Mutual Releases in Ontario

By
Commercial Real Estate Agent with RE/MAX West Realty Inc., Brokerage (Toronto)

Mutual Releases In Ontario

 

Question:

If a deal gets accepted and the buyer says they changed their mind before delivering deposit, is a mutual release still required? What's everyone's take on whether Is the deal is null and void if the deposit isn't delivered? Can a buyer just say they changed their mind and get out of the deal no problem? It's still conditional on financing and inspection.

Answer:

A mutual release is not required. The Buyer is in breach of contract. The property can be sold to a second Buyer. You don't have to pay a ransom to the first Buyer. If the second deal is not as good as the first, then the Seller has damages. Sue for the loss. If the Seller sells for more in the second deal, just sue for the deposit. It's already been agreed as the amount of liquidated damages. There's no need to prove any actual financial loss.

I have a couple of cases right now on point. The Sellers gave back the deposit and signed a mutual release believing them to be necessary to sell to the second Buyer. Later, on the closing of the second deal their lawyer advised them otherwise. Now, they have hired a litigation lawyer to sue the Listing agent. Too late to sue the Buyer. That ended with the release.

The issue is one of informed consent. In the two cases I referred to above the Listing agents had given incorrect advice concerning the law. Obviously, they should have said “call your lawyer if you want to sue the first buyers”. That didn't happen. The error was that the Listing agents said that the sellers couldn't sell unless there was a mutual release. That advice was not correct. In both cases, the Listing agents had been around for a long time and that was their practice. They honestly believed that to be the case. The problem is that they were out of step with the law. So, going forward, keep up to date and know the law or refer the matter to a lawyer. Either method works. If you are going with the mutual release, then make sure you have the Sellers' informed consent.

Some Brokerages have a policy requiring the execution of a Mutual Release. This would seem to be rather cavalier and improvident on the part of the Brokerage. As with most situations, the Seller here decided not to pursue the matter. What was required was a Direction concerning the deposit. There is one in the MR. But, you don't need a release in order to have a Direction.

The general and usual case, without any breaches is that a Mutual Release is commonplace. You can still have a Mutual Release if that is what the Seller wants. Without the deposit having been submitted, the Seller has to sue for that amount. In the particular case under consideration, there are two conditions. It would also be necessary to prove that financing was obtainable and the property would have been in acceptable condition to the ordinary reasonable purchaser in the Buyer's position. It could be tricky, so why offer legal advice if the Seller is seeking legal advice? The issue is not the mutual release itself. It's just a document. The issue is the Listing agent's explanation.

Let me know if you would like to discuss this?

 

Brian R. Madigan LL.B., Broker
RE/MAX West Realty Inc., Brokerage
416-745-2300

 

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