- Whether you get a deposit back depends mainly on the wording of your signed documents, not on a general rule.
- A deposit is more likely to be refundable when a condition written into the agreement was not met.
- A franchise buyer may be able to cancel within specified timeframes if disclosure requirements were not met.
You have paid a deposit on a business and now you are having second thoughts, or something has come up in your review. Before you assume the money is gone, or that it is automatically yours to reclaim, look closely at what you signed.
This article explains the questions that usually decide the outcome. It does not give a rule for how much can be kept, because that turns on the exact wording of your documents and the facts, and a lawyer should review them.
This article covers the law of Saskatchewan.
Start with what you signed
The deposit is usually governed by a letter of intent, an offer or an asset or share purchase agreement. The wording controls. Look for who holds the deposit, what it is credited against and what happens to it if the deal does not close.
Whether a letter of intent binds you, in whole or in part, depends on its wording and your situation, so it is worth having it read before you sign.
Conditions that can make a deposit refundable
Many business purchase agreements are conditional. If a condition is not met within the time the agreement allows, the agreement may let the buyer end the deal and recover the deposit. Whether yours does depends on its words.
- Financing or due diligence conditions, such as a satisfactory review of the books and contracts.
- Lien clearance: a buyer taking goods may take them subject to a registered security interest, so a buyer should require discharges or payout from the price at closing.
- Search results: a search of the Saskatchewan Personal Property Registry by debtor name or serial number can reveal registered security interests on equipment or inventory.
- Third-party consents, such as a landlord's or franchisor's approval.
If you want to rely on a condition, check how and when notice must be given. Missing a deadline can weaken your position.
When a seller may keep the deposit
If you simply change your mind after all conditions are satisfied or waived, the agreement may let the seller keep the deposit or claim for losses. Some agreements describe this directly, and others leave it to a dispute.
Whether a deposit can be kept by the seller if the purchase does not close depends on the wording of your agreement and the facts, so it is worth confirming with a lawyer. A lawyer can assess your situation.
Franchise purchases
If the business is a franchise, the Saskatchewan Franchise Disclosure Act requires the franchisor to give a disclosure document at least 14 days before any franchise agreement is signed or any payment is made. A franchisee can cancel within specified timeframes if disclosure requirements are not met.
That can matter a great deal to a deposit paid to a franchisor. Confirm the timeframes that apply to you quickly, since they are limited.
What to do next
- Gather the letter of intent, offer, agreement and proof of your payment.
- Note every condition and its deadline.
- Avoid saying in writing that you are walking away until you have had advice.
- Give any required notice in the form the agreement requires.
- Ask a lawyer to review your documents before you contact the seller.
Frequently asked questions
Is a business deposit always refundable?
No. It depends on the wording of the signed documents and on whether any condition in them was not met. Have a lawyer read them.
What if the seller has liens on the equipment?
A buyer taking goods may take them subject to a registered security interest, so discharges or payout from the price should be required at closing. If the agreement makes lien clearance a condition, an uncleared lien may affect your right to end the deal.
Can I cancel a franchise purchase?
A franchisee can cancel within specified timeframes if disclosure requirements are not met. The disclosure document must be given at least 14 days before signing or payment.
Should I tell the seller I am backing out right away?
Not before reviewing your documents. How and when you give notice can affect whether the deposit is returned, so get advice first.
Sources
- ISC – Personal Property (SPPR) — isc.ca
- Government of Saskatchewan – Franchise disclosure legislation news release — saskatchewan.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a buying & selling a business question
Buying or selling a business with us is from $3,328.89, tax included. Third-party fees are extra.