The Magician’s Deposit Clause

A few Brokerages have been using a clause which they find helpful. From time to time a Buyer decides not to proceed with a real estate transaction.

So, they take advantage of one of the “wind up” provisions in the Agreement, namely the financing or inspection conditions.

Assuming “good faith”, and that they are truly entitled to “wind up” this deal and “move on”, the problem could be the deposit. They can’t go to another deal, until they get their deposit back from the first.

So, what would be better than the automatic return of the deposit without questions asked?

Here’s the clause under consideration:

“The Seller agrees in the event that the Buyer does not waive the conditions within the dates and times as set out in this agreement and its amendments, the Seller gives the Deposit Holder, the Brokerage or other Party holding the deposit an irrevocable direction to release the deposit to the Buyer without the necessity of a Mutual Release signed by either Party.”


Using this clause is just like having no deposit at all. Why have a deposit if it’s just going to fly out the window like that?

Actually, it’s fine for the Buyer, but how does the Listing agent explain the magician’s sleight of hand here?

While I do feel sorry for a Buyer who gets trapped in a deal that went sour, this is not a clause which is fair to both sides. This is the precise situation when the Seller wants to keep the deposit. This is nothing more than having the Seller give up one of his remedies at law.

Rather than this, why not defer the payment of the deposit completely until the Buyer waives all conditions? It would save the Brokerage the hassle and the paperwork.

It should be noted that in some jurisdictions, this is the “norm”, and in those jurisdictions something similar to this makes sense. However, it’s not standard practice in Ontario, and in my view, it would be best to avoid it if you are acting for a Seller.

Brian Madigan LL.B., Broker

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