Technical Bulletin for Realtors: Update to Standard Contract of Purchase and Sale

The Standard Contract of Purchase and Sale was recently updated to add the word “non-refundable” to Paragraph 12.

“12. TIME: Time will be of the essence hereof, and unless the balance of the cash payment is paid and such formal agreements to pay the balance as may be necessary is entered into on or before the Completion Date, the Seller may, at the Seller’s option, terminate this Contract, and, in such event, the amount paid by the Buyer will be non-refundable and absolutely forfeited to the Seller in accordance with the Real Estate Services Act, on account of damages, without prejudice to the Seller’s other remedies.”

This change is likely a response to the recent BC Supreme Court decision in Tang v. Zhang, 2012 BCSC 214, which was released in April 2012. In this case, the court was resolving two different lines of judicial authority.

  1. In the first line of decisions, citing Williamson Pacific Developments the language of the standard form contract creates a non-refundable deposit scheme that does not require proof of damages.
  2. In the second line of decisions, arising out the more recent 2009 BC Court of Appeal decisions in Agosti the standard form contract, without the non-refundable wording, does not create a non-refundable deposit scheme. In the Agosti line of cases, a Seller is required to prove damages in Court in order to recover that amount.

By adding the word NON-REFUNDABLE to the standard contact of purchase and sale, the law cited in Williamson Pacific applies and BUYERS who fail to complete or otherwise default on the terms of their contract are setting the MINIMUM damages that a defaulting buyer will be liable for.  Importantly this is a MINIMUM, a Buyer who defaults on a contract of purchase and sale may be liable for all the Seller’s damages, among other things, loss of profits, reselling and commission costs, and mortgage carrying costs.

Note the BC Supreme Court in Tang v. Zhang noted that “this issue seems destined for the Court of Appeal” so this is likely not the last word on this issue. Stay tuned…

Peter Borszcz is a Real Estate Lawyer and Business Lawyer at PIHL Law Corporation in Kelowna, British Columbia.

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