In Ontario, what is the standard remedy for a buyer who defaults on an Agreement of Purchase and Sale?

Q: What is the correct answer to: In Ontario, what is the standard remedy for a buyer who defaults on an Agreement of Purchase and Sale?

The correct answer is The seller retains the deposit as liquidated damages. Option A is correct because under Ontario's standard OREA Agreement of Purchase and Sale forms, the contract typically includes a liquidated damages clause allowing the seller to retain the buyer's deposit upon default. This is the most common and practical remedy, providing immediate compensation to the seller without requiring court proceedings. The deposit serves as pre-agreed damages for breach of contract, and this remedy is specifically outlined in the standard form contracts used throughout Ontario under TRESA regulations.

Q: What background knowledge is needed for this Contracts & Agreements question?

Under TRESA and standard OREA forms, Ontario real estate contracts include specific provisions for buyer default. The deposit, held in trust by the listing brokerage, serves as security for the buyer's performance. When a buyer defaults, the seller can retain this deposit as liquidated damages - a predetermined remedy that avoids proving actual damages in court. This concept stems from contract law principles allowing parties to agree to specific remedies for breach. The amount is typically the deposit paid (often 5% but can vary), not a fixed percentage of purchase price. Alternative remedies like specific performance or damages claims remain available but require court proceedings.

Q: What is a good way to remember the answer to this Contracts & Agreements question?

Remember 'DEPOSIT' - 'Default Equals Predetermined Outcome, Seller Immediately Takes'. Think of the deposit as a security blanket for the seller - when the buyer defaults, the seller gets to keep the blanket (deposit) as comfort for the breach. It's like a built-in insurance policy that activates automatically upon default. When you see questions about buyer default remedies, immediately think 'DEPOSIT' and remember that the seller's standard remedy is keeping the deposit. Look for answer choices mentioning deposit retention rather than court proceedings or automatic percentages.

Q: What exam tip applies to this Contracts & Agreements question?

Look for 'deposit retention' or 'liquidated damages' in answer choices when dealing with buyer default questions. Avoid options mentioning specific percentages not tied to actual deposits or automatic voiding without consequences.

Q: How does this Contracts & Agreements concept apply in real world practice?

Sarah lists her Toronto condo for $800,000. Buyer Mike submits an offer with a $40,000 deposit (5%). After conditions are waived, Mike decides he no longer wants the property and refuses to close. Rather than pursuing lengthy court proceedings for specific performance, Sarah's agent advises her that under the standard OREA Agreement of Purchase and Sale, she can retain Mike's $40,000 deposit as liquidated damages. The brokerage releases the deposit from trust to Sarah, providing immediate compensation for Mike's breach while allowing Sarah to re-list the property.

Question

Contracts & AgreementsAgreement_of_purchase_and_saleONMEDIUM

In Ontario, what is the standard remedy for a buyer who defaults on an Agreement of Purchase and Sale?

Answer Options

A

The seller retains the deposit as liquidated damages

B

The seller must pursue specific performance through the courts

C

The buyer forfeits 10% of the purchase price

D

The transaction is automatically void with no penalties