We looked at the issue of the proper need to adjust the wording in respect to a non-refundable deposit. If someone purchases a product over the internet for $5,000.00 and puts down a $100.00 “non-refundable deposit”, then fails to complete the purchase, the matter is rarely litigated. The Seller keeps the deposit. The forfeited amount is not significant.
When it comes to real estate transactions, the deposit can be quite sizeable.
Here’s a clause for consideration:
“The Buyer agrees to pay:
- Initial Deposit in the amount of $25,000.00 herewith,
- Second Deposit in the amount of $100,000.00 upon waiver of the following conditions:
- The sale of XYZ property,
- Confirmation of financing, and
- Inspection of building by structural Engineer,
- Third Deposit in the amount of $400,000.00 12 months following the acceptance of the agreement.
The parties agree that upon payment of the third deposit, the initial deposit and the second deposit shall become “non-refundable”, and notwithstanding any other provisions of the agreement shall be paid and transferred to the credit of the Seller upon either upon completion or termination of this agreement. Such non-refundable deposit shall be an earned payment in accordance with the provisions of the agreement in the event of termination and shall not be a penalty. In the event of successful completion, such non-refundable deposit shall be credited towards the purchase price.”
There are many other clauses. One could also include something of an explanation in another paragraph. The payment was earned due to the passage of time. The payment on non-completion was paid for an option to purchase which otherwise took the property off the market”. Such an explanation assists the Trial Judge arriving at the conclusion that the:
- Parties agreed
- It was not a mistake
- They directed their minds to it
- The property was off the market
- The Seller should indeed be paid
- This was not a penalty
Most of the time when a “non refundable deposit” is used, there is nothing more in the agreement other than the simple words “non-refundable”. That, of course, begs for an explanation since all deposits are “non-refundable. Perhaps a better way of describing this arrangement would be to refer to these payments as Part Payment of the Purchase Price. That’s truly what they have become, but, it’s just not the popular way of doing things!
Brian Madigan LL.B., Broker