Can a Seller Keep Your Deposit If a BC Business Purchase Falls Through?

You and the other side have signed an offer for a business, and a deposit has changed hands. Then something goes wrong: financing falls through, due diligence turns up a surprise, or one side simply changes its mind. The question is who ends up with the money.

In British Columbia there is no single deposit statute that answers this. The result usually depends on what your offer says, how a court views the situation, and how quickly you act. This article explains the general framework so you know what to look at first.

This article covers the law of British Columbia.

There are no dedicated deposit rules in BC

The Law and Equity Act does not contain a dedicated set of rules about deposits. That means there is no automatic answer such as "the seller always keeps it" or "the buyer always gets it back."

Your signed offer is the natural place to start. Look for wording about what the deposit is for, what happens if the buyer does not close, what happens if conditions are not satisfied, and whether the deposit is held by a lawyer or notary or paid directly to the seller. How those terms would be treated if there is a dispute depends on your situation, so it is worth confirming with a lawyer.

Court relief from penalties and forfeiture

Section 24 of the Law and Equity Act says the court may relieve against all penalties and forfeitures, on terms it sees fit, including costs and compensation. A buyer or seller facing forfeiture of a deposit may therefore ask a BC court for relief.

That is a power, not a guarantee. The court can attach conditions, and whether relief makes sense depends on the facts and the wording of your agreement. A lawyer can review your situation and tell you how likely a request is to be considered.

When the deal includes land or a lease

Some business sales include real property or a lease. Under s.59(3) of the Law and Equity Act, a contract respecting land or a disposition of land is not enforceable unless there is a signed writing, an act or acquiescence by the party to be held, or reasonable reliance making enforcement necessary to avoid unfairness.

Under s.59(4), paying or accepting a deposit or part payment counts as such an act. So a deposit can matter even where the paperwork is incomplete. This rule is about contracts respecting land or a disposition of land, so whether it applies to your deal depends on what the sale includes, and it is worth confirming with a lawyer.

Time limits for making a claim

Under s.6(1) of the Limitation Act, a court proceeding must not be started more than 2 years after the day the claim is discovered. A claim is discovered when you knew or reasonably ought to have known of the loss, that the other side's act caused it, and that a proceeding is appropriate.

The period can be extended if the other person acknowledges liability for the claim, and that acknowledgment generally must be in writing and signed. Friendly phone calls or hopeful emails should not be relied on to stop the clock. Get advice early rather than near the end of the period.

What to do next

• Find your signed offer and any amendments, and read every clause about the deposit, conditions and termination.
• Confirm who is holding the deposit and get that in writing.
• Write down the dates: when the offer was signed, when conditions were due, and when the problem arose.
• Keep all emails, texts and notices exchanged with the other side.
• Avoid signing anything new, or sending a withdrawal notice, before getting advice.
• Note the date you first knew about your possible claim, because the 2-year period is measured from discovery.

A lawyer can read your actual documents and explain where you stand before you decide whether to negotiate, demand the deposit back, or defend a claim.

Frequently asked questions