Basnandan v. Jones, 2025 ONSC 3438
As transactional real estate lawyers, we draft purchase agreements with the expectation that our clients will close successfully. But what happens when a deal falls apart? A recent Ontario Superior Court decision provides important reminders about anticipatory breach, deposit forfeiture, and the limited availability of equitable relief when buyers can’t secure financing.
The Facts
In Basnandan v. Jones, the parties entered into an agreement of purchase and sale for a commercial property in Nepean with a purchase price of $2,250,000. The buyers paid a $200,000 deposit (approximately 10% of the purchase price) but failed to pay an additional $500,000 deposit required under the agreement.
After the buyers requested an extension of the November 2021 closing date, the vendor agreed to extend to December 10, 2021, but made it clear he would grant no further extensions. Three days before the extended closing date, the buyers’ lawyer indicated they likely couldn’t close because mortgage funds hadn’t cleared FINTRAC. The vendor’s lawyer confirmed that the buyers had admitted they couldn’t secure financing.
The vendor terminated the agreement and sought release of the $200,000 deposit being held in trust by the real estate brokerage.
Key Legal Principles
Justice Corthorn’s decision reinforces several important principles:
Anticipatory Breach
When a buyer communicates before the closing date that they cannot or will not complete the transaction, this constitutes an anticipatory breach. The vendor then has two options: affirm the agreement and wait until the closing date, or terminate immediately based on the anticipatory breach.
Here, once the buyers confirmed they couldn’t secure financing, the anticipatory breach was established. The vendor was entitled to terminate the agreement rather than wait for the closing date to pass.
Deposit as Security
The court emphasized that a deposit serves as security for the buyer’s performance. As explained in Benedetto v. 2453912 Ontario Inc., the deposit provides two key protections for vendors:
- Compensation for the lost opportunity while the property was off the market
- Compensation for the loss of bargaining power, having revealed to the market a price at which they were willing to sell
Unless the parties specifically bargained otherwise in their agreement, a deposit is forfeited when the buyer fails to complete the transaction.
Relief from Forfeiture: A High Bar
While buyers can seek equitable relief from forfeiture under section 98 of the Courts of Justice Act, the two-part test from Stockloser v. Johnson is difficult to meet:
- Is the deposit amount out of proportion to the damages suffered?
- Would it be unconscionable for the vendor to retain the deposit?
In this case, Justice Corthorn found that even if the buyers had sought relief (which they didn’t), they would not have succeeded. The 10% deposit was not disproportionate, and there was nothing unconscionable about forfeiture where:
- Both parties were represented by brokers
- There was no evidence that the buyers were unsophisticated or that there was inequality in bargaining power
- The agreement contained no financing condition
- The vendor acted reasonably throughout, including granting extensions
Notably, the court held that the vendor’s failure to resell the property by the time of the application was irrelevant to his entitlement to the deposit. The vendor need not prove actual damages. The court ultimately found that the allowing the buyers to retain the deposit under these circumstances would “water down the purpose a deposit is intended to serve.”
Practice Points for Transactional Lawyers
This decision offers several lessons:
- Financing Conditions Matter
The absence of a financing condition was significant. Ensure your buyer clients understand that without this protection, they risk forfeiting their entire deposit if financing falls through. This is especially critical for substantial deposits on commercial transactions.
- Waiver and Extension Language
When negotiating extensions, be precise about whether your client will entertain further requests. The vendor here made it crystal clear that the December extension was final, which strengthened his position.
- Deposit Amount Considerations
While 10% deposits are common, larger deposits on commercial deals may face greater scrutiny under the proportionality analysis. However, this case confirms that 10% is well within the acceptable range.
- Document the Breach
The vendor’s lawyer did an excellent job documenting the anticipatory breach. When the buyers’ lawyer suggested uncertainty about closing, the vendor’s lawyer confirmed in writing that the buyers had admitted they couldn’t secure financing. This created a clear evidentiary record.
- Agreement Silence on Forfeiture
The agreement was silent on what happened to the deposit if the buyers failed to close. The common law default rule applied: forfeiture. If you’re acting for buyers, consider negotiating express terms regarding deposit return or reduction in specific circumstances.
Conclusion
Basnandan v. Jones is a straightforward application of established principles, but it serves as a useful reminder that deposits are meant to have teeth. When buyers can’t close, especially where there’s no financing condition, courts will generally allow vendors to retain deposits without requiring proof of actual damages.
For transactional lawyers, the message is clear: explain the risks to your clients, particularly buyers, and ensure they understand that a deposit is not merely a down payment. It’s security that they stand to lose if they cannot complete the transaction.
