What Happens to My Presale Deposit if a Developer Fails (British Columbia)

You paid a presale deposit, and now the building site is quiet, the completion date keeps moving, or you have heard the project may be cancelled. The first question is almost always the same: is my money safe, and how do I get it back?

In British Columbia the answer depends on where the deposit is held, what your purchase agreement says, and whether the developer followed the Real Estate Development Marketing Act (REDMA). This article explains the main rules in plain language. It cannot tell you how your own contract will be read.

This article covers the law of British Columbia.

A delayed project is not the same as a failed one

Presale projects often run late without being cancelled. Whether a developer may change the completion date, the size of a unit or the price is mostly decided by your purchase agreement and the disclosure statement, not by a general rule that gives a set amount of flexibility. Read both documents before you assume you can walk away.

There is one tax point tied to delay. A presale assignment may be exempt from the home flipping tax where the estimated completion date on the presale contract is delayed by more than 365 days.

Where your deposit should be

A developer who receives a deposit must promptly place it with a brokerage, lawyer, notary public or prescribed person, who holds it in trust in a B.C. savings institution. The money is not meant to sit in the developer's own operating account.

The trustee may release the deposit only in listed cases. These include:

• written consent of the purchaser and the developer
• a court order
• developer certification that the purchaser has no rescission right and that required plans, occupancy approvals and registration are in place
• a purchaser default where the developer elects to cancel and the deposit is forfeited under the agreement

There is an exception to the idea that the money stays untouched. A developer may use a deposit for its own purposes, for example construction, only if it enters a deposit protection contract (insurance) for that deposit and gives you the notice required by regulation. If your deposit was used this way, ask for a copy of the notice and the insurance details. How a claim under that insurance works depends on the policy.

Ways a buyer may get a deposit back

When you rescind, the developer must immediately inform the person holding the deposit, and that person must promptly return the deposit to you. The notice must be a signed copy delivered in person or by registered mail to the developer or its brokerage at the address in the disclosure statement or purchase agreement.

If you rescind after title has transferred, the developer may apply to court for an order that you pay market rent for occupying the unit.

When the developer has broken the rules

A purchase agreement is not enforceable against you by a developer who has breached any provision of Part 2 of REDMA. That is a significant protection, but it has exceptions. The agreement stays enforceable if the breach involved no misrepresentation of a material fact reasonably relevant to you. It also stays enforceable if the developer did not know of the misrepresentation and corrected it by an amendment filed within 30 days of becoming aware, no later than 14 days before the date title is to transfer, and provided to you.

If the disclosure statement contained a misrepresentation, you are deemed to have relied on it and may sue for damages the developer, its directors and other listed persons. The action may not start more than 2 years after the misrepresentation first came to your knowledge. Defences exist. For example, it is a defence if the defendant proves you knew of the misrepresentation when you received the statement, and individuals have further defences such as withdrawing consent, relying on qualified advice or making reasonable inquiries.

Interest, regulators and the limits of each option

BCFSA does not enforce a purchaser's contract rights, which fall under contract law. It does investigate complaints and can take regulatory action against developers, for example over an inadequate disclosure statement or a mishandled deposit. The superintendent can impose administrative penalties of up to $500,000 for a corporation and $250,000 for an individual.

Even a refunded deposit may not come with interest. Interest on a refunded deposit may not be payable unless the contract says so. Also, the superintendent has no duty to assess a disclosure statement for merits or misrepresentations, so a filed statement is not an endorsement.

What to do next

• Find out who holds your deposit and ask for written confirmation of the account and trustee.
• Gather your purchase agreement, disclosure statement, every amendment, your signed acknowledgment of receipt and all emails from the developer.
• Note the dates: contract signing, acknowledgment, any amendments and the original and current completion dates.
• Do not sign a release, extension or deposit-split document until you understand it.
• Have a lawyer review your documents before you serve any rescission notice or start a claim, because time limits are short.

Frequently asked questions