of the spectrum of deposit cases.” Canadian courts have consistently upheld deposits of 20%, 25%, and even 28% as reasonable. To obtain relief from forfeiture, buyers must prove both that the forfeited sum was disproportionate to damages and that retention would be unconscionable.
As Justice Charney noted, “the buyer has always agreed to pay the deposit” and real estate transactions “rarely involve vulnerable parties or significant unequal bargaining power.”
Practical Takeaways for Transactional Lawyers
- Draft Clear Deposit Installment Terms: When structuring staged deposits, ensure payment deadlines and consequences of non-payment are crystal clear. Consider whether to include express language confirming each installment is a separate, independent obligation.
- Advise Clients on Enforcement Options: Sellers facing a missed deposit installment can terminate and sue for the unpaid amount, even if actual losses are lower. This provides significantly more leverage than merely keeping paid deposits.
- Reasonable Deposit Amounts: Deposits up to at least 10% of the purchase price are likely defensible against forfeiture challenges. The 5% threshold in Datamy was considered conservative.
- Document Mitigation Efforts: While the seller ultimately recovered the unpaid deposit rather than consequential damages, the court carefully reviewed their mitigation efforts, including the immediate resale at market value.
- Timing Matters for Buyers: The buyers’ attempt to revive the transaction three weeks after termination with a price reduction demonstrated poor judgment and likely influenced the court’s unsympathetic view of their position.
Datamy v. Yung reinforces that deposit obligations in real estate transactions are serious contractual commitments that courts will enforce, even when actual damages are lower than the unpaid amount.
