Deposit Clause with Automatic Forfeiture Provision

Here’s an interesting clause found among some Schedule B’s:

“Once this Agreement becomes unconditional, should the Buyer fail to complete this agreement on the completion date, at no fault of the Seller, the deposit, shall be deemed to be released by the Buyer and paid forthwith to the Seller by the deposit holder, without deduction. Such payment shall be in part-satisfaction of the Seller’s damages and Seller reserves all of Seller’s right to claim further additional damages against the Buyer. Under no circumstances shall this amount be recoverable by or paid back to the Buyer. This clause shall constitute the Buyer’s irrevocable consent to release such deposit and no further written release shall be required.”

Let’s read it in more detail:

“Once this Agreement becomes unconditional,

should the Buyer fail to complete this agreement on the completion date,

at no fault of the Seller,

the deposit, shall be deemed to be released by the Buyer and

paid forthwith to the Seller by the deposit holder, without deduction.

Such payment shall be in part-satisfaction of the Seller’s damages and

Seller reserves all of Seller’s right to claim further additional damages

against the Buyer.

Under no circumstances shall this amount be recoverable by or paid back to the Buyer.

This clause shall constitute the Buyer’s irrevocable consent

to release such deposit and no further written release shall be required.”

Let’s add some commentary:

“Once this Agreement becomes unconditional,

should the Buyer fail to complete this agreement on the completion date,

at no fault of the Seller, (the transaction may not close due to Buyer’s fault, Seller’s fault, or third party’s fault, including agents of the Seller)

the deposit, shall be deemed to be released by the Buyer and

paid forthwith to the Seller by the deposit holder, without deduction. (someone is going to have to make a decision here, whose fault was it)

Such payment shall be in part-satisfaction of the Seller’s damages and (that’s what the law says, assuming a Judge concludes that the deposit is to be forfeited)

Seller reserves all of Seller’s right to claim further additional damages

against the Buyer. (no reservation whatsoever is necessary here, that’s already the law)

Under no circumstances shall this amount be recoverable by or paid back to the Buyer. (that’s pushing the envelope, maybe the Judge would see things otherwise)

This clause shall constitute the Buyer’s irrevocable consent

to release such deposit and no further written release shall be required.”

(the question naturally is whether or not this would coincide with the Judge’s decision, if not, then, we have breach of trust on the part of the Trustee holding the deposit)

This clause is interesting, but still falls short of its objective which was to get the money moved over to the Seller asap.

Brian Madigan LL.B., Brokerwww.OntarioRealEstateSource.com