Deposit of 5% Forfeited notwithstanding Profit on Resale

The issue of the deposit came up once again in the Superior Court of Justice before Justice Shaw in Sinha v. Shabestari, 16 January 2018.                                                                       

Summary of the Deal

  • vendors were the owners of property  at 49 Ravensbourne Crescent, Toronto
  • 13 April 13, 2016 the purchasers offered to purchase the property for $1,202,000
  • transaction was to close on 3 August 2016
  • purchasers paid a deposit of $60,000
  • vendors had entered into an agreement to purchase another new property that was also scheduled to close on 3 August 2016

The Breach

  • 5 July 5 2016, the purchasers informed the vendors, through their lawyer,
    • that they were unable to close the transaction as they could not arrange financing
  • vendors therefore relisted the property
  • sold  property on 31 August 2016 for $1,273,000
  • This was $71,000 more than the original sale price

Court Application

Vendors bring this motion for summary judgment seeking an order for a declaration that the deposit of $60,000 be forfeited and paid to the vendors.

The purchasers oppose this motion on the basis that there is a genuine issue that should proceed to trial.

Court Decision

Vendors’ motion for summary judgment is granted and the deposit of $60,000 shall be forfeited and paid to the vendors.

COMMENT

This case is not unusual. It follows a long list of cases in the English common law starting with Howe V. Smith (1884) dealing with the forfeiture of the deposit for breach of contract. There are three significant cases in the Ontario Court of Appeal very much saying the same thing. Runnymede (1949), Redstone (2017) and Dada (2018).

This begs the question: if you don’t like it, change it.

Part Payment

A part payment is not a deposit. It’s the deposit which gets forfeited basically automatically. If you are providing some money upfront, don’t have it all as a deposit. If you do, it’s all at risk. Be sure to call some of it a “part payment”.

So, consider a contribution of $75,000.00 in two installments in a one million dollar purchase.

The usual clauses will have a deposit of $25,000 and a further deposit of another $50,000.00. Don’t do that!

Have it read: a deposit of $25,000 and a further sum of $50,000.00 as part payment of the purchase price to be held in trust by the Brokerage.

And, don’t say “to be held by the Deposit Holder upon the same terms and conditions as the deposit”. No, that’s exactly what you don’t want. That just made it another “deposit. You have to avoid using that word for the second payment which is simply: “part payment of the purchase price”.

If there is a lawsuit, naturally it’s still at risk, but if the Seller sells for more, as was the case here, the Seller automatically gets the $25,000 because it was forfeited as a deposit, not the part payment which is an additional $50,000.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com

Comments 4

  1. Hi Brian
    In this transaction, I’m assuming realtors were involved. Can a realtor sue for his commission in this case. Is there case law whereby a realtor has successfully sued the seller and was awarded his commission?
    Rudy Arci

    1. Post
      Author

      Yes, however most of these cases fall withinn the jurisdiction of Small Claims Court, so there are rarely published reasons from the Court.

    1. Post
      Author

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