Deal fails to close, but they keep the deposit

Toronto Star - - HOMEFINDER.CA - Bob Aaron is a Toronto real es­tate lawyer. He can be reached at [email protected] or on Twit­ter: @bobaaron2 Bob Aaron

What hap­pens to the buy­ers’ deposit when they re­nege on the pur­chase agree­ment for a house and the owners re­sell for a higher price?

That was the case in a 2016 sale of a house on Ravens­bourne Cr., in Toronto. Davood and Hakimeh Shabestari agreed to pur­chase the house from Sirish and Ir­watti Sinha for $1,202,000. The ven­dors are both in their 80s.

The pur­chasers paid a deposit of $60,000. Based on their sale, the ven­dors signed an agree­ment to buy an­other prop­erty and both deals were set to close Aug. 3, 2016.

One month be­fore closing, the pur­chasers in­formed the ven­dors that they were un­able to close as they could not ar­range fi­nanc­ing. The pur­chasers had re­turned to their home in Iran and dis­cov­ered that their home there had not sold. They ad­vised the ven­dors that there could be some de­lay in se­cur­ing funds for their pur­chase in Toronto due to “very bad econ­omy con­di­tions” there.

When it be­came clear that the pur­chasers were not go­ing to close, the ven­dors re-listed the prop­erty and it sold on Aug. 31, 2016, for $1,273,000 — $71,000 more than the orig­i­nal sale price.

With the $60,000 deposit tied up in the trust ac­count of the real es­tate bro­ker­age, the ven­dors ap­plied to court for a dec­la­ra­tion that the deposit would be for­feited and paid to them. The pur­chasers coun­ter­claimed for re­turn of their money.

These court pro­ceed­ing are known as ap­pli­ca­tions for sum­mary judg­ment with­out a trial. Typ­i­cally, the bur­den falls on the party re­quest­ing the sum­mary judg­ment to show that there are no facts in dis­pute and no gen­uine is­sues for trial.

The mat­ter came be­fore Jus­tice Lu­cille Shaw late last year, and her de­ci­sion was re­leased this past Jan­uary. She ruled that the sum­mary pro­ce­dure was timely, af­ford­able and pro­por­tion­ate to the amount in dis­pute.

Since the ven­dors sold the prop­erty for $71,000 more than the pur­chasers agreed to pay, the pur­chasers ar­gued that they should get their $60,000 deposit back.

In her rea­sons, the judge noted that it is set­tled law in On­tario that a deposit may be for­feited with­out proof of dam­ages. The only time a deposit might be re­turned is if the court be­lieves it is out of pro­por­tion to the dam­ages suf­fered by the sell­ers, and it would be un­con­scionable for them to re­tain the money.

Pre­vi­ous court cases have held that a deposit of as much as 7 per cent of the pur­chase price is not un­con­scionable and will be for­feited when the buyer is at fault.

In the Sinha case, the Shabestaris ar­gued that it was never their in­ten­tion that the $60,000 deposit would be for­feited if they did not close the trans­ac­tion. Noth­ing in the agree­ment, how­ever, sug­gested that the deposit would be re­turned in the event the deal did not close.

The judge found that the $60,000 deposit, rep­re­sent­ing 5 per cent of the pur­chase price, was not so dis­pro­por­tion­ately large to be con­sid­ered un­con­scionable.

In the end, the judge’s rul­ing was that the deposit was to be for­feited and re­leased to the sell­ers.

Court cases have held that a deposit of as much as 7 per cent of the pur­chase price is not un­con­scionable and will be for­feited when the buyer is at fault

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