This guide is general information for educational purposes only. It is not legal, tax or financial advice. Speak with a qualified lawyer, accountant or tax professional about your situation.
Ontario condo deposits require trust or prescribed security. Tarion covers up to $20,000 for condos and $100,000 for freeholds. Here is how I assess the gap.
For Toronto buyers considering a substantial pre-construction deposit, the question is straightforward: if the builder cancels, how much of your money is protected?
The short answer: condo deposits require trust or prescribed security. Tarion covers eligible condo deposit claims up to $20,000 plus interest; eligible freehold claims can reach $100,000. If a builder cancels under a permitted condition, you are owed your money back with interest.
The detail matters more than the headline, so here is how the rules work and how I underwrite them for my clients.
How are pre-construction deposits usually structured?
Read the deposit schedule in your agreement. A staged schedule spreads payments across specified dates, with the balance of the purchase price payable on closing. The agreement determines your instalments; do not assume another project has the same terms.
For illustration, a schedule could require 5% on signing and three further 5% instalments, totalling 20%. On a $3,500,000 suite, that would mean $700,000 paid before closing.
I would ask whether the builder will negotiate the schedule. For broader context, see Pre-Construction in 2026: Distress, Assignments, and the Bill C-4 Reset.
How are pre-construction deposits protected in Ontario?
Protection depends on whether you are buying a condominium unit or a builder-sold freehold home outside a condominium project. The two run under different rules.
Condominium units: trust first, Tarion second
Under section 81 of the Condominium Act, 1998, the builder (the Act calls it the "declarant") must ensure a qualified trustee or its lawyer holds all deposit money in trust. Within 10 days of each payment, the builder must give you written evidence that this was done.
To release purchase deposits to the builder before closing, the builder must provide "security of a prescribed class." Under Ontario Regulation 48/01, that means either a deposit insurance policy covering your payments and the interest owed on them, or a Tarion deposit receipt. The builder cannot pass the insurance premiums or deposit receipt costs to you.
Tarion administers Ontario's new home warranty and protection plan. If your builder goes bankrupt, fundamentally breaches the agreement, or you exercise a statutory termination right and the deposit is not returned, Tarion covers condo deposits up to $20,000, plus accrued interest on the net principal it pays.
A Tarion deposit receipt has its own stated limit. Any deposit above that limit still requires trust or other prescribed security; the receipt does not automatically protect your entire deposit.
Freehold homes: Tarion is the main backstop
The Condominium Act trust rules apply to condominiums, not freehold homes. For freehold agreements signed on or after January 1, 2018, Regulation 892 sets Tarion's cap at the greater of $60,000 or 10% of the price, to a maximum of $100,000.
Anything above that generally relies on the builder's ability to repay, unless your agreement provides for a trust or other security.
One new step: for freehold agreements signed on or after April 1, 2026, the buyer must notify Tarion within 45 days of signing, except for contracted homes and homes in condominium projects. Tarion's Q&A explains that on-time registration keeps you eligible for full coverage.
Late or missing registration can lead to reduced coverage for agreements signed on or after January 1, 2027, depending on total claims against the special fund. I would register within the week regardless.
How much of my deposit is actually protected?
The gap between what you pay and what Tarion guarantees is where the real underwriting happens. The table below applies the caps as of September 1, 2026 to hypothetical purchases. It shows principal only and assumes an eligible claim, prices excluding applicable taxes, and no separate security for the freeholds.
| Hypothetical purchase | Deposit paid | Tarion cap | Above Tarion cap |
|---|---|---|---|
| $1,200,000 condo, 20% deposit | $240,000 | $20,000 | $220,000 |
| $3,500,000 condo, 20% deposit | $700,000 | $20,000 | $680,000 |
| $900,000 freehold, 10% deposit | $90,000 | $90,000 | $0 |
| $3,500,000 freehold, 10% deposit | $350,000 | $100,000 | $250,000 |
On the condos, the amount above $20,000 is not unprotected: it requires trust or prescribed security covering that amount. I ask the buyer's lawyer to confirm the trustee, the trust receipts and any insurance before the second instalment.
On the $3,500,000 freehold, $250,000 relies on the builder's ability to repay unless separately secured. That is the scenario where I look hardest at the builder's track record and financing, or negotiate a lower deposit.
Can a builder cancel a pre-construction purchase in Ontario?
A builder can rely on permitted termination conditions in the mandatory Tarion addendum. Only conditions the addendum expressly permits are enforceable by the builder. Termination can also follow a purchaser's breach or mutual written consent.
Early termination conditions
According to Tarion Registrar Bulletin 06C, a condo builder may make the sale conditional on government approvals (zoning, site plan, servicing), on sales exceeding a set threshold by a set date, and on arranging project financing by a set date.
These approval, sales and financing conditions need deadlines no later than 90 days before the firm or first tentative occupancy date. A builder may not make the sale conditional on a building permit, an occupancy permit or completion of the home.
