4 Penalties for Not Closing on Time

By Emily Southey | 7 minute read

Missing a closing date is serious business. When a buyer fails to close escrow on time, it can have major ramifications. At a minimum, the purchase contract, which stipulates a closing date, is put in jeopardy. In a worst-case scenario, the contract could expire, requiring the buyer to request an extension from the seller, which they may not agree to. Four penalties for a buyer not closing on time.

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The penalties for a buyer not closing on time vary but may include the following:

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1. The seller might keep your earnest money deposit

When you buy a house in Ontario, you must put down a deposit. This is what’s known as an earnest money deposit or good faith money. It shows the seller you have the necessary funds to purchase their home. Traditionally, earnest money deposits are returned to the buyer on the closing date. From there, the buyer can put their deposit toward a down payment or other out-of-pocket expenses, such as closing costs. However, if you fail to close on time, the seller has the right to keep your deposit, meaning you won’t receive this money back. Earnest money deposits are usually around 5% of the purchase price of the home, which means you would be out $25,000 on the purchase of a $500,000 home.

2. The seller may cancel the sale

One of the most serious consequences of a buyer not closing on time is the seller cancelling the sale. In certain circumstances, a seller may decide to walk away from the sale altogether. Perhaps at this point, they think they can get a better offer, the negotiations become disrespectful, or they are simply frustrated with the delayed closing date. Whatever the reason, the seller might have a legal right to cancel the sale depending on the contract. Generally, if the buyer has a legitimate reason as to why they missed the closing date, a court is likely to rule in favour of the buyer, allowing for a reasonable postponement that gives the buyer an additional 30 days to close the sale. But if the reason for the delay is illegitimate, the seller can opt to cancel it outright. That said, sales being cancelled due to a delayed closing date don’t happen too often. This is mainly because the sale is usually in the best interests of both the buyer and the seller. Cancelling the sale would mean starting the selling process all over again, and most sellers don’t want to go through that. 

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Time of the essence clause

Another situation in which a seller has the legal right to cancel a sale, whether the reason for the delay was legitimate or not, is if the contract contains a time of the essence clause. If your purchase agreement contains this clause, the closing date is a hard deadline, and if it is missed, the contract is null and either party has the right to walk away. A buyer’s reason for not closing on time is irrelevant when a time of the essence clause is involved. 

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3. The seller could charge you a per diem

If the closing date passes, the buyer will have to ask the seller to extend the closing date. If the seller agrees to do so, it might come with stipulations like a per diem. A per diem is a daily rate charged by the seller to the buyer. This charge is not only for the inconvenience of having to extend the closing date but also to help the seller cover the additional fees that come with the postponed closing date, such as extra mortgage, tax, or insurance payments. Thankfully, the average per diem is one-thirtieth of the seller’s house expenses, which shouldn’t amount to too much. However, it is still an additional financial burden that the buyer is forced to take on.