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In the Summer 2012 issue of Letter of the Law, we described what may occur if a buyer’s default causes a real estate sale agreement not to complete. A recent British Columbia Court of Appeal decision, Tang v. Zhang, has now further clarified how buyers’ deposits will be treated at law. In particular, the Court sets out how the language respecting deposits in the Real Estate Board of Greater Vancouver’s standard form Contract of Purchase and Sale should be interpreted.
This contract has a clause stating that, if the transaction does not complete due to a breach by the buyer, “the [deposit] amount paid by the Buyer will be absolutely forfeited to the Seller in accordance with the Real Estate Services Act, on account of damages, without prejudice to the Seller’s remedies.”
A 2009 B.C. Court of Appeal case, Agosti v. Winter, had appeared to indicate that a seller was required to prove actual damages arising from a breach in order to be entitled to keep a buyer’s deposit. Generally, this created a concern that, if sellers failed to prove actual damages from breaches, forcing buyers to surrender their deposits was an unlawful penalty rather than a genuine pre-estimate of damages.
In Tang, a five-member panel of the Court overturned Agosti. It found that a contractual term, stating a deposit will be forfeited “on account of damages” if the buyer fails to complete, does not alter the nature of a deposit. Instead, it may be construed to mean that, if damages are proven, the deposit will be applied against (“on account of”) them. Essentially, the Court decided that, if no damages are shown, the deposit is nevertheless forfeitable, subject always to the expression of a contrary intention.
It now appears clear that buyers entering into agreements using a standard form Contract of Purchase and Sale from the Real Estate Board of Greater Vancouver will forfeit their deposits if the contracts fail to complete because of buyers’ breaches. If parties want their transactions to be governed by different conditions, they must express these contrary intentions in their agreements.
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