Deposits and Real Estate Trust Accounts in Ontario

The regulatory framework: TRESA and RECO

Real estate trading in Ontario is governed by the Trust in Real Estate Services Act, 2002 (TRESA) — consumer-protection legislation that regulates the conduct of real estate salespeople and brokerages. TRESA replaced the older regime and was significantly updated, with major changes taking effect December 1, 2023. The Act is administered and enforced by the Real Estate Council of Ontario (RECO), which registers brokerages/agents, sets professional standards, investigates complaints, issues compliance bulletins, and inspects trust-account records.

For deposits specifically, TRESA and its regulations set out how and when deposit money must be handled, and RECO's oversight (including the requirement to hold client money separately from brokerage funds) is a core consumer protection.

How deposits are held: the real estate trust account

When a buyer pays a deposit in a resale transaction, it is delivered to the Deposit Holder — normally the listing brokerage (though the agreement can name another holder). By law the brokerage must place that money in a segregated real estate trust account, kept entirely separate from the brokerage's own operating funds. Trust money belongs to the transaction, not the brokerage; commingling with operating funds is a serious compliance breach.

The deposit is held in trust pending completion or other termination of the agreement, and on a successful closing it is credited toward the purchase price.

Interest on deposits

Under the standard OREA Form 100, the trust account is a non-interest-bearing account and no interest is earned, received, or paid on the deposit unless the parties specifically agree otherwise. If the parties want interest to accrue to the buyer, that must be negotiated and written into the agreement (and the brokerage must be able to accommodate it). Do not assume a deposit earns interest — on the standard form it does not.

Timing: "Herewith" vs. "Upon Acceptance," and the 5-business-day rule

Two different clocks matter, and people conflate them:

1. When the buyer must deliver the deposit (contract term)

The APS specifies delivery timing:

• "Herewith" — the deposit is delivered with the offer.
• "Upon Acceptance" — the deposit is delivered after acceptance; the standard form provides for delivery within 24 hours of acceptance unless the agreement says otherwise.
• "As otherwise described in this Agreement" — a custom timing set out in the deal.

This is the buyer's contractual obligation to the seller and is a common source of default if missed.

2. When the brokerage must deposit it to trust (TRESA rule)

Separately, once the deposit money comes into the brokerage's hands, TRESA's regulation requires the brokerage to deposit it into its real estate trust account within five (5) business days of receiving it. Business days exclude Saturdays, Sundays, and statutory holidays. The five-day clock runs from actual receipt of the funds by the brokerage to which the deposit is payable — not necessarily from acceptance. (Where a cheque is genuinely held "in escrow" pending acceptance, the receipt date is analyzed on the facts.)

Key distinction: the 24-hour figure is a common contractual delivery term between buyer and seller; the 5-business-day figure is the regulatory deadline for the brokerage to get received funds into trust. They are not the same rule.

RECO consumer protection around deposits

Because deposit money is client money held in trust, RECO imposes controls and can inspect: brokerages must maintain proper trust-account records, reconcile them, and handle shortfalls and unclaimed money according to RECO bulletins. These protections exist so that consumer deposits are safeguarded and traceable, and so that money is not released improperly. Realtors should be able to explain to clients that their deposit sits in a regulated trust account, not with the agent personally.

Note: TRESA reforms have expanded consumer-facing transparency (representation and disclosure rules). For deposit-protection specifics and any newer rules, verify current at reco.on.ca, as RECO periodically updates its guidance and bulletins.

What happens to the deposit when a deal collapses

This is one of the most misunderstood areas. Forfeiture of a deposit is not automatic, and a brokerage cannot simply hand the money to one side because it thinks that side is right.

The brokerage's position

When a deal falls through, the Deposit Holder is stuck in the middle. Under TRESA it may generally only release trust money when one of the following applies:

1. The deal completes (deposit credited to price on closing);
2. The parties sign a mutual release (or otherwise agree in writing on who gets the deposit); or
3. A court order / direction directs how the deposit is to be paid out.

Without a signed mutual release or a court order, the brokerage must hold the deposit and cannot lawfully release it to either party — even if one side is clearly in default.

Mutual release vs. court

• A mutual release is the fast, inexpensive path: buyer and seller agree in writing to end the deal and direct the deposit (all to one side, or split). Realtors often facilitate this, but the parties should get legal advice before signing, because a release can also settle damages claims.
• If the parties cannot agree, resolution goes to court, which decides entitlement (in Ontario, deposit-dispute actions may proceed by application/motion procedures depending on amount and complexity). Litigation is slower and costly, so the deposit can be tied up for a long time.

Forfeiture is a legal question, not a default setting

Ontario courts have generally treated a true deposit as at risk of forfeiture if the buyer breaches and refuses to close, even without the seller proving an equivalent loss — but this is not automatic, the buyer can ask a court for relief from forfeiture, and separate damages (e.g., resale shortfall) are a distinct claim. The point for a realtor: never promise a client that a deposit is automatically theirs (or automatically refundable) on a failed deal. Entitlement is decided by the agreement, the facts, and — absent agreement — a court.

New-home / pre-construction deposits (Tarion / HCRA context)

Deposits on new homes and pre-construction condominiums work differently from resale trust deposits and carry statutory deposit protection through the Tarion Warranty Corporation (with the Home Construction Regulatory Authority (HCRA) regulating builders/vendors). Tarion deposit-protection limits are set by regulation and have specific caps for freehold homes and for condominium units. Because these caps and rules are set by regulation and change, do not quote a specific Tarion cap from memory — verify the current figures at tarion.com before advising a pre-construction buyer.

Quick reference for realtors

• Deposits go to the Deposit Holder (usually the listing brokerage) and must sit in a segregated real estate trust account, separate from brokerage funds.
• Standard Form 100 trust accounts are non-interest-bearing — no interest to the buyer unless specifically agreed.
• Two clocks: contractual delivery ("Herewith" / "Upon Acceptance" = within 24 hrs) vs. the TRESA rule that the brokerage bank received funds to trust within 5 business days (excluding weekends/holidays).
• RECO/TRESA regulate trust handling; TRESA's major update took effect Dec 1, 2023.
• On a collapsed deal, the brokerage can release only on closing, a signed mutual release, or a court order. Forfeiture is not automatic and refunds are not automatic — it is a legal question.
• New-home deposits are protected via Tarion (limits set by regulation — verify current at tarion.com).

Always confirm current timeframes, caps, and rules against reco.on.ca, e-Laws (TRESA and regulations), and tarion.com, and refer disputes to a real estate lawyer.