Hussain v. Reid’s Heritage Homes Ltd., 2026 ONSC 710
A recent Ontario Superior Court of Justice decision serves as a timely reminder that a buyer’s personal hardship, even a documented and serious mental health condition, will not, on its own, entitle that buyer to recover a forfeited deposit. For transactional real estate lawyers advising clients on purchase and sale agreements, Hussain v. Reid’s Heritage Homes Ltd. is worth understanding closely.
What Happened
In November 2021, Syed Farhad Hussain and a co-purchaser agreed to buy a pre-construction condominium unit in Kitchener from Reid’s Heritage Homes. They paid a deposit of $69,285, representing 15% of the total purchase price, with closing scheduled for October 7, 2025.
In the years between signing and closing, Hussain’s circumstances changed dramatically. He developed serious mental health issues, lost his employment, and fell into financial difficulty. In September 2025, nearly four years after the APS was signed, he wrote to the builder’s solicitors asking to be released from the agreement or, alternatively, for a significant delay of the closing date. The builder refused both requests.
When the purchasers failed to close on October 7, 2025, the builder terminated the APS ten days later and declared the deposit forfeited. Hussain brought an application seeking both rescission of the APS and relief from forfeiture of the deposit under s. 98 of the Courts of Justice Act.
Justice I.R. Smith dismissed the application in its entirety.
Why the Court Said No
Rescission was off the table. The court reaffirmed the established principle that rescission is an equitable remedy available only where the agreement was entered into under inequitable circumstances, such as duress, undue influence, misrepresentation, mistake, or frustration. None of those factors were present here. The purchasers had a real estate agent, Hussain was an experienced real property investor, and the builder had no knowledge of any mental health issue at the time the APS was signed. The fact that circumstances changed after signing does not give rise to a right of rescission.
The deposit forfeiture was not disproportionate. Under the two-part test from Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, a court considering relief from forfeiture under s. 98 of the CJA must ask: (1) is the deposit disproportionate to the damages suffered; and (2) would it be unconscionable to allow the seller to retain it?
On the first question, the builder’s president attested that actual losses, including the likely difference between the original purchase price and a resale price in a softened housing market, re-listing costs, legal fees, and carrying costs, were still being calculated but were expected to exceed the deposit amount. The court found this evidence entirely reasonable and noted that, in any event, a seller does not need to prove actual damages to justify retaining a deposit. The deposit is a mechanism to incentivize closing, not merely a liquidated damages clause.
There was nothing unconscionable. The court applied the factors from Redstone, including inequality of bargaining power, the sophistication of the parties, the existence of arm’s-length negotiations, and the gravity of the breach. It found none of these factors weighed in Hussain’s favour. The deal was negotiated at arm’s length, in good faith, by an experienced buyer with professional assistance. The builder engaged in no dishonesty or overreaching. Critically, the builder had no knowledge of Hussain’s disability for nearly four years after the deal was struck.
The court drew on Mouralian v. Grouleau, 2022 ONSC 2925 (affirmed 2024 ONCA 342), where Justice Akbarali observed that a deposit is “not a windfall” for the seller. It is security intended to incentivize buyers to close the transactions they enter into. The court adopted that reasoning in full.
Practical Takeaways for Transactional Lawyers
Deposits serve a clear purpose and courts will enforce it. Advise purchasing clients that a deposit is not merely a show of good faith. It is a contractual commitment. If they cannot close, they face real risk of losing it entirely, regardless of why the closing did not occur.
Post-signing hardship is not a defence. Circumstances that arise after the APS is signed, such as financial difficulty, health issues, changed market conditions, generally will not support rescission or relief from forfeiture. The analysis is anchored to the circumstances at the time the agreement was made, not at closing.
The seller’s damages need not be precisely quantified. As this case confirms, a seller does not need to prove an exact sum for damages to justify retaining a deposit. Reasonable evidence that losses will likely equal or exceed the deposit amount is sufficient.
Disclosure of vulnerability does not shift the equities. The fact that Hussain notified the builder of his mental health struggles shortly before closing did not impose any obligation on the builder to release him from the deal. Sellers who have no knowledge of a purchaser’s circumstances at the time of contracting are not bound by conditions that arise later.
15% is well within acceptable range. Courts have declined to find unconscionability with deposits as high as 28% of the purchase price (Dar v. The Yards Corporation, 2019 ONSC 5043). A deposit of 15% is unlikely to be characterized as disproportionate in most Ontario markets.
Costs
The court also ordered Hussain to pay partial indemnity costs of $5,000 (reduced from the $8,020.06 sought by the builder), acknowledging the applicant’s limited means while declining to depart from the principle that a successful party is entitled to its costs.
Bottom Line
Hussain v. Reid’s Heritage Homes reinforces a consistent line of Ontario authority: when a buyer fails to close, the deposit is lost. Personal misfortune, even of a serious and sympathetic nature, will not rewrite the terms of a commercial agreement entered into freely and at arm’s length. Transactional lawyers advising pre-construction buyers should ensure their clients understand this reality clearly.
