A mutual release is a formal agreement signed by both the buyer and seller to terminate an Agreement of Purchase and Sale in Ontario. It ends all obligations under the contract and provides written direction on how the deposit held in trust should be disbursed.
In Ontario residential transactions, the standard form used is OREA Form 122, titled Mutual Release, Agreement of Purchase and Sale. It is a relatively short document, but its legal effect is significant. Once fully executed, it releases the buyer, seller, and typically the brokerages involved from any further claims arising from the cancelled transaction. The form also includes an irrevocable clause, meaning the party who initiates the mutual release sets a deadline by which the other party must sign. If the other party does not sign by that deadline, the mutual release itself becomes null and void.
The most common scenario that leads to a mutual release is a failed condition. When a buyer cannot satisfy a financing condition or is unsatisfied with the results of a home inspection, and the conditional period expires without a notice of fulfillment or waiver, the deal is technically already dead. Even so, brokerages generally require a signed mutual release before they will disburse the deposit from their trust account. This is because deposits held in trust are governed by TRESA and Ontario Regulation 567/05, and brokerages need clear written authorization before releasing funds. Learn more about where your deposit is held and how it is protected.
A mutual release can also arise outside of conditional deals. If a firm deal falls apart because one party cannot or will not close, the parties may negotiate a mutual release rather than pursue litigation. In that situation, the terms of the release often involve negotiation over how the deposit is split or whether any additional compensation changes hands.
One important detail that buyers and sellers often overlook is that a mutual release does not automatically resolve every obligation connected to the transaction. Brokerage commission entitlements, for instance, may survive the release depending on the circumstances and the listing agreement. If you are asked to sign a mutual release, it is worth having your real estate lawyer review the document before you do.
