After more than 32 years in the brokerage business, I know that changing the way organized real estate and the Realtors who work in the industry do their business is not an easy proposition, even when it may be better for the industry itself and the consumers who rely on us.
I am grateful that Joe Richer, registrar of the Real Estate Council of Ontario (RECO) stated his position regarding the clause that I proposed. It concerned getting consent from the seller at the time of signing of the Agreement of Purchase and Sale (APS) to release the deposit to the buyer when conditions in the agreement were not met by the buyer. Once again, the clause that I recommend is:
“The Seller agrees in the event that the Buyer does not waive the conditions within the dates and times as set out in this agreement and its amendments, the Seller gives the Deposit Holder, the Brokerage or other Party holding the deposit an irrevocable direction to release the deposit to the Buyer without the necessity of a Mutual Release signed by either Party.”
RECO’s position is, “There is nothing in REBBA 2002 that would prohibit the use of this clause to satisfy the requirement of written direction.” This statement is important because judging from some of the comments on REMonline to this clause, many registrants seem confused or concerned that the use of this clause would not be acceptable by RECO or somehow would not comply with REBBA 2002. Hopefully Mr. Richer’s comments have put those particular registrants at ease. However, I would like to address some of the additional issues that he presented in his response to my proposed clause.
Mr. Richer suggested that the seller’s and buyer’s brokerages, presumably their respective sales representatives, initial the clause to acknowledge their brokerage’s agreement to the terms of this clause. Since this agreement is between buyer and seller and the brokerages are not party to the agreement, I don’t think the brokerages’ initials on an Agreement of Purchase and Sale is appropriate.
For example, if one sales representative did not initial it would have no affect on the binding agreement. Rather, registrants who represent brokerages should have clear direction from their broker of record as to the use of this clause from both the selling and buying side of the transaction. If the respective broker of record does not accept the use of this clause, then the representative, after discussions with their client, can make the acceptable modifications to that agreement. This is what brokerages do today; if they find this clause unacceptable they simply cross it out and counter the offer. In many cases this is the first time that buyers discover that the return of their deposit, if the conditions are not met, is dependent on whether the seller will sign the mutual release.
Mr. Richer also seemed somewhat concerned about the sellers agreeing to release the deposit before they know the specific circumstances that caused the deal to fall through. Most Agreements of Purchase and Sale don’t require the buyer to explain why the condition was not met unless the seller calls for such explanation in the agreement, which is rarely the case. Typically the conditional clauses used in Ontario are for the buyer’s benefit. The release of the deposit should not be at the seller’s option. The use of this clause and the subsequent release of the deposit does not deny the seller the right to sue if they felt the buyer did not act in good faith during the conditional process.
The current conditional clauses typically used in Ontario for financing, home inspection and insurance, in my opinion, are misleading because it leads the buyer to believe that if the condition in the agreement is not met, the release of the deposit to the buyer is automatic. That is not the case in Ontario, unless a clause like the one I am suggesting is used in the agreement.
Currently, RECO holds thousands, perhaps more, of deposit dollars in trust from deals where buyer conditions were not met and the seller refused to sign the mutual release. This is an injustice to the buyers, because these deposit funds do not belong to RECO and therefore they should be given back to those respective buyers!
The concept of automatically returning the buyer’s deposits to the buyer when conditions are not met, from my limited research, happens in other provinces such as Manitoba, Saskatchewan and Alberta. My understanding is that the seller’s consent to release those deposits back to the buyer when a condition is not satisfied is built into the Agreement of Purchase and Sale.
My suggestion that we obtain consent from the seller to release the deposit back to the buyers at the time of the signing the APS is not a significant change in how we do business in Ontario. It also complies with the Registrar’s Bulletin on failed agreements because the irrevocable direction is agreed to by both parties to the agreement.
As I indicated in my initial article, in most deals where the buyer’s conditions are not met, the seller is co-operative and they sign the Mutual Release and the buyer’s deposit is returned without incident. However it should not be at the seller’s discretion and when for whatever reason the seller refuses to sign, the buyer is understandably upset. In most cases he was not told or perhaps he did not realize that the seller could refuse to sign a mutual release. When this situation occurs we all look bad in this industry.
This injustice cannot be fixed without the support of organized real estate. It’s a small change in Ontario but I believe an important one.
Vito Campanale is a chartered professional accountant and has been a broker of record for 32 years at Century 21 First Canadian Corp. in London, Ont.
