Q: I was involved in a land deal but my buyer wouldn’t or couldn’t complete it. He put down a small deposit that was supposed to be increased, but it wasn’t. He wants his deposit back and I want to keep it and get the rest because he backed out of the deal. Can I win this dispute?
A: It will depend, at least in part, on the exact terms of your contract with the buyer. I assume it was in writing, because agreements for the purchase and sale of land need to be written to be effective. It will also depend on the circumstances and the answers to several questions set out below.
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Did your lawyer or a real estate agent hold the initial deposit?
Deposits should never be left with the lawyer or agent of the buyer, because they will be under pressure not to forfeit that money to you if the deal crashes and burns.
If the small deposit is with your lawyer, ask if it can be paid to you now. If the closing or possession date on your land sale has passed and the buyer has refused or neglected to pay the money and close the deal, the buyer is in default and your remedy is to keep the deposit.
Bear in mind that the above is true if your contract has the right wording to that effect.
If it is silent, you may have to show some actual losses to justify keeping any part of it. Cases differ on this point. Most contracts for land sales do have a clause saying that if the buyer fails or refuses to complete the deal for any reason, and you are not at fault, you get to keep the deposit.
Also bear in mind that the above is true if any conditions to which the deal was subject were removed and you were notified of that fact.
If the deal was subject to the buyer obtaining a mortgage and he was unable to do so, then the deal is off and the buyer gets his deposit back.
This is pretty standard stuffand the law is relatively consistent from province to province.
Your question gets really interesting on the matter of the additional deposit. Because it was not in your hands or those of your lawyer or agent, can you sue to get that money?
It appears that you can. Where a deposit is payable in two installments and the second installment is due or past due when your buyer defaults, the second installment also must be surrendered to you. When a seller chooses to sue a defaulting buyer for losses incurred due to the failure to conclude the land deal, the deposit money may be credited toward those damages.
You have to sue your buyer, get a judgment and try to collect. Depending on who your buyer is and his financial position, this may or may not be a good idea. Check out his financial situation as best as you can before engaging in litigation.
Also note that there are deposits and true deposits. A true deposit is one that is clearly and actually intended to secure a land sale and to be forfeited in the event the buyer will not or cannot close.
Some B.C. cases suggest that deposits higher than 20 percent of the purchase price need scrutiny, to determine if they are true deposits or penalty clauses.
Your situation sounds like a true deposit, so you will not have to overcome that hurdle.
Also note that some provinces such as Saskatchewan have legislation protecting buyers of land, especially farmland, and require sellers who are suing buyers to jump through some legal hoops before commencing their legal action. Check the legislation of your home jurisdiction.
I believe you can likely sue and get the larger, second deposit paid to you. As always, consult a lawyer with experience and skill in this particular area.
Rick Danyliuk is a practising lawyer in Saskatoon with McDougall Gauley LLP. He also has experience in teaching and writing about legal issues. His columns are intended as general advice only. He can be reached at thelaw@producer.com.
