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Summer-2004-06 An option deposit may have to be returned if a real estate broker is involved.

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Number 56
Summer 2004

An option deposit may have to be returned if a real estate broker is involved.

Normally the seller gets to keep an option deposit if the purchaser does not exercise the right to purchase. In V élez López v. Izquierdo Stella, 2004 TSPR 92, though, the Puerto Rico Supreme Court decided that the rule may be different when a real estate broker is part of the transaction.

The difference is the application of Article 31(11) of the "Law to Govern the Business of Real Estate and the Profession of Broker, Seller or Real Estate Enterprises in Puerto Rico," 20 P.R. Laws Ann. § 3054(11), which prohibits real estate brokers from withholding, or inducing any person to withhold, any deposit when the sale does not go through.

Option contract

Jesús Cales Rivera and Elsie Camacho Pérez retained the services of real estate broker Frances Izquierdo Stella to sell an apartment. Izquierdo located suitable purchasers-Mayra I. Vélez López and José Anadón-and the parties executed an "Option to Purchase Agreement." The sellers and the purchasers agreed on $67,000 as the purchase price, and the purchasers delivered $2,000 to be applied thereto at closing. Said deposit was held in escrow by Izquierdo. Clause number 7 of the option agreement specifically provided that the sellers had the right to keep the deposit if the purchasers did not exercise the option.

Deposit not returned

Vélez and Anadón were unable to obtain financing, and thus failed to exercise the option within the allotted 90-day period. They requested Izquierdo to return the $2,000 deposit, which the broker refused to do on account of clause 7.

The Anadóns first went to the Department of Consumer Affairs, who ruled in their favor; this was followed by the Cales appealing to the Court of Appeals, which reversed DACO's ruling; which in turn prompted DACO to appeal to the Supreme Court, who reversed the Court of Appeals and affirmed the agency.

Supreme Court

The Supreme Court said that the term "deposit" is defined in the cited law as any sum of money that a purchaser delivers to a real estate broker in order for the broker to carry out the steps necessary for the real estate transaction to take place. Clause number 7, drafted by Izquierdo in "unconditional" terms [please refer to the Note below], according to the Court, contravened the law and, therefore, was void.

The Court also dismissed the argument that the $2,000 were not a "deposit" as defined in the law, but a premium paid in consideration for the option right. It ruled that "deposit" means any sum of money delivered to the broker. An option "premium" clause must be specifically expressed in the contract, as it is not assumed, the Court added.

‡‡ Note:

The Supreme Court clarified that a provision along the lines of clause 7 would be valid if it is conditioned to what it called the "fault of the purchaser." What it seems to say is that failure to obtain financing was beyond the control of the purchasers, and that withholding the deposit is not valid under those circumstances.

The Court also clarified that the results also would be different if no real estate broker were involved in the transaction, as then the law in question would not apply. Under those circumstances a clause to withhold the deposit can be absolute in its terms, and need not be conditioned on the cause of the purchaser's failure to exercise the option.


© 2004 Goldman Antonetti
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