Ask A Lawyer – Who Gets The Deposit When A Purchaser Fails To Close A Real Estate Transaction?

By Andrew Brunton
Categories: Blog, Real Estate

The Supreme Court of British Columbia rendered the Tang v. Zhang decision in 2012.  That decision has now been overturned by the British Columbia Court of Appeal. 

In the case, Mr. Zhang entered into a Purchase Agreement with the Vendors and paid a deposit of $100,000.  Mr. Zhang failed to complete on the purchase, and the Vendors terminated the Purchase Agreement. The Vendors did not suffer any monetary damages from the failure of Mr. Zhang to complete the purchase as the Vendors later sold the property for a higher price than the price in the Purchase Agreement with Mr. Zhang.

The question before the Court was whether the Vendors were entitled to retain the deposit.

The terms of the Purchase Agreement dealing with the deposit upon breach of the agreement by the Purchaser stated that “the Seller may, at the Sellers option, terminate this Contract, and, in such event, the amount paid by the Buyer will be absolutely forfeited to the Seller in accordance with the Real Estate Services Act, on account of damages, without prejudice to the Seller’s other remedies.”
 
The Supreme Court decision held that the Vendors could not retain the deposit because they did not suffer damages and the contract did not state that the deposit was non-refundable.  The Supreme Court decided that in the absence of a statement that the deposit was non-refundable, the language “on account of damages” meant that the Vendors could only retain the deposit if they, in fact, suffered damages.  Based on the case, the BC Real Estate Association amended its standard form contract of purchase and sale to include “non-refundable” in the section dealing with the deposit.

The British Columbia Court of Appeal has since overturned the decision and held that where a buyer fails to close a real estate transaction, the vendor will normally be entitled to retain the deposit even if the vendor has not suffered any damages, regardless of whether or not the contract states that the deposit is non-refundable.  The Court of Appeal’s decision was based on a review of the historic treatment of deposits by the Courts.  However, the Court of Appeal noted that the purchaser may not automatically forfeit the deposit if the contract expresses a contrary intention, meaning that there is still room to interpret the intent of each particular contract.  

Andrew Brunton is a business and real estate lawyer at Pushor Mitchell LLP.  You can reach Andrew at 250-869-1135 or brunton@pushormitchell.com.  For more information on our Real Estate Law Team, please visit http://www.pushormitchell.com/service/real-estate.