A deposit isn’t just a down payment sitting in trust. In BC, it’s a legal signal of commitment, and courts treat it that way when a deal collapses. Whether you keep it, lose it, or have to sue for it depends on who caused the collapse and what the contract says.
This dispute comes up constantly once a Contract of Purchase and Sale goes firm and then falls apart. Legalbird’s real estate litigation lawyers help buyers, sellers, and small developers across Surrey, Delta, Vancouver, and Abbotsford figure out where they stand before the fight over the deposit escalates.
When Is a Deposit Forfeited?
Under the leading BC case, Tang v. Zhang, 2013 BCCA 52, a true deposit is generally forfeited to the seller when the buyer fails to complete, and the seller doesn’t need to prove actual damages to keep it. The court described deposits as a tool that motivates parties to follow through on their bargains, not just a partial payment.
The “On Account of Damages” Wording and No-Double-Recovery
Most standard-form contracts state that a forfeited deposit is held “on account of damages.” The Court of Appeal in Tang was clear this phrase doesn’t require proof of damages before forfeiture. It means that if the seller pursues and proves additional damages, the deposit gets credited against that award rather than paid on top of it. A seller can’t recover the deposit and full damages as a windfall; the wording prevents double recovery, not protect the buyer.
There’s a limit here. If a deposit is disproportionately large relative to the purchase price, a court can grant relief from forfeiture under section 24 of the Law and Equity Act. Deposits in the 10 to 20 percent range have generally been treated as reasonable by BC courts.
Suing for an Unpaid Deposit
Sometimes a buyer repudiates before the deposit is even paid. In Argo Ventures Inc. v. Choi, 2020 BCCA 17, the Court of Appeal confirmed a seller can still sue for the deposit as a debt, even though it was never paid. The buyers there tried to walk away before their $300,000 deposit came due, but remained on the hook because the contract made it non-refundable and immediately binding.
For sellers, the lesson is: don’t rush to accept a buyer’s repudiation before the deposit becomes due under the contract’s own terms. Doing so can complicate the claim.
When the Seller Is at Fault: Purchaser's Liens and CPLs
Deposit disputes don’t only run one direction. When a deal collapses because of the seller’s conduct, the buyer has remedies too.
In 1332404 B.C. Ltd. v. 1266685 B.C. Ltd., 2025 BCCA 46, the Court of Appeal confirmed a buyer who paid a deposit and lost the deal through no fault of their own can claim a purchaser’s lien, an equitable security interest in the seller’s land equal to the deposit. That lien is an interest in land, so the buyer can register a Certificate of Pending Litigation (CPL) to freeze the title while the dispute is resolved. The court also confirmed a buyer can claim this lien even while seeking rescission or return of the deposit as alternative remedies.
For small developers and investors, this matters: a CPL puts real pressure on a seller who might otherwise sell to someone else while the dispute drags on.
Relief From Forfeiture and the Role of Subject Clauses
None of this happens in a vacuum. Subject clauses, financing, inspection, or the sale of another property, most often determine whether a buyer’s failure to complete was even a breach in the first place. A buyer who properly and timely withdraws under a valid subject clause isn’t in breach, and forfeiture doesn’t come into play.
Where a buyer did breach but argues the deposit is disproportionate to the harm caused, relief from forfeiture is possible but rare. Courts look at whether the amount was grossly out of proportion to the loss, not simply whether the seller suffered little financial harm
The Three-Business-Day Home Buyer Rescission Period
Since January 3, 2023, most residential buyers in BC also have a separate statutory right under the Property Law Act: the Home Buyer Rescission Period. It gives buyers three business days after an offer is accepted to walk away for any reason, no subject clause needed.
- The right can’t be waived by either party, even by mutual agreement.
- It runs alongside any subject-removal periods already in the contract, rather than adding extra time on top.
- A rescinding buyer owes the seller a fee of 0.25% of the purchase price, deducted from the deposit before the balance is returned.
- It doesn’t apply to every property type; leasehold land and most presale developments are excluded.
It’s a narrow window, but often the cleanest way for a residential buyer to exit early without a forfeiture fight.
How Each Side Should Position a Deposit Dispute
- Sellers trying to keep a deposit should focus on showing the contract was firm, the buyer’s failure to complete wasn’t excused by a valid subject clause, and the deposit amount is proportionate to the transaction.
- Buyers trying to get a deposit back should focus on showing a subject clause was properly exercised, the seller caused the collapse, or the deposit is so disproportionate that forfeiture would be unconscionable.
Timing and documentation drive these disputes far more than general fairness arguments.
Talk to a Real Estate Litigation Lawyer at Legalbird
If your real estate deal has fallen apart and you’re fighting over the deposit, contact Legalbird for a free 30-minute consultation. We help buyers, sellers, and developers across Surrey, Delta, Vancouver, and Abbotsford assess their position quickly when a CPL, lien, or lawsuit is on the table.
Date Modified:
- July 27, 2026
Reviewed By:
Kawal Atwal
Business Litigation Expertise You Can Trust
Kawal S. Atwal is a civil litigation lawyer in Surrey, Abbotsford, & Vancouver British Columbia with extensive experience in trial and appellate advocacy. He was called to the Bar of Punjab and Haryana in 2013 after completing his legal education in India and practiced for over 8 years before the Punjab and Haryana High Court and the Supreme Court of India. During that time, he drafted and argued hundreds of appellate matters across civil, criminal, constitutional, and family law, building a strong foundation in complex litigation and strategic legal analysis.
After relocating to Canada, Kawal completed his articles at a top-rated construction and civil litigation firm in Surrey and established a practice focused on appellate advocacy before the British Columbia Court of Appeal, as well as foreclosure, bankruptcy, construction, contract, and civil disputes. With early exposure to courtroom advocacy and a background rooted in a family of litigators, Kawal brings disciplined preparation, sharp legal reasoning, and practical litigation strategy to every matter. He also mentors law students and emerging lawyers, contributing to the development of effective courtroom advocacy in British Columbia.
