Like most places in the world, there are a lot of risks involved in buying real estate in Jamaica; the biggest of them all is the possibility of losing your deposit. A deposit is an earnest for the performance of a contract. In other words, it’s the buyer’s expression of genuine interest to perform the contract. In Jamaica, the deposit on real estate transactions is usually between 5% or 10%. For most buyers, especially those who seek to facilitate their purchase by way of mortgage, their deposit represents monies that they have saved for years, and sometimes it is their entire life savings. So losing this or the possibility of losing the deposit can be very frightening. The article is written from the perspective of a real estate lawyer in Jamaica and provides some tips for the purchasers of real estate, on how to avoid the possibility of losing one’s deposit.

We are all familiar with the phrase “reading is fundamental”, but in real estate transactions: reading is fundamental.  As a real estate lawyer, whenever I am reading an agreement for sale, there are a few things that I am looking for, one of which is a forfeiture clause.

A forfeiture clause would typically read as follows:

Time shall be of the essence of this Agreement concerning all payments to be made by the Purchaser hereunder and in the event of failure by the Purchaser to punctually pay any sum due herein (whether demanded or not), save for a delay associated with the assessment of impost payable upon this Agreement for Sale by Tax Administration Jamaica, then the Vendors may (but shall not be obliged to) rescind this agreement for sale and forfeit ten percentum (10%) of the Sale Price; remit to the Purchaser the difference in purchase monies if any.

As you can see, the issue with this clause is that it gives the vendor the discretion to forfeit the purchaser’s deposit if the purchaser is unable to complete within the deadline stipulated. Such a clause is particularly risky in mortgage transactions. Why? Because the successful completion of the sale rests upon the granting of a mortgage and unfortunately a pre-approval does not always guarantee actual mortgage approval.

Negotiating Forfeiture Clauses

As a real estate lawyer, I always start off by requesting that the said clause be removed. The reason for this is that time is not automatically of the essence for completing a contract. Although the contract would have a completion date, a failure to meet the deadline would not automatically result in a breach of contract and the vendor does not have an automatic right to rescind without a notice. Having the clause removed will force the vendor to serve a notice on the purchaser to complete the contract and the purchaser would have an opportunity to rescind the contract and be refunded the deposit.

However, sometimes the vendor is unwilling to have the clause remove for his own protection. In that event, a request for a 21days notice is usually accepted. The real estate lawyer would ask for the vendor’s lawyer to give a 21 days’ notice for payment of the balance of the purchase money before recision and forfeiture can take place. The notice will serve as a reminder to the purchaser and his real estate attorney that the time for completion has passed and they have the option to rescind the contract before the expiration of the additional 21 days. The rescission of the contract before the 21 days will mean that the deposit paid will be refunded back to the purchaser in full.