Is Your Presale Deposit Protected If a BC Developer Fails?

A presale deposit can be a large sum, paid years before you get keys. It is reasonable to worry about what happens to it if the project stalls, is cancelled, or the developer runs into financial trouble.

British Columbia has rules on where deposits must be held and when they can be released. This article explains those rules and the steps to take if you want your deposit back. What happens in a particular failure depends on the contract and the circumstances, so a lawyer should look at your documents.

This article covers the law of British Columbia.

Where your deposit must be held

Under the Real Estate Development Marketing Act (REDMA), a developer who receives a deposit must promptly place it with a brokerage, lawyer, notary public or prescribed person. That trustee holds the money in trust in a B.C. savings institution. The deposit should not simply go into the developer's operating account.

Check your contract and disclosure statement to see who your trustee is, and keep your receipts.

When a trustee can release the money

The trustee may release a deposit in these listed cases:

• 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 also a joint route. If you and the developer agree that the contract has ended, you may jointly certify that fact and how the deposit is to be split, and the trustee must then pay accordingly.

Deposit protection insurance

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. Where a developer enters such a contract, the disclosure statement must give the insurer's name and business address, the developer and the date the insurance takes effect.

So the first thing to check is whether your deposit is held in trust or has been released to the developer under insurance. The disclosure statement is the place to look.

Getting your deposit back

If you rescind, the developer must immediately inform the person holding the deposit, and the deposit holder must promptly return it to you. You may rescind by serving written notice on the developer within 7 days after the later of the date of the purchase agreement and the date the developer obtained your written acknowledgment of receiving the disclosure statement. Notice is served by delivering a signed copy in person or by registered mail to the developer or its brokerage at the address in the disclosure statement or purchase agreement.

If you were entitled to a disclosure statement but never received one, you may rescind at any time, even after title has transferred. A purchase agreement is also not enforceable against you by a developer who has breached any provision of Part 2 of REDMA, subject to exceptions. If a disclosure statement contained a misrepresentation, you may sue for damages, but the action may not start more than 2 years after the misrepresentation first came to your knowledge.

Interest on a refunded deposit may not be payable unless the contract says so.

If a project is cancelled or the developer fails, and what to do next

When a project is cancelled or a developer faces insolvency, your rights depend on the contract, where the money is actually held, and whether insurance applies. This is a situation where legal advice early matters. BCFSA does not enforce purchasers' contract rights, but it investigates complaints and can take regulatory action against developers, for example over an inadequate disclosure statement or a mishandled deposit. The superintendent may impose administrative penalties of up to $500,000 for a corporation and $250,000 for an individual.

• Gather your contract, disclosure statement, amendments and deposit receipts
• Identify the trustee holding your deposit and confirm where it is held
• Check whether a deposit protection contract is described in the disclosure statement
• Note the dates, because the 7-day rescission period and the 2-year damages period are short
• Do not sign a release or deposit split without legal advice
• Consider a complaint to BCFSA if you believe a deposit was mishandled

Frequently asked questions