s. 4 - Deposits (Continued) - Deposit Reimbursement, etc.
In this post, we finish our review of S. 4 of the Purchase Contract (i.e. deposits).
4.6 The trustee will deposit all deposits into a trust account within three Business Days of receipt.
This is more of an instructional section targeted at the trustee defined in s. 4.2 (https://agahilaw.com/purchase-agreement-s-4-deposits/). Unlikely to have any consequences on the current transaction.
4.7 Interest on the deposits will not be paid to the seller or buyer.
Important to remember. As a buyer (or even as a seller), you cannot expect the real estate agency to pay you interest on the deposits paid. This is one of the reasons the buyers usually try to pay as small of a deposit as circumstances allow.
4.8 The deposits will be held in trust for both the seller and buyer. Provided funds are confirmed, the deposits will be disbursed, without prior notice, as follows:
The keywords in this section is “without prior notice.” So if you are a buyer/seller and face one of the following situations, you need to remember that your agent does not require your permission to release the deposit(s) in accordance with the schedule below.
(a) to the buyer, if after this contract is accepted:
Lists the scenarios in which the buyer receives his deposit(s) back.
(i) a condition is not satisfied or waived in accordance with clause 8.4;
We will review s. 8.4 in a later post. For now, suffice it to say that this is the situation in which the buyer does not qualify for a mortgage or finds major issues with his inspection and does not want to close the deal anymore. Similarly, a seller may have non-waived conditions such as buying their own house in time.
(ii) the buyer voids this contract for the seller’s failure to provide a Dower Consent and Acknowledgment form in accordance with clause 7.1(b);
We will review s. 7.1 (Dower) in full later. For now, remember that this section deals with spousal consents in cases of sellers who are married but have sole ownership of the title.
(iii) the seller voids this contract for the buyer’s failure to pay a deposit; or
The wording of this clause may be confusing as one might wonder how are deposits releasable to a buyer where the buyer has not paid the deposits. But we believe the intent is to cover cases where the deposit was paid to the seller’s agent AFTER the deadline for payment of such deposits. If the seller does not accept such deposits, the deposits shall be returned to the buyer.
(iv) the seller fails to perform this contract;
This is a somewhat contested clause. We will review this clause more when we cover section 12 (Remedies). On the face of it, this clause allows the buyer to void the contract and receive his deposits back where the seller has committed a major breach of the contract.
(b) to the seller, if this contract is accepted and all conditions are satisfied or waived and the buyer fails to perform this contract; or
This is the only scenario in which the deposits are paid to the seller and that’s where the contract is finalized (i.e. conditions removed) and the buyer cannot close the deal (e.g. is having issues with financing, is out of town and cannot sign closing documents in time, etc).
(c) applied against the Fee owed by the seller by payment directly out of trust to the brokerage(s), with any excess amount paid in trust to the seller’s lawyer no later than three Business Days prior to the Completion Day. Fee means the amount, plus GST, owed to a real estate brokerage under a written service agreement.
This clause covers the situation in which the deposit(s) paid is higher than the total commission of the realtors on the deal (inclusive of GST). In such a scenario, the excess funds shall be sent to the seller’s lawyer BEFORE the closing day by the trustee.
One item that is missed by many sellers is that there is GST payable on the realtors’ commissions. However, if a seller is a GST-registrant, they would have the option to delay payment of GST on commissions and declare such GST through their own business (discuss this matter with your realtor in advance and consult your accountant/tax-lawyer re details).