Toronto condo projects are turning into rentals. What happens to your deposit?

For anyone who has already put money down on a pre-construction condo, the shift raises an important question. If a builder cancels your purchase agreement, how much of your deposit can you get back? The answer depends on who is paying. The builder generally owes the full deposit, while Tarion, the organization that administers Ontario’s new-home warranty program, covers up to $20,000 in condo deposits if the builder fails to refund the money.

Why builders are switching to rentals

Condo developers typically need to sell a large share of units before a lender will finance construction. A February Bank of Canada analysis put that threshold at around 70%. The problem is that presales have fallen as the economics have changed for investors, who once counted on rising condo prices to sell at a profit or earning enough in rent to make the purchase worthwhile. With too few buyers, a builder can struggle to get the financing it needs to start work.

In April, the Financial Post reported that Urbanation had counted 11,424 condo units cancelled across the Greater Toronto and Hamilton Area since the start of 2024. Just over 4,000 of those units had been converted to purpose-built rentals, meaning the homes would be built specifically to rent. It shows a development can change course before buyers sign purchase agreements.

What Tarion’s $20,000 cap means for buyers

Ontario’s Condominium Act generally requires builders to hold deposits in trust. Tarion says that when the builder terminates a purchase agreement, it must return the full deposit within 10 days. According to The Condominium Authority of Ontario, buyers are generally entitled to any applicable interest. So if you put down $60,000 and the builder properly cancels your agreement, the builder generally owes you the full $60,000 plus applicable interest. If the money fails to come back, Tarion’s deposit coverage would cover at most $20,000 of the principal, leaving you to pursue the balance separately.

You might hear about the rental plans before you receive formal notice about your purchase. The addendum to your agreement should set out the conditions that may allow the builder to terminate it, such as falling short of a minimum sales target, failing to secure financing or missing required approvals. The wording and the notice may come into play if there’s a dispute about whether the agreement was properly terminated.

What to do if your builder announces a switch

Ask the builder in writing whether it has terminated your purchase agreement, which clause it is relying on and when it expects to return your deposit. Send the response, your signed agreement and addendum and proof of each payment to a real estate lawyer who handles pre-construction purchases. Ask the lawyer to confirm who holds the deposit, when the refund is due and what interest applies. Have them review any release the builder asks you to sign.

If the refund is overdue, Tarion recommends calling 1-877-982-7466 to request a Deposit Refund Claim Form and confirm the filing deadline for your case. If you paid more than $20,000, ask your lawyer how to recover the balance and what steps you can take while Tarion reviews the claim.