When a transaction fails to close without any acceptable
justification, it is generally accepted that the purchaser's
deposit is forfeited. The Ontario Court of Appeal has recently
considered the circumstances in which the court's equitable
jurisdiction may be exercised to reduce the amount forfeited. In Redstone
Enterprises Ltd v Simple Technology Inc, the
parties had negotiated the purchase and sale of a warehouse in
Brantford, which the buyer wanted for purposes of establishing a
legal and licensed grow-op. The agreed purchase price was over $10
million, and the original deposit was $100,000 (later increased to
$200,000 when the buyer waived conditions). Due to issues in
obtaining the license, the buyer requested an extension of the
closing date, and offered a further deposit of $450,000.
Ultimately, the buyer was unable to obtain either a license or
financing, and the transaction failed to close.
The application judge granted relief from forfeiture on the
basis that the amount of the total deposit was so large as to
render complete forfeiture unconscionable. The Court of Appeal
disagreed, despite the fact that the seller suffered no damages as
a result of the failure to close. The Court emphasized the
importance of freedom of contract, and held that a finding of
unconscionability must be exceptional, strongly compelled on the
facts of the case. While there could be a case in which the amount
of the deposit alone would be so disproportional as to be
unconscionable, this $750,000 deposit did not reach that threshold
(although the Court did not set a threshold, it noted that 10% is
customary, and the deposit here was 7%). Other than quantum, other
indicia of unconscionability include inequality of bargaining
power, a substantially unfair bargain, the existence of bona fide
negotiations and the gravity of the breach. There were no such
indicia in this case, such that there was no basis on which to
reduce the amount of the forfeited deposit.
Title requisitions, and responses to title requisitions, are often evidenced by two simple letters back and forth between solicitors; and yet, in the content of those two letters is the meat of the real estate transaction.
Now that the turmoil attendant upon the transference of power from one great party in the State to another has subsided, people may be permitted to devote their minds to a consideration of those sectional questions which are not less important for the welfare of the persons concerned, than are the great national issues upon which they have just pronounced judgment.
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