SELLER WINS, HOUSE BUYER LOSES DEPOSIT

Buying a new house? You usually have to put up a hefty deposit to cinch the deal. This is partly to show your commitment to the deal and also to create a pool of funds for the seller to look to if you walk. (Sellers take note: this can be key if the buyer is a non-resident or his finances unknown.)

If you’re the buyer, you want to make sure you can get your deposit back if conditions in the contract (like a house inspection, getting a mortgage or having your lawyer review the title) aren’t satisfied. You also want to keep the deposit small to minimize your loss if you can’t go through with the deal.

Usually the buyer and seller focus on the amount and timing of the deposit. But you should also pay attention to the wording of the deposit clause. That’s because the addition of a few words can make the difference between the deposit being kept by the seller and the buyer being able to get it back. A hot-off-the-press B.C. Court of Appeal decision illustrates this.

The deposit in this case was $100,000. After the buyer refused to go through with the purchase, the seller sued to have this money released to him, claiming he was entitled to keep it. The buyer argued he should get his deposit back because the seller hadn’t lost any money (i.e., the seller should only be allowed to keep the deposit if he resold at a lower price).

The purchase contract read like this:

“… unless the balance of the cash payment is paid … on or before the Completion Date, the Seller may, at the Seller’s option, terminate this Contract, and, in such event, the amount paid by the Buyer will be absolutely forfeited to the Seller …, on account of damages, without prejudice to the Seller’s other remedies.”

The seller said this meant he was entitled to keep the deposit here. This view is supported by a previous B.C. Court of Appeal decision, which considered similar wording (but with additional words which said the money was also “non-refundable”).

The buyer focused on the words “on account of damages” instead. He said that if the seller hadn’t suffered any such losses (because the seller was able to resell at a higher price), then the deposit had to be refunded. The buyer relied on a different previous B.C. Court of Appeal decision supporting this view.

The buyer won at first. The trial court ordered the deposit to be returned to him. In doing so, the court stressed the fact that the words “non-refundable” weren’t in the deposit clause. But the court also commented that the matter would likely be appealed. Which it was.

And the B.C. Court of Appeal overturned the decision. It decided that the seller could keep the deposit without having to prove loss.

This decision jives with what buyers and sellers normally think a deposit is for and how the standard contract deposit clause in wide use in this province works. But it shows yet again that a few words in a contract can make a critical difference, and whole cases can turn on what they intend.

Consider consulting your lawyer if you need help with writing up your contract, or if your real estate deal goes sideways.

 

This column has been written by Janice Mucalov LL.B as part of “You And The Law”. It provides information only and must not be relied on for legal advice. Names of the parties in reported cases have been changed or removed to protect their identity. Lawyer Janice Mucalov is an award-winning legal writer.

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