The sales and financing conditions are the ones I watch. The builder must take all commercially reasonable steps within its power to satisfy them. For broader market context, see Toronto New Home Sales at an All-Time Low.
Delays and the outside occupancy date
The addendum also fixes an "Outside Occupancy Date" (on freehold, an Outside Closing Date), the latest date the builder agreed to deliver. If the home is not delivered by that date, other than because of your breach, Tarion explains you have 30 days to terminate by written notice and recover all monies paid, plus interest.
If a firm date is missed, delayed occupancy or closing compensation can reach $7,500, subject to the addendum, including exceptions for mutual date changes and unavoidable delays. Living expenses use a fixed $150 a day without receipts; other eligible expenses, such as storage, require receipts. The daily amount and other expenses share the $7,500 total limit.
Strikes, fires and similar events beyond the builder's reasonable control can extend dates without compensation if the addendum's unavoidable-delay and notice requirements are met.
Do I get interest on my deposit if the builder cancels?
Yes. When a condo agreement is terminated other than for your breach, the builder must refund all monies, including deposits and upgrades, within 10 days, with interest from the date each amount was paid. The rate is set by Regulation 48/01 and resets every April 1 and October 1.
For termination refunds under section 82(7), where the first purchase agreement in the corporation or phase was signed on or after January 1, 2023, the refund rate equals the Bank of Canada's policy rate at the end of March 31 or September 30.
The Bank held that rate at 2.25% in March, so 2.25% applies from April 1 to September 30, 2026.
For older projects or phases, the rate for the same April to September 2026 period is two percentage points below the Bank Rate of 2.50%. That works out to 0.50%. On a $700,000 deposit held for a year, the difference is roughly $15,750 versus $3,500 in simple interest, assuming the rate held all year.
I would not assume the interest compensates for opportunity cost or a missed purchase elsewhere. A refund returns your capital; it does not restore your original plans.
What this means for you
- Luxury buyer: on a condo, verify the trust account or prescribed security protecting each instalment, including any receipt or policy limits. On a large freehold, consider negotiating the deposit closer to Tarion's $100,000 cap.
- Investor: read the sales and financing conditions and their deadlines before signing. Check what happens if they are not satisfied, including the builder's obligations and notice requirements. I explain how I weigh resale exposure in Investor Liquidation and the End-User Calculus.
- Rental owner: do not budget on the assumption that delay compensation replaces your expected rental income. Underwrite occupancy at the outside date, not the first tentative date.
Before you sign, have your own real estate lawyer review the addendum and confirm where every dollar of deposit will sit.
Frequently asked questions
Does Tarion protect my whole condo deposit?
No. Eligible Tarion claims cover up to $20,000 plus accrued interest on the net principal paid. Amounts above any Tarion deposit receipt limit must remain in trust or have other prescribed security, such as qualifying deposit insurance.
Can I cancel a pre-construction condo purchase myself?
Under section 73 of the Condominium Act, you can rescind before accepting a registerable deed by giving written notice received within 10 days of the latest receipt of the disclosure statement, applicable condominium guide and agreement signed by both parties. The builder must refund your money promptly with interest.
How long do I have to claim my deposit from Tarion?
For agreements signed on or after April 1, 2026, Regulation 892 requires the claim form by the first anniversary of termination. The regulation can start that clock when your cause of action first arises, rather than when you later receive a cancellation letter. Ask your lawyer to identify the deadline early.
Are reservation or "priority" payments protected?
For condos, section 81 requires money paid to reserve a right to buy to be held in trust, and it must be credited to the price if you sign. Tarion notes that a payment to reserve a home before you sign a purchase agreement is not protected by Tarion.
Sources
- Condominium Act, 1998, ss. 73, 81 and 82 (Government of Ontario, e-Laws)
- O. Reg. 48/01, ss. 19 to 22, under the Condominium Act, 1998 (Government of Ontario, e-Laws)
- R.R.O. 1990, Reg. 892, Administration of the Plan (Government of Ontario, e-Laws)
- O. Reg. 165/08, Warranty for Delayed Closing or Delayed Occupancy (Government of Ontario, e-Laws)
- O. Reg. 95/26, amending Reg. 892 (Government of Ontario, e-Laws)
- Coverage and claims before you move in (Tarion)
- Deposit protection takes stress out of buying new homes (Tarion)
- Deposit Protection Q&A (Tarion)
- Condo Units: coverage for occupancy dates, delays and cancellations (Tarion)
- Freehold homes: coverage for closing dates and delays (Tarion)
- Registrar Bulletin 06C: Condominium Delayed Occupancy Warranty (Tarion)
- Registrar Bulletin 06F: Freehold Delayed Closing Warranty (Tarion)
- Bank of Canada maintains policy rate at 2¼%, March 18, 2026 (Bank of Canada)