The Nightmare of Unbuilt Homes: What Ontario Buyers Need to Know Before Signing

By Latif Nizamani

Buying a brand-new home from a glossy brochure or a model home showroom is an exciting milestone. For many, it represents the ultimate dream of stepping into a custom property tailored to their future. However, changing economic conditions, shifting interest rates, and volatile housing markets have exposed a sobering reality: sometimes, the dream home is never built, and buyers are left fighting to recover their life savings.

Recent high-profile receiverships in Ontario—such as the 12 Oaks development in Richmond Hill and English Lane in North York—have highlighted critical vulnerabilities that everyday home buyers face when purchasing pre-construction or unbuilt properties.

If you are looking to buy a new detached home, semi-detached property, or freehold townhouse in Ontario, here are the vital lessons and warnings you need to keep in mind.

1. Freehold vs. Condo Deposits: A Dangerous Misconception

Many buyers assume their money is safe simply because it is held by a developer during the construction process. However, the legal protections differ drastically depending on the type of property:

• Condominium Deposits: In Ontario, condo deposits are legally required to be held in a secure trust account. Developers cannot freely spend this money on construction. In recent court cases, condo buyers were successfully shielded, with their deposits and interest sitting safely and ready to be returned when projects collapsed.
• Freehold Deposits: Unlike condos, freehold home deposits generally do not have to sit in a separate trust account. Developers are often permitted to use these funds to finance the development itself. When a project runs into financial trouble and goes into receivership, that deposit money may already be entirely spent.

2. The Trap of Tarion Deposit Limits

Ontario provides deposit protection through Tarion, but freehold buyers face a significant coverage gap.

• Tarion’s deposit protection for freehold homes is currently capped at $100,000.
• If you put down a deposit of $250,000—as many buyers do on modern detached homes—and the builder goes bankrupt, you could lose everything over that $100,000 threshold.
• In multiple court cases, buyers found themselves out tens or hundreds of thousands of dollars beyond what regulatory insurance would cover.

3. Secured Lenders Get Paid First

When a developer defaults on its loans, the court appoints a receiver whose primary legal obligation is to pay back the people owed money, starting with whoever is first in line.

• Secured lenders (such as major banks owed tens of millions of dollars) take absolute priority.
• Everyday home buyers are classified as unsecured creditors, meaning their deposit claims sit at the back of the line. If the project is sold off to a new buyer or liquidated, original purchase agreements can be cancelled by the court, leaving families with neither a home nor their full cash refund.

4. New Regulatory Deadlines to Watch

If you are purchasing a freehold home in Ontario, keep strict administrative deadlines in mind:

• Since April 1, buyers have 45 days from signing their agreement to register it with Tarion.
• Beginning in January 2027, missing this critical registration window could jeopardize your eligibility for deposit protection. Ensure your paperwork is filed promptly and correctly.

Essential Checklist for New Home Buyers

Before signing any contract for an unbuilt or pre-construction home, protect yourself by taking these four steps:

1. Verify the Builder: Look up the developer in Ontario’s HC Builder Directory to check their track record, history, and standing.
2. Confirm Permits and Progress: Ask explicitly whether the development has secured all necessary municipal approvals, building permits, and whether physical construction has actually broken ground.
3. Scrutinize Deposit Handling: Understand precisely where your deposit is going, how it will be held, and exactly how much of it is protected by Tarion limits.
4. Hire a Real Estate Lawyer: Never rely solely on the developer’s paperwork. Have an independent real estate lawyer review your purchase agreement before you put pen to paper or hand over any money.

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