In writing up the Contract of Purchase and Sale, a good deal of though should be given to the deposit. A small deposit may not put enough at risk to keep the purchaser serious. A token deposit, coupled with the obligation to increase the amount following acceptance, can sometimes result in the problem of the second amount not being paid. The amount at risk is the small amount and the question can arise whether or not the failure to increase the deposit will release the Vendor from the obligation to complete. The standard form of Contract of Purchase and Sale expresses time to be of the essence in Item 2 "Completion", but this may apply only to completion and not to increasing the deposit. A dispute can result.

A large deposit will demonstrate that a purchaser is serious and keep that purchaser honest. However, this approach has its risks as well. R.J. Coulson Ltd. found this out when they agreed to purchase one of one hundred condominiums in a residential development in Courtenay, B.C. from Lake Point Land Ltd.. On the closing date, a search disclosed that two builders liens had been filed against all of the strata lots in the development that had not yet been conveyed including the unit which Coulson had agreed to purchase. Coulson refused to complete unless Lake Point gave an unconditional undertaking to discharge the liens upon receipt of the purchase price. Lake Point refused and the transaction was not completed. Coulson sued for return of its $60,000.00 deposit. Lake Point counter-claimed arguing that Coulson had repudiated the purchase and that it was entitled to keep the deposit as liquidated damages.

It is no surprise that the court found in favour of Coulson. The purchase agreement required Lake Point to provide clear title on the closing date. In fact, Lake Point repudiated the agreement by breaching this fundamental condition. Coulson accepted the repudiation bringing the agreement to an end. To interpret the contract in such a way as to expose the purchaser to the risk of losing both the purchase money and title to the strata unit would negate the objectives of the rest of the agreement and not accord with ordinary common sense.

I wonder if Lake Point would have put up such a fight if the deposit were $5,000.00 or $10,000.00?

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