Do You Lose Your Deposit If You Back Out of a Purchase in British Columbia?

Changing your mind after an accepted offer is stressful, and the deposit is usually the first worry. Whether your deposit is at risk depends on the contract you signed and the facts. The difference comes down to your contract and what has happened since you signed.

This article explains how deposits are held, the general ideas behind forfeiture, and the steps to take before you do anything you cannot undo. It cannot say how your particular situation will turn out, so talk with a lawyer before you walk away.

This article covers the law of British Columbia.

Start with the contract

A contract respecting land is not enforceable unless there is a signed writing showing the contract was made and giving a reasonable indication of its subject matter. Two alternatives are acts by the party to be charged indicating a contract was made, and reasonable reliance that would make non-enforcement inequitable. The rule does not apply to a lease of land for a term of 3 years or less.

For most purchases there will be a signed contract, so the practical question is what it says. Look at the subject conditions, the dates for removing them, the completion date, and the clause about the deposit. Do not assume a verbal change, or an email from an agent, has altered any of this.

When the deposit is more likely to be safe

If your offer was subject to conditions, such as financing, an inspection or review of strata documents, whether you can end the deal and what happens to your deposit depends on the wording of the contract. It also depends on whether each condition was met, properly waived or not met in time, so have the wording checked. Strata buyers can request an Information Certificate, which the strata corporation must give within one week of a request by an owner, a purchaser, or a person they authorize, and it is commonly made a subject condition.

Some offers provide for no deposit until after subjects are removed. In that case there may be nothing to lose at the early stage, though you should still check what the contract says about removing subjects. The details of how a condition must be removed or waived matter, so have the wording checked.

Who holds the money and what that means

A deposit is usually held in the licensee's brokerage trust account, and the brokerage holds it as stakeholder. A stakeholder holds the money for the deal rather than for one side only. Licensees must pay money received into a trust account, and withdrawals are controlled by the Real Estate Services Act.

For new developments, developers must hold buyers' deposits in trust under the Real Estate Development Marketing Act, and BCFSA can investigate if a deposit was not held in trust as required. If you and the seller disagree about who is entitled to the money, how that plays out depends on your contract and the facts, so it is worth confirming with a lawyer.

Forfeiture and whether the seller can sue for more

What happens to the deposit if you walk away without a clear right to end the contract depends on the contract and the facts, so it is worth confirming with a lawyer. The court may relieve against all penalties and forfeitures, on terms it thinks fit, and this is the statutory basis on which a buyer can ask a court to relieve against forfeiture of a deposit. Relief is not automatic, and the outcome depends on the circumstances.

Whether a seller can claim more than the deposit, for example if the home later sells for less, depends on the wording of the contract and the facts. This is a question to put to a lawyer with the contract in front of them, rather than assume.

• Do not stop paying or cancel closing arrangements before you have advice.
• Do not sign a release or mutual cancellation without reading it.
• Keep every email, text and document about the deal.

What to do next

• Gather your signed contract, any addenda and all subject-removal documents.
• List the dates for subject removal and completion, and note whether any have passed.
• Confirm who is holding the deposit and ask for written confirmation.
• Ask a lawyer whether you have a right to end the contract.
• If a negotiated release is possible, have a lawyer review the wording before you sign.
• Tell your lender and agent only what your lawyer advises.

Every situation is different, so the order of these steps may change for you. A lawyer can help you decide which step comes first.

Frequently asked questions