Purchasers beware approving early release of the deposit
It is always in the interests of vendors to get their hands on their purchaser’s deposit payments as soon as they can. Why? After deduction of land agent commission, the balance can be used to repay part of the mortgage prior to settlement and save some interest. Also possession of the deposit gives additional power to the vendors in any dispute.
Unless the parties agree otherwise, there is a statutory minimum of 10 working days where the agent must hold the deposit.
People may not be aware however that the deposit paid on a property purchase belongs to the purchasers until the vendors have met all of the vendors’ obligations under the agreement.
Assuming the agreement is the standard ADLSI/REINZ form, these obligations include, but are not limited to:
- giving vacant possession
- remedying any matters which need to be attended to after the purchasers have exercised their right to a pre-settlement inspection
- complying with any requisitions made since the deposit was paid
- paying the purchasers any amount due for any late settlement by the vendors.
- providing on settlement a registrable Transfer and discharge of the vendor’s mortgage.
Also there are circumstances (under General Conditions 4 and 10 of the ADLSI/REINZ agreement) where the vendors have agreed that the purchasers will be entitled to a full refund of the deposit.
It might be difficult for the purchasers to recover the deposit if the purchaser’s lawyer has authorised the release of it in the meantime.
With this background in mind, where we act for the purchasers, Northlaw’s practice is not to authorise release of the deposit until directed to do so after we have explained the options to them.
An example of what can happen
A property is completely destroyed by fire prior to settlement but after the agreement has been declared unconditional and the agent’s commission deducted. The agents resist refunding the commission (on the basis they have earned it by achieving for the vendors an unconditional sale). This could be very disadvantageous to a purchaser who had authorised early release of the deposit and deduction of the commission. The vendor’s liability to the agents for their commission is of no concern to the purchaser if and when the purchaser is entitled to a refund.
There would be the same problem if a purchaser’s lawyer authorised the release of the deposit if the purchaser clients subsequently had difficulty recovering it following a default by the vendors.
As always make sure you talk with your lawyer about these issues so you don’t get any nasty surprises.