What Happens to Your Deposit If a Pre-Construction Deal Collapse ?

Pre-construction properties promise a fresh start—new builds, modern layouts, and often lower upfront prices. But when the deal falls apart before the unit is ever delivered, buyers are left asking one pressing question: What happens to my deposit? Whether you're a first-time homebuyer or an investor, it's critical to understand how deposit protections work—and what risks remain—when a pre-construction agreement fails.

Deposits in Pre-Construction: Who Holds the Money?

In most Ontario pre-construction agreements, the initial deposit is held in trust, often by the builder’s lawyer. This trust arrangement is designed to protect the buyer in case the transaction doesn’t close. However, while the deposit is held in trust, that doesn’t guarantee an automatic refund. It depends on why the deal collapsed and whether the buyer or the developer is in breach.

When Can You Get the Deposit Back?

Buyers may be entitled to a full refund of their deposit if the builder fails to deliver the unit—for example, if the project is cancelled, the developer breaches the agreement, or certain conditions in the contract aren’t fulfilled. In such cases, most agreements stipulate that the deposit (and in some cases, interest) must be returned to the buyer. In Ontario, Tarion (the new home warranty authority) also provides some protections for deposit recovery in certain types of contracts.

When Can You Lose the Deposit?

If a buyer pulls out of the deal after waiving conditions—such as financing approval or lawyer review—they may be in breach. In that case, the developer can:

• Refuse to release the deposit
• Claim damages
• Attempt to resell the unit and sue for the difference

In disputes, the deposit often becomes the central issue. Developers may argue they’re entitled to keep it as liquidated damages, while buyers may claim there was no true breach. In some cases, this ends up in court or private arbitration.

What About Delays and Changes?

Many pre-construction agreements allow developers to extend deadlines or make design changes without triggering a breach. But if delays exceed the permissible limits, or if significant changes occur without consent, the buyer may have grounds to terminate and request a deposit refund. However, this depends on the exact terms of the Statement of Critical Dates and Schedule B in the agreement—documents most buyers never read closely.

Final Thought

Pre-construction deposits are protected—but not guaranteed. The difference lies in the details of your agreement and the circumstances of the breakdown. Before signing, buyers should seek legal review. And if a deal falls apart, understanding the deposit clauses quickly can help you respond before the situation escalates.