Can a Buyer Who Fails to Close Be Liable for the Seller's Next Purchase in Ontario?

Yes. When a buyer's failure to close knocks over the seller's own purchase further down the chain, an Ontario court can order that buyer to pay for the downstream losses, as long as those losses were reasonably foreseeable when the deal was signed.

That is what happened in Chu v. Kumar et al. v. Sethi et al., 2026 ONSC 2748. Two buyers walked away from an unconditional deal believing their exposure stopped at the $50,000 deposit. The judgment against them came to $188,075.22, plus $75,000 in costs across the two actions.

Key takeaways

• A defaulting buyer pays for the losses a reasonable person would have foreseen at signing, and a seller's linked purchase funded by the sale proceeds is one of them.
• A deposit under five per cent of the purchase price is very hard to claw back, even where the seller resells at a profit or never sells at all.
• "The sellers kept their house, so they lost nothing" is not a defence. The Kumars stayed in their home and still recovered their full downstream losses.
• The party who alleges a failure to mitigate has to prove it with evidence. An appraisal or expert opinion, not a theory about pricing strategy.
• Foreseeability cuts both ways. Losses nobody could have contemplated at signing, like the Cambridge seller's plan to move to Calgary, stay where they fall.

This applies to buyers, sellers, real estate agents, and mortgage professionals involved in linked residential closings in Ontario.

What happened

The Kumars planned a classic two-step move. On March 12, 2022, they sold their Brampton home to the Sethis, unconditionally, for $1,040,000 with a $50,000 deposit and a June 21, 2022 closing. On April 9, they agreed to buy Yat-Leung Chu's Cambridge home for $1,085,000, with a $35,000 deposit and closing on June 23, two days after their sale. The Sethi money would fund the Chu purchase.

On June 14, the Sethis told the Kumars they could not close and asked to cancel. The Kumars refused. June 21 arrived, and the Sethis did not complete.

That left the Kumars scrambling. They asked Mr. Chu to extend the closing. He declined, and June 23 passed without a tender. The next day the parties signed an extension agreement: closing moved to June 30, the Kumars paid Mr. Chu $5,000 in liquidated damages for the missed closing, and they topped up their deposit by $25,000. The Kumars found alternate financing, but the carrying costs were too high to support, so they turned it down. June 30 came and went. They could not close either.

Mr. Chu relisted the Cambridge home and eventually sold it for $865,000, a $220,000 drop from the Kumar price. The Kumars stayed put. They still live in the Brampton home.

Two lawsuits stacked on top of each other: Mr. Chu sued the Kumars for his resale loss, and the Kumars sued the Sethis for everything the broken chain had cost them.

What the court decided

Justice Callaghan worked through the chain in layers.

Did Mr. Chu mitigate? Yes. Mr. Chu relisted within days, followed his agent's advice through an unconventional counter-offer strategy, and sold for $865,000, the highest offer he received. The Kumars second-guessed his pricing and his negotiating style, but they brought no appraisal and no expert evidence showing a better result was available. Mr. Chu brought an appraisal showing his sale price came within $2,500 of the appraised value. The party alleging a failure to mitigate carries the burden of proving it, and the Kumars did not meet it.

Was the deposit a penalty? No. A deposit is forfeited on a buyer's default unless it is out of all proportion to the damages suffered and unconscionable for the seller to keep. At under five per cent of the purchase price, the $50,000 deposit was neither. The court applied Rahbar v. Parvizi, 2023 ONCA 522, where the Court of Appeal upheld forfeiture of a five per cent deposit even though the seller resold the property at a higher price.

Could the Sethis be liable for the Chu loss? This was the heart of the case. The Kumars framed it as "contribution and indemnity," and the court rejected that label because the Sethis owed nothing to Mr. Chu directly. The real question was remoteness: when the Sethis signed, was it reasonably foreseeable that the Kumars needed the sale money to fund a purchase, and that a failed closing would knock that purchase over? The court said yes. A defaulting party pays for the losses a reasonable person would have seen coming at signing, not every ripple from the deal, and a downstream purchase funded by the sale proceeds is a foreseeable loss.

Foreseeability cut both ways. Mr. Chu also claimed $15,000 in lost wages for the days he stayed in Ontario to sell the house after quitting his job to move to Calgary. The court denied it. The Kumars never knew about the Calgary plan, so that loss was outside anyone's contemplation at signing. The same test that made the Sethis pay knocked out part of Mr. Chu's own claim.

The award. The Sethis were ordered to pay the Kumars $188,075.22: the $173,075.22 the Kumars owed Mr. Chu (his $220,000 resale loss plus $13,075.22 in carrying costs and wasted expenses, less the Kumars' $60,000 in deposits), plus the Kumars' own forfeited $60,000 deposit and the $5,000 in liquidated damages, less the Sethis' $50,000 deposit. The Sethis were also ordered to pay the Kumars $30,000 in costs and to cover the $45,000 in costs the Kumars owed Mr. Chu. The Sethis asked the court to pause enforcement while they pursued their own real estate agent. The court refused. While that fight plays out, the Sethis carry the risk.

