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In most circumstances, a buyer will submit a deposit on acceptance of their offer to purchase residential property. These deposits are typically held in trust by the seller’s brokerage and can range anywhere from $100 to $50,000 or more depending on the location and nature of the property. For their protection, the buyer may also make an offer conditional on any number of factors, including arranging new financing, a home inspection, or review of the status certificate for condominium properties. These conditions usually provide that the buyer must be satisfied with the subject matter of the condition, in their sole and absolute discretion.

The standard wording for these conditions will usually also include the following language:

Unless the Buyer gives notice in writing delivered to the Seller personally, or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any schedule hereto, not later than 6:00 p.m. on the tenth business day following the date that this Agreement was finally accepted by all parties, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

On a plain reading of this clause, failure to notify the seller that the condition was fulfilled or waived essentially cancels the deal. A buyer reading this wording would be justified in believing that their deposit will be immediately returned to them if, for example, their agreement was conditional on review of a condominium status certificate and the status certificate revealed a poorly funded reserve fund such that they chose not to proceed with the deal and did not waive their review condition.

However, the Real Estate Council of Ontario (RECO), the regulating and disciplinary body for all real estate agents licensed in Ontario, takes a contrary view. Their website guides brokerages to only release the deposit if the buyer and seller both sign a mutual release releasing each other from any obligations under the agreement, or by court order directing the release of the deposit. If the seller refuses to sign a mutual release, the buyer may be left to pursue a court order despite the clear wording of the contract. In some cases, the cost and time involved in obtaining a court order may be greater than the deposit itself, leaving the buyer with no recourse and potentially without a deposit to offer on another property.

It is debatable whether RECO’s position is correct. Their analysis is based on trust principles and the fact that the brokerage is holding the funds in trust. They argue that the deposit should only be released in accordance with the trust terms. This reasoning does not appear to consider whether the trust terms are informed by the contract itself, which states that deposits should be returned to the buyer when conditions are not fulfilled or waived. For their protection, buyer’s may want to consider inserting further language into their conditional agreements stating that both parties irrevocably direct the immediate return of the deposit to the buyer without the need for a mutual release or court order if the conditions are not fulfilled or waived within the stated time period.

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