1. In Ontario the standard form of Agreement of Purchase and Sale does not specifically state that the deposit is security for the performance of the buyer's obligations, but as long as the amount is called a “deposit”, it would be interpreted to be security or earnest money for the buyer fulfilling the obligations under the contract.

2. One of the issues that has arisen from time to time was the distinction between funds being advanced as a "deposit" and subject to forfeiture and funds being advanced as part payment of the purchase price and not subject to forfeiture.

3. Our standard form of Agreement of Purchase and Sale was subsequently amended and now attempts to clarify the situation by use of the term "Deposit Holder" which infers that all funds in possession of the "Deposit Holder" are deposits and therefore subject to forfeiture.

4. This may not bode well for a buyer and they may choose to modify the clause relating to deposits, as follows:

5. Buyer submits ($ Amount) by negotiable cheque payable to (Listing Broker or other named party) as "Stakeholder" for seller and buyer to be held in trust pending completion of this Agreement, failing which the deposit shall not be released except by direction signed by both the seller and buyer or by a court order.

6. or in addition to the aforementioned “deposit” the buyer could submit a “further sum as an Installment” on the purchase price which would not be subject to forfeiture.

7. Buyer submits a further sum of ($ Amount) as an “Installment” on the purchase price in the amount of ($ Amount) by negotiable cheque payable to (Listing Broker or other named party) as "Stakeholder" for seller and buyer to be held in trust pending completion of this Agreement. If the transaction of purchase and sale contemplated by this agreement is not completed for any reason, whether by default of the buyer, default of the seller, mutual agreement of otherwise, then the deposit and any other monies paid to the seller by the buyer will be returned to the buyer less any damage suffered by the seller due to the default of the buyer.[

Notes:
In para.5 note the term "direction" as opposed to a"mutual release" and the term "Stakeholder" as opposed to "Deposit Holder" also to be held for both seller and buyer.

In para 7 note that this clause puts the onus on the seller to prove the actual damages they suffered.

IMPORTANT NOTICE: This information is provided as basic educational information by the author and is not a substitute for the advice of an expert and/or the advice of a Lawyer. There is NO representation as to legality, accuracy, correctness of the herein information and the reader is strongly urged to consult a lawyer in the relevant jurisdiction to ensure accuracy before acting on this information.