On February 5, 2013, the British Columbia Court of Appeal (BCCA)
released an important decision addressing the proper rules for
interpreting the language of deposit forfeiture clauses in
contracts for the purchase and sale of land.
In Tang v. Zhang (Tang), the BCCA was faced with the
following question: where a buyer fails to complete the purchase as
required and has paid a "deposit" that the contract
states is to be forfeited to the seller "on account of
damages," must damages be proven in order for the seller to
retain the deposit?
A five-judge panel of the BCCA held that no proof of damages was
required, as the phrase "on account of damages" does not
alter the general rule that a deposit is forfeited to a seller
where the buyer fails to complete the purchase. In doing so, the
BCCA overturned its 2009 decision in Agosti v. Winter
(Agosti). In Agosti, the BCCA held that, as the
terms of the contract in that case provided that a deposit paid by
the buyer would be forfeited "on account of damages," the
seller was required to prove damages and, if the actual damages
were less than the amount of the deposit, the seller could only
retain an amount equal to the actual damages, rather than the
In Tang, the BCCA referred to long-standing principles
concerning the dual purpose of a deposit as both part payment of
the purchase price and as a performance guarantee that will be
forfeited to the seller if the buyer does not complete the
purchase. The BCCA held that a true deposit is, by definition,
non-refundable, unless the contract specifies otherwise. A contract
that states that the deposit is forfeited "on account of
damages" (as does the standard form contract issued by the
Greater Vancouver Real Estate Board that was at issue in
Tang) simply guards against double recovery (i.e., if the
seller sues to recover damages for the buyer's failure to
close, the amount of the deposit must be credited towards the
The BCCA made the following general statements to clarify the
proper approach to interpreting deposit forfeiture clauses:
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
requires interpreting the words of the contract to determine the
A true deposit is "an ancient invention of the law
designed to motivate contracting parties to carry through with
Where the word "deposit" is used to describe a
payment, it should be given its normal meaning in law, unless the
contractual language clearly shows a contrary intention. A deposit
is generally forfeited by a buyer who repudiates a contract,
without any requirement that damages be proven by the seller. If
the contract is performed, the deposit is applied to the purchase
A deposit is an exception to the usual rule that an amount
subject to forfeiture upon breach of contract is a
"penalty" and, therefore, unlawful unless the amount
represents a "genuine pre-estimate of damages." Only
where the deposit is so large that its retention by the seller
would be unconscionable (i.e., grossly unfair) should the
buyer be relieved from the forfeiture.
In Tang, the BCCA has provided clear direction to
buyers and sellers about the status of a deposit paid under a land
contract where the purchaser fails to close, clearing up some
confusion that had arisen in British Columbia case law in recent
years due to arguments made based on the wording of specific
deposit forfeiture provisions.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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