Why this matters for Ontario real estate deals

Chain closings are everywhere. In Windsor-Essex and across Ontario, most move-up buyers time their sale to fund their purchase, often with only a day or two between the two closings. This decision confirms that the risk in that structure does not stop with the people who signed the first agreement. It travels down the chain to whoever caused the break.

If you are a buyer thinking about walking away, your exposure is not capped at the deposit. The Sethis lost their $50,000 deposit and then paid another $188,075.22 on top, plus costs. Buyers in a falling market have learned this lesson before, as the buyers who forfeited a $100,000 deposit and paid $425,319.69 in damages did in Langen v. Sharma.

If you are a seller caught in a broken chain, document everything. Mr. Chu won on mitigation because he had an appraisal supporting his resale price. The Kumars recovered their downstream losses because the paper trail showed exactly what the Sethi default cost them. A seller who relists quickly, prices on professional advice, and keeps records is very hard to attack, as the seller who documented every price cut in the fake-offer case that cost a realtor $553,810 also proved.

Extensions are a courtesy, not a right. Mr. Chu was entitled to say no, and to charge $5,000 for saying yes. Courts enforce closing dates strictly where time is of the essence, the same principle that cost a buyer his deposit after a pre-closing fire.

A lawyer's review before you sign, and fast legal advice the moment a chain starts wobbling, are what keep one broken deal from becoming two. That review is part of what we do when you sell a home in Ontario.

Practical checklist

For buyers:

1. Treat an unconditional offer as a promise you can afford to keep in a falling market, not just today's market.
2. If you cannot close, get legal advice immediately. The choices made in the final week decide whether damages stay contained.
3. Assume the seller's next purchase is riding on your closing. That loss is foreseeable, and it can land on you.

For sellers and their agents:

1. If your buyer defaults, decide your path quickly and relist without delay.
2. Get an appraisal or broker's opinion of value before setting the relist price, and keep it. It is your shield against a mitigation attack.
3. Keep a running record of what the default costs you: extension fees, deposit top-ups, carrying costs, legal fees. The court awarded the Kumars every documented dollar.
4. Do not release the defaulting buyer's deposit. Under five per cent of the price, forfeiture is the strong default.

Common questions

Can a seller keep the deposit if the buyer doesn't close in Ontario?

Usually, yes. A deposit is forfeited on the buyer's default unless it is out of all proportion to the damages suffered and unconscionable to keep. In Chu v. Kumar et al. v. Sethi et al., a $50,000 deposit on a $1,040,000 sale, under five per cent, was forfeited, and in Rahbar v. Parvizi the Court of Appeal upheld forfeiture of a five per cent deposit even though the seller resold at a higher price.

What losses does a defaulting buyer have to pay for in Ontario?

The losses a reasonable person would have foreseen at the time of signing. That typically includes the resale shortfall, carrying costs, and, as this case confirms, losses on a linked purchase the seller needed the sale proceeds to fund. Losses nobody could have contemplated at signing are too remote.

Is a buyer liable even if they didn't know the seller was buying another home?

They can be. The test is not what the buyer actually knew but what was reasonably foreseeable at signing. The court found it foreseeable that sellers of a home use the proceeds to fund their next purchase, so the failed closing's effect on that purchase was within the Sethis' contemplation even without specific knowledge.

Who has to prove the seller failed to mitigate?

The defaulting buyer. And it takes evidence, not argument. The Kumars criticized Mr. Chu's pricing strategy but brought no appraisal or expert opinion, so the attack failed. Mr. Chu's own appraisal showed his sale price came within $2,500 of the appraised value.

Does it matter that the sellers ended up keeping their house?

No. The Sethis argued the Kumars lost nothing because they still own the Brampton home. The court still awarded the Kumars their forfeited deposit, the extension fee, and the full amount they owed the Cambridge seller. Keeping the house did not erase the losses the default caused.

Sources and decision link

Chu v. Kumar et al. v. Sethi et al., 2026 ONSC 2748. Read the full decision on CanLII: 2026 ONSC 2748.

The decision applies the remoteness rule from Hadley v. Baxendale and Kasekas v. Tessler, the mitigation burden from Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, and the deposit-forfeiture test from Varajao v. Azish, 2015 ONCA 218 and Rahbar v. Parvizi, 2023 ONCA 522. Relief from forfeiture was sought under s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43.

If your sale and purchase are closing days apart and you want the risk in that chain explained before you sign, get a free quote. We catch the things that turn into court cases.