Statement of Law on Deposits in Real Estate: Tang v. Zhang, 2013 BCCA 52

Is a Deposit Refundable?

The British Columbia Court of Appeal recent released its decision in Tang v. Zhang, 2013 BCCA 52, and expressly overturned the 2009 case of Agosti v. Winter. In Agosti, there had been a dichotomy of contractual language that either renders something a “true deposit” (which would be forfeitable regardless of any actual damage) vs. a pre-payment only deposit (only forfeitable if actual damages are suffered and proven).  The exact language used in the contract would then be scrutinized to determine the intent of the parties.  Accordingly, if a vendor wanted the deposit to be automatically forfeited, it was very important to use very precise language and to avoid the suggestion that the deposit was anything other than absolutely forfeit.

In the recently released case of Tang v. Zhang, the Court restated the law on real estate deposits as follows:

1.       On a general level, the question of whether a deposit or other payment made to a seller in advance of the completion of a purchase is forfeited to the seller upon the buyer’s repudiation of the contract, is a matter of contractual intention;

2.       Where the parties use the word “deposit” to describe such a payment, that word should in the absence of a contrary provision be given its normal meaning in law;

3.       A true deposit is an ancient invention of the law designed to motivate contracting parties to carry through with their bargains.  Consistent with its purpose, a deposit is generally forfeited by a buyer who repudiates the contract, and is not dependant on proof of damages by the other party.  If the contract is performed, the deposit is applied to the purchase price;

4.       The deposit constitutes an exception to the usual rule that a sum subject to forfeiture on the breach of a contract is an unlawful penalty unless it represents a genuine pre-estimate of damages.  However, where the deposit is of such an amount that the seller’s retention of it would be penal or unconscionable, the court may relieve against forfeiture, as codified by the Law and Equity Act;

5.       A contractual term that a deposit will be forfeited “on account of damages” on the buyer’s failure to complete does not alter the nature of a deposit, but may be construed to mean that if damages are proven, the deposit will be applied against (“on account of”) them.  If no damages are shown, the deposit is nevertheless FORFEITABLE, subject always to the expression of a contrary intention.

Many thanks to Andrew Prior for his comments on this Article.

Written by Peter Borszcz a Kelowna Real Estate Lawyer at PIHL LAW CORPORATION.

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One thought on “Statement of Law on Deposits in Real Estate: Tang v. Zhang, 2013 BCCA 52

  1. BC Home Buyer Forfeits $750,000 Deposit For Not Closing On Time
    By Nancy Ling

    When you commit to buying a property and you have removed or waived all of the conditions to the contract of purchase and sale, such as a “subject to financing” clause, you had better make sure that you get your ducks in a row before the completion date.

    In the recent BC Court of Appeal case, Amiri v. One West Holdings Ltd., 2013 BCCA 155, the court confirmed that the buyer’s deposit was a “true deposit” and was therefore forfeit when the buyer failed to complete the purchase on time.

    Afrasiab Amiri decided to buy an upscale home with limestone floors in “The Erikson” in Vancouver for a purchase price of just under 3 million. As part of the contract of purchase and sale, Amiri put down a deposit of 25% of the purchase price; just under $750,000.00. The contract also gave the Seller the exclusive right to set the completion date.

    As a result of an unfortunate series of events, Amiri wasn’t able to get his financing organized on time for closing. He and his wife went on an extended trip to Iran, though they spoke with a mortgage broker before they left and arranged for a friend to attend to matters for him while he was out of the country. At the time the Seller sent out the notice of a formal completion date, Amiri was in a remote area of Iran and did not get the message for about a week. Amiri was then in a car accident and hospitalized. Amiri finally made it back to Canada, but not in time to get his mortgage funds organized for the closing date. The Seller allowed a couple of extensions, though Amiri kept running into obstacles with the funding, for example his wife had stayed in Iran and she was required to sign some of the paper work. When Amiri was finally in a position to complete the purchase, about one month after the original closing date, the Seller took the position that the contract had been terminated by reason of Amiri’s failure to complete on time, and therefore the deposit was forfeit.

    In deciding that Amiri’s almost $750,000.00 deposit would be surrendered absolutely to the Seller, the court cited the recent case of Tang v. Zhang, 2013 BCCA 52 regarding deposits, and reiterated that a deposit is generally forfeited by a buyer who repudiates the contract, and the Seller’s entitlement to the deposit is not dependent on proof of damages by the Seller.

    While not all of us are buying multi-million dollar homes, none of us will want to part with our deposits without getting a home in return. Therefore, before you remove all of the “subject to” clauses on your contract of purchase and sale, talk to your advisors and make sure that you understand everything that you have to do in order to be ready to close on time.

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