Seller’s Preferred Deposit Clause

If the deal doesn’t close, the Seller wants the deposit as soon as possible.

Many agreements will have various references to getting the deposit if the buyer is in default. They will also say that no Mutual Release is required and the Stakeholder can turn the deposit over immediately. The authorizations are included in the Agreement itself.

However, that’s still not good enough!

To release a deposit in Ontario, the stakeholder will require:

  1. A Direction signed by BOTH parties, or
  2. A Court Order.

This applies whether the Stakeholder is a Brokerage or a Law Firm. The Stakeholder is holding the deposit “in trust” for both parties not one. That means two signatures not one.

Naturally, the Seller will say right away:

  • that deal fell through, and
  • It was the Buyer’s fault.

If the Buyer agrees, and immediately signs the documents ,then that’s fine. However, the Buyer may have an entirely different interpretation of what transpired. The problem here is that the stakeholder is forced to make a decision as to who is right and who is wrong. Isn’t that the role of the Trial Judge?

Deposit Transfer Clause

“The parties agree and hereby authorize the Stakeholder, XYZ Realty, Brokerage to transfer the deposit under this Agreement, in full, to the Seller on 24 November 2022, at 2:00 pm unless there is a Court Order served upon the Stakeholder preventing or restricting such transfer. This provision shall otherwise constitute good and sufficient authority for the Stakeholder to attend to such transfer.”

The deal was struck on 30 June 2022 and provided for a deposit of $50,000.00 on a $1 million deal. The closing is scheduled for 25 November 2022. So, 24 November is the day before closing. And, we have a precise time of day.

We don’t need to have an interpretation of the rights of the parties and their respective positions, all we need to know is “what time is it”.

That’s the entire trigger: the time of day.

If there is no Court Order saying “no”, then the Stakeholder will step up to the plate and transfer the funds. No further paperwork is required.

Seller’s Position

Ordinarily, the Seller would have to wait until closing to get the deposit funds. But here, they are receiving them the day before closing. And, there is no deposit left of closing day.

If the deal fails to close, then it could take months, even years to get the deposit.

Buyer’s Position

Most Buyers will want to close the deal as set up. They will have all their funds in hand. There really shouldn’t be too much of a problem because otherwise this deposit was going to be paid one day later, the closing date. So, what’s the problem?

If, for some reason, the Buyer can’t close, and they believe the deposit should not be transferred, then, they can apply to Court to see whether they can obtain a Court Order. They will need to get this issue addressed as soon as possible. They should serve the Court Order on the Stakeholder the day before, namely 23 November 2022. In order to bring the application, usually 10 days’ notice is required. That brings us to 13 November 2022. To be able to serve the parties on 13 November 2022, the Court Motion material needs to be drafted and prepared. That will likely take a day or two. Consequently, in this case, the Buyer needs to be able to activate their rights no later than the previous Friday, 9 November 2022. If they don’t make a decision by then, it will be too late.

Some other related issues

  • The deposit gets paid out in full, all $50,000.00
  • There’s still interest on the deposit which has yet to be paid and still belongs to the Buyer
  • There are no funds available in order to pay the Commission

This clause works since we just need the Stakeholder to be able to tell the time. The parties still have all their rights in place allowing them to sue one another afterwards, but, now the deposit sits in the Seller’s bank account, not the Stakeholder’s.

Brian Madigan LL.B., Broker

Comments 3

    1. Post
  1. Is this even possible. How can any clause override and laws that protect the deposit from being given to anyone – other than by mutual consent and/or by court order.

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