When a BC Real Estate Deal Collapses: Buyer and Seller Remedies

A contract of purchase and sale is binding once subjects are removed. When one side then fails to complete, the other is left with a home that has not sold or a purchase that has not happened, plus moving plans, bridge financing and a deposit sitting in trust.

What you can do next depends on whether there was a lawful exit, who is in breach, and what you want: the deposit, damages or the property itself. This guide explains the main remedies for buyers and sellers in BC and the order in which to deal with them.

First question: was there a breach, or a lawful exit?

Not every collapsed deal is a breach. A buyer may have a lawful way out:

• The rescission period. For most residential purchases, including houses, townhouses and strata lots, the buyer can rescind within three business days after the seller accepts the offer, by written notice and without giving a reason. The buyer must pay the seller 0.25% of the purchase price, and the right cannot be waived. Leasehold properties, auction sales and sales under a court order are excluded.
• An unmet subject. If a genuine condition, such as financing or an inspection, is not satisfied or waived by its deadline, the contract may end on its own terms. A buyer is generally expected to make an honest effort to satisfy subjects within their control.

Once subjects are removed, the picture changes. A buyer whose financing falls through, or a seller who has changed their mind, generally has no lawful reason to refuse to complete. Missing the completion date can itself be a breach, especially where the contract makes time of the essence. The BC Financial Services Authority advises getting legal advice before taking any step that may put you in breach of the contract.

What happens to the deposit

Most deposits are held in trust by a brokerage. Under the Real Estate Services Act, a brokerage holding a deposit for a sale holds it as a stakeholder for both parties, not as agent for either one. It can pay the deposit out only on limited grounds, including:

• Written agreement. A written agreement of the buyer and seller, usually a signed release.
• Court order. An order of the court deciding who is entitled to the money.
• Payment into court. Where there are competing claims, the brokerage can apply to the Supreme Court to pay the money into court, which discharges it from liability for that amount.
• Rescission. If the buyer rescinds within the three-day period, the 0.25% amount is paid to the seller from the deposit and the rest goes back to the buyer.

The brokerage will not decide who was at fault, even if the contract seems clear. Read any release before you sign it: depending on its wording, it may settle more than who gets the deposit.

If the buyer fails to complete: the seller’s options

Where the buyer wrongly refuses or fails to complete, the seller can usually treat the contract as ended, keep the property and pursue the buyer. As a general rule, a true deposit is forfeited to the seller when the buyer defaults, without the seller having to prove a loss of that size. If the seller’s losses are larger, the seller can sue for the difference, with the deposit taken into account.

Damages are measured by what the failure actually cost, often the difference between the contract price and the price on a later resale, plus reasonable carrying and resale costs. The seller must take reasonable steps to limit the loss, which usually means putting the property back on the market promptly and selling at a fair price.

As an example only: a buyer agrees to pay $1,000,000, pays a $50,000 deposit and fails to complete. The home later sells for $940,000, with $10,000 in added carrying costs. The seller’s loss is about $70,000, so after keeping the deposit, roughly $20,000 would remain to claim.

Defaulting buyers have one statutory safety valve. Section 24 of the Law and Equity Act allows the court to “relieve against all penalties and forfeitures” on terms it thinks fit. It is a discretionary power, not an automatic refund, and a buyer should not count on it.

If the seller fails to complete: the buyer’s options

A buyer who was ready, willing and able to complete can usually recover the deposit and claim damages for losses the seller’s failure caused, such as the extra cost of buying a comparable home, temporary housing and moving costs, and wasted legal and financing expenses, all subject to proof.

A buyer who wants the property itself can ask the court for specific performance, an order that the seller complete the sale. It is a discretionary remedy, and a buyer usually needs to show why money would not be an adequate substitute, for example because of the property’s particular features.

To stop the seller from selling to someone else while the claim is decided, a party to a court proceeding who claims an interest in the land can register a certificate of pending litigation (CPL) against the title under section 215 of the Land Title Act. A CPL ties up the property, and the owner can apply to have it cancelled, so it should be filed only where there is a genuine claim to the land.

Act quickly: tender, deadlines and the right forum

The party that wants to hold the other in breach usually needs to show it was ready to complete on the completion date. Lawyers often prepare formal tender documents for that purpose, so involve one before the date passes, not after. In the meantime:

• Keep the paper trail. Save the contract, addenda, subject removal notices and every email and text about the deal.
• Sign nothing in a hurry. Get advice before agreeing to an extension, an amendment or a release.
• Plan the next sale or purchase with advice. How and when a seller relists, or a buyer buys elsewhere, can affect the claim.

Most civil claims in BC must be started within two years, and working out when that clock started is not always simple; see our guide to the two-year limitation period. Where a claim is heard depends on how much is at stake and what you are asking for. A claim to the property itself, backed by a CPL, needs a court proceeding; for a deposit or damages dispute, our article on choosing between the CRT, Small Claims and the Supreme Court explains the options.

Deal fallen through? Get advice before you sign a release or make your next move

Our litigation lawyers can review the contract, the subject and completion history and the correspondence, explain your options for the deposit and any claim, and act for you in negotiations or in court if it comes to that.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.