Deposits on Residential Real Estate Contracts

A DEPOSIT is usually made from the BUYER in the BUYER’s AGENTS trust account and is held according to the stakeholder provisions of the Real Estate Services Act.

This means that the DEPOSIT can generally ONLY be released prior to completion where:
a) it is paid into COURT or in accordance with a COURT ORDER; or
b) by WRITTEN AGREEMENT of the parties.

Currently, there is a “gap” in RESA whereby a Buyer who does not remove his subject conditions could be faced by a stubborn Seller who refuses to release the deposit. This would force the Buyer (who doesn’t want the home anyway) to go to Court to get his deposit returned. In light of this I recommend that Buyer's do not make a deposit is made until subject removal.

The BC Court of Appeal expanded our understanding of “Deposits” in the recent case of Agosti v. Winter 2009 BCCA 490. The court distinguished between true deposits (amounts up to 10% of the purchase price) and excessive deposits. Absent other evidence, EXCESSIVE DEPOSITS (over 10%) may be characterized as punitive by the court and subject to “review and relief” under the Law and Equity Act.

With TRUE DEPOSITS, the court upheld the general rule that a true deposit is “earnest money” and is forfeit in the event of the Buyer’s failure to complete. This upholds the “ordinary meaning” of the word deposit and is reinforced by words such as “non-refundable” and “absolutely forfeited” upon breach by the Buyer. According to the Court, a Seller would be able to claim the TRUE DEPOSIT, even if such amount did not amount to a genuine pre-estimate of damages.

Importantly, this decision did not LIMIT the liability of the non-completing BUYER to the deposit amount alone. If forced to litigate, most Sellers are likely to seek amounts over and above the deposit, including (but not limited to) loss of profit, re-marketing costs, upkeep costs, and interest costs.

How can Realtors advise their clients?
a) no deposit should be made until subjects are removed;
b) a maximum deposit of 10% to ensure the deposit is a TRUE DEPOSIT;
c) once made to the brokerage, inform client that the deposit can ONLY be returned according to RESA; and
d) the minimum claim of a Seller in breach is likely the deposit amount, however the maximum claim may be substantially higher.

Addenda:
The Professional Standards Manual says that Listing Agents should, if no deposit is received, "advise sellers of the merits of a deposit being received from buyers". "Merits of a Deposit" is difficult language for Realtors and it will necessitate "what if" discussions in the event of non-completion. From a Realtor's perspective this is a good time to discuss what lawyer your client wishes to use.