30 Rules Relating to Deposits

Deposit Issues

1. A deposit is not required to make a contract enforceable
2. A deposit is a sign of good faith
3. All deposits are non-refundable
4. A refundable deposit must be specified
5. A deposit is a pre-liquated sum that both parties agree will be the minimum amount paid to the Seller in the event of default
6. A deposit “herewith” is required with the Offer
7. A deposit “upon acceptance” is due in 23 hours and 59 minutes
8. A deposit “as otherwise provided” is due when specified
9. A deposit not delivered does not void the contract
10. A deposit not delivered in time places the Buyer in breach of contract
11. The Seller, then has two choices, in response to the Buyer’s breach
12. The Seller may ignore the breach and proceed with the contract
13. The Seller may terminate the contract
14. If the contract is terminated, there is a quick procedure available through the Courts to obtain Judgment for the deposit (the full minimum amount)
15. In addition, the Seller may seek damages, should that amount exceed the deposit
16. For the Seller, the deposit should be as high as possible
17. For the Buyer, the deposit should be as low as possible
18. As a rule of thumb, most Ontario transactions use a 5% deposit
19. The maximum deposit for the sale of a business under the Bulk Sales Act would be 10%
20. Deposits should be paid to a third party stakeholder
21. Interest should accrue on the deposit, particularly if it should take years to determine the rightful payee
22. The deposit should be held by a third party in trust who is insured like a Brokerage’s trust account or a Lawyer’s trust account
23. A Seller does not require a mutual release from the first Buyer before proceeding to consider a second Offer
24. A mutual release would provide too much power to the first Buyer in breach of contract
25. A Seller may accept the second Offer without notification to the first Buyer
26. The two Offers are not competing as defined by REBBA, 2002
27. The Seller can sue the first Buyer for the deposit amount, even following acceptance of the second Offer
28. The Seller may also sue the first Buyer for any deficiency after the second sale is completed, after giving credit for the deposit amount
29. Deposit funds may only be released by a stakeholder in accordance with the terms of the trust specified in the agreement
30. If no specific terms are specified, then the stakeholder may only release the funds with both parties’ consent or upon receipt of a Court Order.

Brian Madigan LL.B., Broker

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