What Happens If a Buyer Can't Complete the Purchase in BC?

Completion day has come and your buyer has not paid or has told you they cannot close. You may be worried about your move, your own purchase and what happens to the deposit.

This article explains the general legal ideas that apply in British Columbia. Your contract of purchase and sale controls many of the details, so a lawyer should read it before you act.

This article covers the law of British Columbia.

Start with your contract and what you have signed

A contract respecting land is generally not enforceable unless it is in writing signed by the party to be charged, or that party acted in a way showing a contract was made, or the other party reasonably relied on it and changed position. Payment or acceptance of a deposit counts as such an act.

In practice, find the signed contract, any amendments, the completion date, the deposit terms and any notices already exchanged. The remedies available to you depend heavily on those documents.

What happens to the deposit

Many sellers assume the deposit is simply theirs if the buyer defaults. The law is less simple. The Law and Equity Act has no section that expressly fixes deposit forfeiture. The court may relieve against all penalties and forfeitures, on terms about costs, expenses, damages and compensation as it thinks fit.

This means a buyer who loses a deposit can ask the court for relief. Whether that succeeds depends on the facts and the contract wording, so do not spend or release the deposit until you have advice.

Relisting and suing for your losses

You may need to put the home back on the market. If you have a listing agreement, check it first. A seller's service agreement must be in writing and signed, and amendments must also be in writing and signed by you and the brokerage.

A new listing agreement must be in writing unless you waive that, and it must be entered into before the brokerage represents you in offering the property. It must be signed by you and an authorized signatory of the brokerage, and must state the property address, effective date, expiry date, a description of services, and the remuneration and the circumstances in which it is payable. A copy must be delivered to you immediately on signing.

If you want to claim damages from the buyer, a court proceeding must not be started more than 2 years after the day the claim is discovered. Discovery is when you knew or reasonably ought to have known that loss occurred, who caused it, and that a court proceeding is appropriate.

• Keep records of your carrying costs, such as mortgage interest, taxes and utilities.
• Keep records of any lower price you later accept and the dates involved.
• Keep all messages with the buyer, the realtor and the lawyers or notaries.

Other points that may affect you

• Your mortgage: if the mortgage is not payable until more than five years after it was made, the borrower may after five years pay it off with three months' interest in place of notice. This does not apply to mortgages given by corporations or certain prescribed entities.
• Your completion duty: as seller you must deliver a transfer registrable under the Land Title Act.
• Title disputes: either party may apply summarily to the Supreme Court about a requisition or objection to title, except a question affecting the contract's existence or validity.
• Disclosure: a licensee acting for you must promptly, and before any agreement is entered into, disclose known material latent defects to all other parties to the trade, unless a party has already received written disclosure of that defect from you as the selling client; if you instruct the licensee not to disclose a material latent defect, the licensee must refuse to provide further trading services to you for the trade.
• Offers: when presenting an offer, a licensee acting for you must give you a disclosure, in the approved form, of your payment to the listing brokerage and any payment to a cooperating brokerage.
• Tax reporting: the sale of a principal residence must be reported on Schedule 3 (Capital Gains) of your T1 return, and the CRA will only allow the principal residence exemption if the sale and designation are reported.
• Losses: a loss on the sale of a home is not deductible because a home is personal-use property.

What to do next

• Gather the contract, amendments, deposit receipt and all notices.
• Do not release or keep the deposit until you have legal advice.
• Tell your realtor and your lawyer or notary what has happened.
• Write down the key dates, including when you learned of the default and of your losses, because the 2-year limit runs from when you knew or reasonably ought to have known that loss occurred, who caused it, and that a court proceeding is appropriate.
• Ask a lawyer whether relisting before resolving the first contract creates any risk.

Frequently asked questions