NOTE: I am not a lawyer - if you are considering defaulting on your pre-construction condo and not closing, please seek expert legal advice.

Buying a pre-construction condo can be an exciting investment. But what if life changes, financing falls through, or you simply decide you don’t want the unit anymore? Many buyers don’t realize that not closing on a pre-construction purchase, or “defaulting”, can lead to serious consequences. So don’t lose your deposit, read this first:

What is a Default from a Legal Perspective?

In legal terms, a default occurs when one party fails to fulfill their obligations under a valid, binding contract. It’s essentially a breach of contract but often used in situations where payment, performance, or timelines are missed.

Failure to Perform: A default happens when a party doesn’t do what they agreed to (e.g., a buyer not closing on a condo, a tenant not paying rent, or a borrower missing loan payments).
Material Default or Material Breach: A major failure that goes to the heart of the contract and allows the other party to seek remedies or terminate the agreement (e.g., refusing to pay or not closing on a property).
Notice & Cure Period: Many contracts include a clause requiring the non-defaulting party to give written notice of the default and a chance to “cure” (fix) the issue within a set timeframe before harsher consequences kick in.

What Happens If you Default on a Pre-Construction Purchase?

If you don’t close on a pre-construction condo purchase, it can have serious financial and legal consequences. Here’s what you need to know before “walking away”:

You Can’t Simply “Walk Away”: You signed a legally binding purchase agreement that you cannot just ignore or get out of. The other party will be able to “pursue” you to the full extent allowed by law.
Developer Will Resell the Unit: The developer is required by law to attempt to mitigate its damages to the extent possible - this means reselling the unit. They must be able to demonstrate that they acted reasonably within their normal course of business - this means they can’t resell the property for $1 when the fair market value is $500K or they can’t charge $100K in resale costs when $25K would be considered reasonable. But the term “reasonable” can be stretched very far and you won’t receive a discount on anything…
Damages Are Determined: The developer will tally up all of the costs of reselling the unit to see what their total costs are:
- Difference in the resale price versus the original purchase price
- Resale and marketing costs (e.g. real estate commissions, legal fees, marketing expenses)
- Carrying costs until the final resale closing (utilities, insurance, property taxes)
- Interest on all of the above (I have often seen it calculated at 18-23% annually as outlined in the purchase agreement)
- Legal costs on a substantial indemnity basis (i.e. you might have to pay a multiple on these fees which could be tens of thousands of dollars - lawyers aren’t cheap!)

The developer will add up all of these items and if they are greater than zero, then the developer can pursue damages.

How Can A Developer Pursue Damages

A developer must wait until after they have resold the unit to be able to determine the total damages experienced, which could take months. For contract issues, the statute of limitations is usually 2 years which means the developer must take action within 2 years of your closing date (situations and provinces are different so confirm with a lawyer for your situation).

If you fail to close, you will not automatically be sued - it is completely at the discretion of the developer to determine if it is “worth pursuing”.

You Will Lose Your Deposit: When you sign a pre-construction agreement, you typically put down a large deposit (sometimes 15–20% of the purchase price). In nearly every case if you fail to close, the builder has the right to keep your entire deposit. That’s often tens (or hundreds) of thousands of dollars gone instantly.
You Could Be Sued for More: Losing your deposit isn’t the end of it. Developers can (and often do) sue buyers who don’t close. If your condo later sells for less than what you agreed to pay, you may be held responsible for covering the total damages as outlined above. Previously this was incredibly rare but I am seeing this happen every day in the GTA and Calgary.
Your Credit Could Take a Hit: If a builder wins a judgment against you in court, developers are able to report the judgement to all reputable credit reporting agencies which can damage your credit score. This will make it harder to get approved for a future mortgage, loan, credit cards, or even renting a place.
You Risk Your Reputation: Some developers keep track of buyers who don’t close. Getting “blacklisted” can make it harder to purchase pre-construction opportunities in the future.
You Miss Out on Appreciation: Real estate often grows in value during the years it takes to build a condo. By not closing, you lose any equity or gains you would have made if the property had gone up in value.

What To Do If You Can’t Close

If you’re worried you won’t be able to close on your condo, don’t wait until the last minute. Consider these options:

Get Legal Advice Early: A real estate lawyer will explain your rights and help represent and assist you with minimizing your losses.
Work With A Mortgage Broker: Nearly every situation can be fixed if there is enough time, so start working with a mortgage broker early.
Assign the Contract: If your agreement allows, you may be able to sell your unit to another buyer before closing.
Negotiate an Extension: Sometimes builders will grant more time if you’re close to securing financing.
Negotiate a Mutual Release: Sometimes builders will allow buyers out of their contract by forfeiting their deposit or paying an additional amount - this is rare but it doesn’t hurt to ask.
Bring in a Partner or Co-Signer: Sharing the investment with a third-party or having someone co-sign or be a guarantor on a mortgage could make closing possible.

Failing to close on a pre-construction condo can be devastating financially. But with early planning and the right guidance, you may still have options.

Contact Me if you need help - I won’t charge you anything and I will point you in the right direction. I know how stressful this situation can be for your and your family and I won’t judge, so contact me today.