What Happens If the Buyer Cannot Complete a Purchase in British Columbia

Completion day arrives and the buyer cannot close. You may have already planned your move, so the uncertainty is stressful. Your options depend heavily on what your contract says.

This article outlines the general ideas in British Columbia: the deposit, a claim for damages, relisting and time limits. It is not advice on your particular contract, and early legal advice is sensible.

This article covers the law of British Columbia.

Start with the contract and your own obligations

A contract respecting land is generally enforceable if it is in a writing signed by the party to be charged, or if that party did an act or acquiesced in an act showing a contract was made. Payment or acceptance of a deposit counts as such an act.

On your side, a person transferring land in fee simple must deliver to the transferee a transfer registrable under the Land Title Act. Make sure you have done what the contract required before treating the buyer as in default. The details of the dates and conditions in your contract are worth reviewing with a lawyer.

If the dispute involves a title objection or requisition, either party may apply summarily to the Supreme Court, except on a question affecting the contract's existence or validity.

What about the deposit?

Many sellers assume a deposit is automatically theirs if the buyer walks away. The position is less simple. The Law and Equity Act allows the court to relieve against all penalties and forfeitures, on terms about costs, expenses, damages and compensation as it thinks fit. That is the statutory basis on which a buyer may ask the court to relieve against forfeiture, and the Act has no section expressly fixing deposit forfeiture.

So whether you keep the deposit may depend on the contract wording, the circumstances and, if challenged, a court. Do not assume the outcome, and avoid spending the money until the position is clear.

Suing for damages and the deadline

You may also consider a court claim for the loss caused by the buyer's default. A proceeding must not be commenced 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.

There is also an ultimate limitation period of 15 years from the act or omission, with an exception where the defendant wilfully conceals the claim or misleads the claimant. For a failed completion, the 2-year period is the one to watch.

Relisting and money owing on your mortgage

• A new or continuing listing generally needs a written service agreement signed by you and an authorized signatory of the brokerage, unless you waive it.
• The agreement must state the property address, effective date, expiry date, services, and the remuneration and when it is payable.
• Amendments must be in writing and signed, and you must get a copy immediately on execution.
• Remuneration based on the difference between the listed price and the sale price is barred.
• If your mortgage is payable more than five years after it was made, you may after five years pay it off with three months' interest in place of notice, though mortgages given by corporations and certain prescribed entities are excluded.

When you relist, further rules apply as offers come in. When presenting an offer, a licensee acting for you must give you a disclosure, in the superintendent-approved form, of your payment to the listing brokerage, any payment to a buyer's brokerage, the amount the listing brokerage keeps, and other remuneration, with money amounts stated in dollars. A brokerage must not act for both seller and buyer in the same trade. The exception is a remote, under-served location where separate licensees are impracticable, which requires prior disclosure, a signed written dual agency agreement and a copy of the disclosure sent to the superintendent.

A licensee acting for you must also promptly, and before any agreement is entered into, disclose known material latent defects to all other parties to the trade. A material latent defect is a material defect that cannot be discerned through a reasonable inspection, and it includes a lack of appropriate municipal building and other permits. If you instruct the licensee not to disclose one, the licensee must refuse to provide further trading services to you for that trade. The licensee need not disclose a defect to a party who has already received written disclosure of it from you as the selling client.

What to do next

• Keep all notices, emails and the signed contract with its schedules.
• How your contract treats the deposit depends on its wording and the facts, so confirm your position with a lawyer before deciding what to do with the money.
• Ask your lawyer about written notice to the buyer and the options under your contract.
• Note the date you discovered the default, because the 2-year clock runs from discovery.
• Review your listing agreement before relisting or changing it.

When the home does eventually sell, remember the tax side. A sale of a principal residence must be reported on Schedule 3 (Capital Gains) of the T1 return, and the CRA will only allow the principal residence exemption if the sale and designation are reported. Property owned for less than 365 consecutive days before sale is deemed business income rather than a capital gain, with exceptions for listed life events such as death, relationship breakdown or involuntary job termination. How this applies depends on your situation, so it is worth confirming with an accountant or lawyer.

Frequently asked questions