Holiday Closure

The OREA office will close for the holidays at 12 p.m. Tuesday, December 24th.  Normal business hours will resume on Thursday, January 2nd.  Happy Holidays!

Holiday Closure

The OREA office will close for the holidays at 12 p.m. Tuesday, December 24th.  Normal business hours will resume on Thursday, January 2nd.  Happy Holidays!

May 5th - 2006

Deposits can seal the deal

An adequate deposit is one of the essential elements of an agreement to buy or lease real estate.

An adequate deposit is one of the essential elements of an agreement to buy or lease real estate. For a number of years now, the OREA standard forms have provided for the deposit to be submitted either with the offer or upon acceptance. Because of the ongoing controversy over the meaning of the term “upon acceptance”, an important revision has been made to the OREA forms to coincide with the introduction of the new REBBA (2002).

The agreements now state “Upon Acceptance shall mean that the buyer is required to deliver the deposit to the Deposit Holder within 24 hours of acceptance of the Agreement”. This is now an extremely important term of the agreements. It must be strictly complied with. If the 24 hour requirement is not met, the seller could consider the agreement void.

Imagine the implications if you are the co-operating salesperson and you have not submitted the deposit on time. You have already congratulated the buyers on their new purchase. Unfortunately, a couple of offers that are significantly higher have surfaced after your buyer’s offer was accepted.

Alternatives
Of course, you can eliminate this problem by always using the option “herewith”. And a number of steps can be taken when using the “upon acceptance” option. The importance of this term must be explained to the buyers and arrangements must be made so that the deposit will be available to be given to the brokerage within the required 24 hours.

In REBBA (2002), Section 29 of the Code of Ethics Regulation states “if… the client or customer has entered into an agreement in connection with the trade that requires the registrant to deliver a deposit or documents, the registrant shall deliver the deposit or documents in accordance with the agreement”. The new code is now law and this new requirement places a clear obligation on the salespeople, brokers and brokerages involved in the transaction to deal with the deposit and documents with great care and efficiency. In the unfortunate and (hopefully) unlikely example described above, there would be issues related to the validity of the agreement and issues related to compliance with the law.

Because of the importance of the deposit, a third alternative has been added to the OREA agreements. In addition to “herewith” and “upon acceptance”, the form also provides for “as otherwise described in this Agreement”. When this option is chosen, a carefully worded clause or schedule must be added to the agreement, describing exactly how and when the deposit will be submitted. Such a clause could describe an alternative time frame for submitting the deposit, or multiple deposits or the payment of the deposit on the happening of an event such as the removal of a condition.

For example, the agreement has been accepted but the deposit has to be sent from Vancouver and, since the 24 hour requirement was not possible, a provision was added to the agreement to describe how and when the deposit would be submitted. Also, commercial transactions may have complicated and detailed terms relating to the deposit, and the “as otherwise described” option will allow for the necessary flexibility.

All members should read the new REBBA (2002) and take note of the extensive changes, including the new requirements with respect to deposits. The requirement for the brokerage to deposit the money in trust has been changed to five business days.

Also, the new Act makes reference to receiving in trust property other than money, so brokerages should be prepared for holding in trust items such as securities and chattels.

There are also additional requirements relating to interest on deposits. Salespeople, brokers and brokerages may want to prepare clauses in advance for a variety of circumstances relating to deposits and interest on deposits.

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For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Senior Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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