Brian Madigan LL.B., Broker
BRMadigan@iSourceRealEstate.com

RE/MAX West Realty Inc.,
Brokerage
Independently owned and operated

96 Rexdale Blvd. 
Toronto, Ontario 


Phone: 416-745-2300
Toll Free: 1-888-507-0817

 

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No Deposit Paid on Conditional Deal - Seller's Options

March 31, 2016 - Updated: August 3, 2016

Seller’s Options with a Failed Deposit Cheque in a Conditional Deal

 

On occasion, Buyers’ agents are rushed and they just don’t get around to things.

 

Fred was acting for Barney who wanted a house to renovate in the west end. He thought that given his “trades” and his financial situation that he could handle three at given time. Right now, he has two “on the go”.

 

So, Fred prepares a conditional Offer for Barney on Paul’s house. The conditions are:

 

1)    financing, and

 

2)    inspection.

 

Fred decides that the deposit needs to be large in order to clinch the deal. They decide that the deposit should be $100,000.00. The house is worth about $750,000.00, so normally a high deposit here would be $50,000.00.

 

They win the bidding war!

 

Paul figures that he has a good deal because “who would walk away from $100,000.00?

 

Fred says he will get the cheque from Barney. They don’t have it now. The deal is struck on the Thursday before Good Friday. The deposit clause said “upon acceptance”. The fine print extends that to “within 24 hours”. Really, that means 23 hours and 59 minutes. Twenty four hours exactly would be one minute too late.

 

The deal was struck at 2:00 pm. The deposit is due by 1:59 pm on Good Friday. The Banks are closed, so Friday comes and goes. So does Saturday, but the Banks are open then. Easter Sunday and Easter Monday also come and go without a certified cheque in hand.

 

But, you will appreciate that there was nothing in the Agreement that said that the cheque had to be certified.

 

As a result, late into the following week we have a problem. Barney calls his Bank Manager and unfortunately he can’t get the deposit cheque certified.

 

He tells Fred, who is caught by surprise. Fred sends over a mutual release for Barney’s signature. The Listing Agent is on the phone every two hours looking for the deposit.

 

Barney then decides that the deal is not closing for three months, it’s a good deal, and by then he will have the money from the two houses under renovation now.

 

He calls his lawyer, Ben to outline his options. Actually, he is surprised by the fact that the Agreement is still a firm and binding contract, even though he hasn’t paid the deposit. Ben does tell him that he is “in breach of contract”, but if the other side doesn’t do anything, then, he can just pay the deposit funds on closing.

 

Barney decides that he will simply proceed with the deal. Let Paul worry about the closing date! Just proceed as if this deal didn’t even require any deposit at all.

 

Fred’s upset. The Listing Agent is upset. Paul is upset. But what can be done?

 

Ben’s point is well-taken. The Buyer is in breach now, so the Seller has some options:

 

1)    Termination. Terminate the deal, sue for the deposit and the deficiency, OR

 

2)    Affirmation. Elect to proceed, requiring payment of the deposit and exercise due vigilance overseeing the fulfillment of the two conditions.

 

Termination is not a good choice, since there is no security for the deposit in hand. The Listing Brokerage does not have the $100,000.00 in its trust account. So, collection could be a problem.

 

If the Seller terminates and thereby prevents the Buyer from the opportunity to fulfill his two conditions, the Seller will not be able to enforce the Agreement in respect to damages. This is not safe ground, whereas, it would have been had there been no conditions.

 

The contract was “firm” but the deal wasn’t “firm”. Barney still had possible “outs” based on financing and inspection. In fact, the Bank Manager already said “no certified cheque for you”.

 

When it comes to Court, Barney can simply say that he was not allowed to inspect and that he failed to get financing. The first step in that process was the certified cheque for the deposit. If that is accepted by the Court, then Barney gets to treat this transaction as “null and void”. That means he would get his deposit back, there wasn’t one, so he gets nothing. Same thing is true for Paul, no easy Judgment, no forfeited deposit and no deficiency!

 

Termination works, if you have another Buyer. But, you may not have a good clause in the Agreement which would enable the Termination. So, that leaves you with a Court remedy to seek a declaration that this contract has been terminated. You will appreciate that this is not an inexpensive solution.

 

Affirmation. If the Seller proceeds to affirm the contract, that will permit the continuance of the relationship. The breach will be accepted and ignored and the transaction will simply otherwise proceed. We won’t really know until the closing date whether Barney has the money. Paul has no security for the deposit. However, we still do have a deal, and if we get by those two conditions, we will have uncertainty until the closing date.

 

At that point, the deal either closed or it didn’t. If it did, Paul has all his money, and perhaps a few extra gray hairs, but the deal got done. If it didn’t, he gets to sue Barney for his losses, which will be assessed at not less than $100,000.00. The deposit amount set out in the Agreement is the pre-liquidated measure of damages. It was “pre-agreed” by the parties. It doesn’t matter that there was no actual deposit paid by way of security.

 

Paul can also sue for any extra losses, over and above the $100,000.00.

 

To be on the safe side, the Listing Agent should have ensured that the deposit was paid before the inspection was permitted.

 

Without a proper termination clause in condition subsequent format, that would likely require the Court Order termination, which (as noted) is easier said than done.

 

Without security for the deposit, and with this Agreement still being subject to two conditions, a lawsuit involving this Buyer is foolhardy, not impossible, but still potentially foolhardy.

 

You will appreciate that there is no good remedy for the Seller in this situation. If Barney wants it, just wait and hope.

 

In fact, it was such a good plan that Barney is going to be putting in another Offer tonight. He’s looking for a new Agent. He might use the Listing Agent. He can’t use Fred.

 

Just make sure, you’re not the Listing agent or the Seller!

 

Is this what they call “no money down” real estate?

 

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com


Tagged with: no deposit paid breach of contract termination affirmation ontario law
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Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

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