Returning the Deposit in a Failed Transaction
What documents do you need?
You are going to have to have some paperwork for the file. If the deal fell through and the deposit is to be returned to the Buyer then you will need:
1) A Mutual Release, or
2) A Court Order.
Where did I get that idea? Actually, it’s practically word for word from the Real Estate Council of Ontario (RECO):
“In summary, in the case of a failed transaction, a brokerage should only disburse the deposit in two circumstances:
1. In accordance with a release or direction signed by all parties to the Agreement (Mutual Release) or;
2. Upon receipt of a direction from the Court (Court Order).”
Source: Bulletin “Failed Agreements of Purchase and Sale” March 25, 2015
However, read the section a little more closely. Many registrants have the impression that a Mutual Release is required. That’s not right and that’s not what this Bulletin says. It refers to a “release or DIRECTION” signed by all parties to the Agreement. Unfortunately, it then refers to this document as a “Mutual Release”. It should have also said “DIRECTION” or “Agreement which would have included both documents. Please note: it is “EITHER/OR”.
Parties means the Seller or Sellers, and the Buyer or Buyers. Everybody who signed the Agreement of Purchase and Sale would have to “sign off”.
Specifically, it does not mean Brokerages. They have nothing to do with it. They have “no say”. Their signatures, consent, or agreement is not required. They are not “parties” to the transaction.
In fact, a mutual release is not necessary, nor is the release of any party. It should be noted that the standard form Mutual Release from OREA contains a direction with respect to payment of the deposit. Where is it going?
The key item is the agreement between the parties as to the deposit. Who gets it? The trustee or stakeholder of the deposit needs to be told by ALL parties. If that is the case, then the deposit can be transferred as agreed.
The direction could be a “stand alone” document. It just so happens that there is one in the standard form Mutual Release.
However, all that is required is the direction. The release is superfluous and unnecessary.
You can appreciate that if the parties cannot come to any arrangement, then it will be up to the Court to decide. That might be at any point in time, early in the proceedings or as late as sometime following the Judgment. The Brokerage must follow the Court’s instructions.
It is important to secure a Direction in order to deal with the deposit. A release probably requires “legal advice”. It would be in error to advise a party that a Mutual Release is necessary.
Brian Madigan LL.B., Broker