Currently most conditional offers are written such that if the condition is not met, the offer becomes null and void and the buyer’s deposit shall be returned to the buyer in full, without interest or deduction. But what happens when the seller, after they have been properly informed in writing by the buyer that a condition has not been met, refuses to release the deposit?
In Ontario if the buyer and seller don’t come to an agreement within two years, the deposit holder, usually the listing brokerage, must forward the deposit in question to the Real Estate Council of Ontario (RECO) along with copies of the file, in the event the matter is resolved sometime after the two-year period. The seller, since they have been notified that the condition in the agreement has not been met, is therefore free to continue to market their property for sale. However, where does that leave the buyer? How often does the buying Realtor explain to the buyer when the offer is being prepared that in the event the condition is not met, the release of the deposit is not automatic and that the seller will actually have to agree to such a release?
If the seller refuses to release the deposit, the only recourse the buyer has is to sue the seller and the deposit holder in small claims court. In those situations, buyers are rightfully upset. Even if the buying Realtor has explained to the buyer that this possibility exists, it will still be upsetting when and if it actually occurs.
They will also be upset because they now have to incur the cost and the time of retrieving that deposit through the court system. Many of them will have to spend even more money for legal advice. Sadly, if the deposit is large enough, many buyers will not be in a position to purchase another property until they retrieve these funds.
In these situations, buyers also get upset at their Realtors and usually the listing brokerage. It’s a poor reflection on our industry.
My suggestion is to use a clause for conditional sales that protect your buyer from this unpleasant situation, such as this:
“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.”
RECO’s basic position is that as long as it has been explained to both parties what this clause means, it has no problem with the clause. The use of the clause in conditional agreements provides several benefits. First, the deposit no longer becomes an issue between the buyer and seller and their respective salespeople. Understand that if the deposit is released by the deposit holder to the buyer, this does not negate the seller’s right to sue the buyer for damages in the event the seller feels the buyer did not act in good faith with respect to the conditions that were used in the agreement.
Secondly, the deposit can now actually be given back to the buyer as the conditional clause states in the Agreement of Purchase and Sale. The buyer will have his deposit and is free to purchase another property.
Thirdly, brokerages and their Realtors are no longer stuck in the middle of this dispute.
Brokerages should seek their own legal opinion if they plan on using this clause. It should be said that this is not a huge problem in our industry and more often than not all parties sign a mutual release and the buyer and seller are free to pursue their real estate needs. However, I believe buying Realtors should protect their buying clients from unco-operative and/or obstinate sellers who have been properly served in writing to the fact that the condition(s) in the agreement have not been met, but refuse to release the deposit simply because they can.
Most large brokerages in Ontario send files to RECO every year with deposits for deals where sellers have refused to release the deposit. It’s time we do something about it.