Forfeiture of Deposit: Is 12.5% too large?

The size of a deposit and whether it should be relieved from forfeiture was the subject of a recent decision in the Ontario Superior Court of Justice in Greco v. Padovani (4 July 2019).

Brief Facts

Purchase Price:                         $3,200,000.00

Date:                                        27 June 2017

Closing Date:                           29 September 2017

Deposit with Offer          :         $50,000.00           payable to Listing Brokerage

Supplementary Deposit:           $150,000.00         payable to Listing Brokerage

Additional Deposit         :          $200,000.00         payable to Seller’s solicitor

(at time of extension)

Extended Date:                        27 October 2017

Final Closing Date:                  20 March 2018

(last of 8 extensions)

The Motion

In this case, the Sellers still have their house. The final extended closing date came and went without completion. The Buyer is in default. The deposits in total in this case amounted to $400,000.00, which happens to be 12.5% of the purchase price.

The Sellers are suing for their losses on this transaction. At the moment, the property is listed for $2,499,000.00 which would represent a $701,000.00 loss if someone paid the full asking price.

In the midst of the legal proceedings which will undoubtedly result in a trial several years from now, the Sellers have brought this application to Court to obtain the $400,000.00 in deposit moneys at this point.

Ultimately, the Court so ordered that the deposits be paid to the Sellers.The Court also awarded $15,000.00 in costs, since the Court Application only took only one hour to argue. In other cases, it would have taken longer, and the award for costs would likely have been higher.

Forfeiture of Deposit(s)

There is a legal argument that a deposit itself might be so high that it constitutes a penalty, and if so, then it’s not enforceable.

This is the summary of the comments by Judge Charney related to the forfeiture issue:

“[26]           See also: Benedetto v. 2453912 Ontario Inc., 2018 ONSC 4524 (CanLII), at paras. 25-28Tibor Urac v. Mohamed Ferawana2017 ONSC 385 (CanLII), at para. 32.

[27]           Even if the amount paid is characterized as a non-refundable deposit, if the amount of the deposit is out of all proportion to the losses suffered, the court may order the deposit be returned: Dovbush v. Mouzitchka2016 ONCA 381 (CanLII), at para. 31, and cases cited therein. 

To obtain relief from forfeiture on this basis, the Respondent is required to establish i) the forfeited sum was out of proportion to the damages suffered; and ii) it would be unconscionable for the vendor to retain the money: 

Varajao v. Azish2015 ONCA 218 (CanLII), at para. 11Redstone Enterprises v. Simple Technology2017 ONCA 282 (CanLII), at para. 20.

[28]           The issue of disproportionality was not raised in the Respondent’s factum, but I will make the following observations.

[29]           In Azzarello v. Shawqi2018 ONSC 5414 (CanLII), Nishikawa J. reviewed a number of cases that considered whether the deposit was disproportionate to the sale price. She stated, at para. 66:

Courts have found that deposits in the amount of 4.8 percent, 20 percent, and 25 percent of sale price were not unconscionable:  

Signal Chemicals Ltd. v. Dew Man Marine Trade Inc.2011 ONSC 3951 (CanLII), 8 R.P.R. (5th) 151, at para. 16 (citations omitted). 

The percentage is not determinative, but is merely a factor.  In Redstone, the deposit was approximately 7 percent of the purchase price and was found not to be commercially unreasonable.

InMikhalenia, at para. 46, the deposit was $100,000.00 on a total sale price of $1,300,000.00 (6.67 percent) and was found not to be unconscionable. 

In this case, the $75,000.00 deposit was approximately 4.8 percent of the $1,555,000.00 purchase price. 

[30]           In the present case, the original deposit of $200,000 was 6.25% of the purchase price, and was not disproportionate.

While the additional deposits resulted in a 12.50% total deposit, this was not disproportionate, especially given that the additional deposits were made in consideration for extensions to the original closing date.

By agreeing to these extensions, the Applicants lost the opportunity to resell the Property.

Each extension increased the risk to the seller, and should be accompanied by a correspondingly increased risk of forfeiture to the purchaser.

In my view, the total $400,000 deposit was not disproportionate and it would not be unconscionable for the vendor to retain that money.”


Courts have found that deposits up to 25% were enforceable and did not grant relief from forfeiture. This one, at 12.5% is only 50% of the maximum, and consequently, there was no relief granted.

Deposits Generally

At the outset, in this case, the sum of $400,000.00 had been paid by way of deposits. An application can be made to Court for transfer of the deposit amount, upon proof of breach of contract. There is no need to prove damages or any financial losses at all. In fact, there may not even be a loss, there might be a financial gain. That issue is not relevant when we are talking about a deposit.

It’s a little too late in the middle of the litigation to re-think the deposit issue.

An Alternative Consideration: Partial Payment of the Purchase Price

Consider a slightly different approach. The Buyer offers to pledge an additional $200,000.00 into the deal in order to secure the extensions, however, this time the funds are described as “a part payment of the purchase price”.

In this way, the $200,000.00 so paid would not be transferred to the Seller on this motion, just the two initial deposits. Now, bear in mind that the Sellers’ apparent losses “on paper” are still $701,000.00, but if the market takes off, that might be lessened somewhat. The result would significantly alter the course of this lawsuit.

So, in essence, the same amount of money would be “on the table” but it would not be “at risk” in the same way as a deposit would be.

These are the types of calculations which should be considered and undertaken at the outset when negotiating, rather than in the middle of litigation.

Brian Madigan LL.B., Broker

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