Peculiar Deposit Clause in Schedule “B”

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From time to time, Brokerages will draft up their own, individual clauses, presumably for the benefit of the Seller clients and post them in their Schedule “B”. Naturally, it’s important to know what they say, and what they mean, and their implications for both the Sellers and Buyers before adding them as mandatory additions to each and every deal, when they act as the Listing Agent.

Here’s one about deposits:

“Deposit instructions: All deposits must be in the form of a bank draft made out to the “Seller’s Lawyer in Trust”. No deposits are required until the offer is FIRM & BINDING. The Buyer(s) will have 5 business days from the time, the offer is FIRM & BINDING. The Buyer(s) or the Buyer’s agent will deliver the deposit (bank draft), personally or couriered directly to the Seller’s Lawyer’s office. With the understanding that the Buyer(s), must also provide the Seller’s Brokerage with an acknowledgement from the Seller’s Lawyer, of receipt of the full deposit, in the time stated.

The Buyer(s) acknowledges that by execution of this Agreement of Purchase and Sale, they are creating a binding Agreement, whether or not they have submitted the deposit, and that they are under strict obligation to remit the deposit as per the deposit requirements and timeline contained herein. Failing which, the parties to this Agreement irrevocably acknowledge and agree that the Seller shall be at liberty to offer the property for sale, without the requirement for a “Mutual Release”, noting that notwithstanding the aforementioned, failure to remit the deposit as specified herein, may still be deemed an anticipatory breach of this Agreement of Purchase and Sale, with the seller reserving the right to seek damages and any other remedies available to them.”

What did you think of that? Should it be added to all agreements? If so, should you copy and paste it into your own deals when acting for a Seller?

Review of the Clause:  Sentence By Sentence

Deposit instructions: All deposits must be in the form of a bank draft made out to the “Seller’s Lawyer in Trust”.

The deposit in this transaction will be placed in a solicitor’s trust account. That’s still fine since it is covered by the Law Society.

No deposits are required until the offer is FIRM & BINDING.

We are clearly starting out with a delayed deposit payment. This will encourage Buyers who don’t have the money immediately to come forward, and will not distinguish Buyers who have ready access to the funds.

There seems to be a little bit of an issue here. It says the Offer is “firm and binding”. It did not say the “Agreement”.

So, an Offer is firm and binding once it has been signed, sealed and delivered to the Listing Agent for presentment to the Seller. This is when we have an irrevocable Offer, open for example, until 10:00 pm by the Seller. Assuming the Offer were delivered into the possession of the Listing agent at 7:52 pm, then, that Offer is firm and binding, AND, of course, that’s the trigger time (7:52 pm) for the countdown for deposit delivery.

With standard OREA contracts, there are three choices: 1) now, 2) within 24 hours, or, 3) as otherwise agreed.

This approach is very unusual and many Buyer agents may not pick up on the trigger time.

The Buyer(s) will have 5 business days from the time, the offer is FIRM & BINDING.

To what? What actually does this mean? It’s not a sentence! But, I suppose that it was intended to be, since it was a group of words between two periods.

The Buyer(s) or the Buyer’s agent will deliver the deposit (bank draft), personally or couriered directly to the Seller’s Lawyer’s office.

The Buyer or their agent is to deliver the bank draft. There are two methods available, either 1) personal delivery, or 2) courier delivery. The physical draft must be physically delivered to the lawyer’s office. There is no opportunity for direct deposit into the lawyer’s trust account or wire transfer. Let’s hope that the lawyer has a physical office that is not too far away.

With the understanding that the Buyer(s), must also provide the Seller’s Brokerage with an acknowledgement from the Seller’s Lawyer, of receipt of the full deposit, in the time stated.

Again, we have a group of words which do not comprise a sentence located within two periods.

Let’s assume that the time limit for the 5th business day is Thursday at 11:59 pm. In order to comply with delivery of the deposit, we have two steps:

  1. Physical delivery of the bank draft to the lawyer’s office, AND
  2. Delivery of the Lawyer’s receipt of the deposit, to the Seller’s Brokerage, ALSO, within that same time limit, 11:59 pm on Thursday.

This two step process is most unusual. The Lawyer’s office probably closes at 5:00 pm. It will be difficult to get any document signed by them after that time. Here, the intention is to place the Buyer in breach, should that not take place!

This provision is unduly problematic.

The Buyer(s) acknowledges that by execution of this Agreement of Purchase and Sale, they are creating a binding Agreement, whether or not they have submitted the deposit, and that they are under strict obligation to remit the deposit as per the deposit requirements and timeline contained herein.

This, of course, is the law. It applies whether it’s written in or not. Adding this statement adds nothing. It’s completely unnecessary.

Failing which, the parties to this Agreement irrevocably acknowledge and agree that the Seller shall be at liberty to offer the property for sale, without the requirement for a “Mutual Release”, noting that notwithstanding the aforementioned, failure to remit the deposit as specified herein, may still be deemed an anticipatory breach of this Agreement of Purchase and Sale, with the seller reserving the right to seek damages and any other remedies available to them.

The first several words are just nonsense words. They add absolutely nothing to the contract: “Failing which, the parties to this Agreement irrevocably acknowledge and agree that…”. What does that mean?

“the Seller shall be at liberty to offer the property for sale, without the requirement for a “Mutual Release”,

Again, this is trite law. The Courts have always taken the position that if the Buyer is in breach of contract, the Seller can relist and sell. That’s the Seller’s right at common law. There’s no need to spell that out here.

However, the reference to the Mutual Release is far from clear. Such a document would have both parties agree not to engage in litigation. The Seller wants to specify either an act or omission on the part of the Buyer, not a reference to the failure to reach another agreement or understanding, namely, the mutual release. This reference appears rather ill-conceived.

“noting that notwithstanding the aforementioned, failure to remit the deposit as specified herein, may still be deemed an anticipatory breach of this Agreement of Purchase and Sale, with the seller reserving the right to seek damages and any other remedies available to them.”

Actually, the reference “noting that notwithstanding the aforementioned,” is silly. It is pure “legal gobbledegook”. It has no meaning whatsoever. It’s simply a placeholder while someone is collecting their thoughts! It buys time in a speech, when someone doesn’t know what to say next.

So, no deposit and we have a reference to that fact may be deemed an anticipatory breach. By whom? By both parties? That doesn’t make sense.

The moment we have an anticipatory breach, the Seller is placed under a duty to mitigate damages. In effect, it takes away rights from the Seller because otherwise, they could wait for the closing date. In fact, they gained nothing and may have lost some rights. That’s hardly a clause which is to the Seller’s advantage.

However, you do have to admit, that it sounded good on first reading.

So, other than that, I’m sure it’s a good clause!

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com

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