It may seem obvious to practitioners that where there is no
mortgage on a property, the legal owner is entitled to retain the
title deeds to the property. However, it was recently argued in a
dispute over whether a deposit could be forfeited by the vendor in
a failed property transaction that the purchaser's attorneys
should be permitted to hold onto the title deeds until the vendor
returned the full deposit.
The vendor and purchaser entered into a conventional Bermuda
Sales & Purchase Agreement (the "Agreement") which
incorporated standard special conditions providing terms for the
Agreement being subject to financing until a certain date known as
the "Finance Expiry Date". After this date, the Agreement
was no longer conditional on financing being obtained. The
Agreement further provided for either party to rescind the
Agreement within a 7 day period following the Finance Expiry Date
("the rescission period"). Neither party rescinded the
Agreement. As the vendor had not received any notice to the
contrary, it believed that the purchaser had obtained the necessary
financing for the sale to proceed as contemplated by the
Unfortunately, the purchaser was unable to secure financing on
terms which it found acceptable. However, the purchaser only
informed the vendor of this and demanded return of the deposit on
the Completion Date long after the Finance Expiry Date and the
rescission period had lapsed. There is a live dispute as to whether
the purchaser is entitled to the return of the deposit at such a
late stage. This case will be important for practitioners, because
if it is found that a purchaser can rescind after the date for
rescission has passed and without risk of losing his/her deposit
despite the Bermuda Bar standard terms, then the long standing
ordinary practice of making a deposit on the signing of the
contract will need to be reviewed.
After the Agreement was signed by the parties and the deposit
had been paid, the vendor provided the title deeds to the
purchaser's attorneys to assist them with drafting the relevant
conveyancing papers. As per the standard practice in Bermuda an
undertaking was given by the recipient of the title deeds to hold
them to the order of the vendor.
When it was apparent that the transaction was not going to
proceed, the vendor's attorneys (MJM) demanded the return of
the title deeds. However, despite the undertaking, the
purchaser's attorneys refused stating that they would not
return the title deeds unless their client's deposit was
returned to them in full. Arguably, this stance is tantamount to
holding the title deeds to ransom.
As a result of the refusal to return the title deeds, an
application against the purchaser's attorneys had to be made
for their return. At the hearing the purchaser's attorneys
tried to argue that the issue of the deposit should be decided at
the same time as whether the title deeds should be returned.
However, the Chief Justice rightfully noted that ownership of the
title deeds is an indefeasible right unlike the deposit which is
subject to the terms of the Agreement in respect of which the
vendor relies to support its retention of the deposit. The
purchaser's attorneys were unable to provide any legal basis on
which they could argue an entitlement to retain the title deeds.
Therefore, the Chief Justice ordered the immediate return of the
title deeds with the issue of the deposit to be decided in separate
It was suggested by the Court that perhaps the attorneys had
only been acting on their client's instructions in retaining
the deeds. However, it strikes the writer that even if that were
the case then it should be a cautionary tale to attorneys; it would
enable an attorney to renege on the undertaking upon which the
deeds had been provided to them, and would undermine the ability
for transactions to be conducted in a sensible and timely manner.
Thankfully the Chief Justice recognised this in his decision.
Under no circumstances can a breach of an attorney's
undertaking be justified as acting on a client's
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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