When the time comes to sign an offer to purchase, the vendor will often ask for a deposit, known familiarly as a « down-payment», to be deducted from the sale’s price. Even though there is no legal obligation to give a deposit, this practice offers to the vendor assurances of your intention to purchase and of your apparent solvency.
What is a deposit?
The Civil Code of Quebec provides that “any amount paid on the occasion of a promise of sale is presumed to be a deposit on account of the price, unless otherwise stipulated in the contract”. The deposit represents the first amount paid by the purchaser to the vendor, to be ultimately deducted from the sale’s price of the apartment. Therefore, it is portion of the sale’s price and it implies the firm commitment of both parties. For the purchaser, it shows his intent to purchase and for the vendor, the intent to deliver the immovable.
The payment of deposits before the execution of the deed of sale
At the occasion of the signing of the promise or offer to purchase, it is highly recommended to entrust any deposit in the trust account of a real-estate broker or notary, who will keep it in trust until the signing of the deed of sale. It is the safest place to deposit the amounts paid out as a deposit. It his advisable to provide for specific provisions, to be inserted in the offer to purchase, as for example, the cashing of the deposit cheque only when all the conditions of the offer to purchase have been satisfied.
Refund of the deposits
Theoretically, any deposit paid out should be refunded if the deed of sale is not signed for a reason attributable to the fault of the vendor or if purchaser has exercised its withdrawal rights in the delay specified in the offer to purchase. However, what if a dispute arises between the parties on why the sale has not closed or is annulled? The real-estate broker is often incapable of determining who should keep the deposit, the vendor or the purchaser? Should he refuse to refund the deposit to the purchaser if the vendor contests?
The solutions are different according to what has been negotiated between the parties in the offer to purchase. In some cases, the parties must ask the court to determine their rights. In such cases, the broker will keep the deposit until a final judgment is rendered.
WHAT YOU SHOULD KNOW! If you present an offer to purchase through a real-estate broker, it is preferable to entrust your deposit with him. A section is provided for this purpose in the form entitled Promise to purchase, made available by the “Organisme d’autoréglementation du courtage immobilier du Québec (OACIQ)”, the body responsible to oversee real-estate brokerage in Quebec.
WHAT TO KEEP IN MIND: Upon the signing of the sale, the amounts of the deposits paid out are applied in reduction of the sale’s price. If the offer to purchase is declined or aborts, any deposit should necessarily be refunded.
WARNING! Do not give a single cent of down payment before your final commitment. Some contracts provide that if the purchaser backs out of the sale, the amount of the deposit will be kept by the vendor. Ask for a receipt, more particularly if you have paid in cash.