BC real estate deposits are not automatic forfeitures or automatic refunds. Who keeps the deposit when a deal falls apart depends on why, when, and what the contract says.
Few moments in a BC real estate transaction concentrate the mind like the day a deal goes sideways. The financing fell through. The inspection turned up something serious. The buyer changed their mind. The seller backed out. The deposit — usually 5% of the purchase price, sometimes more, often the largest single sum either party has tied up in the deal — sits in trust at the buyer’s brokerage or a lawyer’s office, and both sides want it.
The answer to “who gets the deposit?” is not automatic. It is a function of who defaulted, when in the timeline the default happened, what the contract says, and whether the parties can agree on what happened. Below is what actually decides it in BC.
A typical BC residential deposit is paid into trust within 24 hours of subject removal. The trustee — usually the listing brokerage or the seller’s lawyer or notary — holds the funds until closing.
Once the deposit is in trust, the trustee cannot release it to either party without:
That third option is what happens when the deal closes successfully. The other two are what come into play when it does not.
This trust framework is what creates the standoff after a failed deal. The buyer wants the deposit back. The seller wants to keep it (or claim it as damages). Without consent or a court order, the trustee can only sit on the funds.
The framework that decides who gets the deposit comes down to two questions.
Who defaulted? A deal does not just fail; one party usually causes the failure. The buyer fails to remove subjects, fails to pay the deposit, fails to complete on closing day. The seller fails to deliver clear title, fails to disclose a known defect, refuses to close. The party who defaulted is the party who pays the price.
Were subjects already removed? Subject clauses (financing, inspection, document review) protect the buyer during a defined window — typically 7 to 14 days after the offer is accepted. If a subject is not removed, the deposit is not yet payable, and the deal collapses without consequence to either side. Once subjects are removed, the contract becomes binding and the deposit is paid. From that moment, the deal can no longer be exited without consequence.
These two questions, combined, govern most outcomes.
If the buyer cannot satisfy a subject clause — financing falls through during the financing-subject window, inspection reveals an unacceptable defect — they can either waive the subject and proceed, or refuse to remove it and walk away.
When a subject is not removed (and not extended), the contract terminates automatically on the subject removal deadline. No deposit is owed. No party has defaulted. Both sides go their separate ways.
In practice, the deposit has often not yet been paid at this stage — most contracts call for the deposit to be paid only after subjects are removed. If the buyer paid an upfront deposit before subject removal, it is returned in full.
This is where most deposit fights happen. The buyer removes subjects (often based on a financing approval that has not yet been finalised), the contract becomes binding, and then something falls apart on the buyer’s side. Common causes:
When a buyer fails to complete on closing day, the seller has two basic options:
Keep the deposit and cancel the contract. The standard BCREA Contract of Purchase and Sale provides that the deposit is forfeit to the seller as liquidated damages on a buyer’s failure to complete. The seller can keep the deposit, put the property back on the market, and walk away.
Sue for actual damages. The seller can sue the defaulting buyer for the actual damages caused by the failed deal — typically, the difference between the original contract price and the lower price the seller eventually gets on a re-sale, plus carrying costs (mortgage, taxes, insurance, utilities) during the relisting period, plus any consequential losses. If the actual damages exceed the deposit, the seller can recover both: the deposit plus the shortfall. If the damages are smaller than the deposit, the seller still keeps the full deposit if the contract calls it forfeit liquidated damages — though courts will sometimes order partial return where the forfeiture is genuinely disproportionate.
Most failed-buyer files in BC end with the seller keeping the deposit and not pursuing further damages, because litigation costs more than it usually recovers. Most deposit fights are about whether the buyer can argue that the seller refused to mitigate, or that the buyer’s failure was caused by something the seller did, in order to claw back some or all of the deposit.
Less common but does happen. A seller might refuse to close because they have changed their mind about selling, because they have received a better offer, or because they cannot deliver clear title (an issue surfaces in the title work that they cannot resolve before closing).
If the seller defaults, the buyer is generally entitled to the return of the deposit and to specific performance — a court order requiring the seller to convey the property at the contract price. Specific performance is available for unique residential property, which most BC homes are considered to be. Alternatively, the buyer can elect for damages — the difference between the contract price and the cost of acquiring a comparable property, plus any consequential losses (interim rent, moving costs, lost mortgage rate hold).
Buyers tend to file a Certificate of Pending Litigation (CPL) on title in seller-default cases. A CPL freezes the property until the dispute is resolved, preventing the seller from selling to anyone else in the meantime. We act on these regularly.
The harder cases are where both parties claim the other defaulted. The seller says the buyer failed to fund on time; the buyer says the seller failed to remove an encumbrance from title that should have been gone before closing. Both refuse to release the deposit.
When parties cannot agree, the trustee has to either:
The dispute then proceeds through Small Claims Court (for deposits up to $35,000) or BC Supreme Court (for larger deposits or where additional damages are being claimed). Most disputes settle at mediation; some go to trial. Resolving a contested deposit fight typically takes 6 to 18 months.
The earlier we are involved on a failing deal, the more options exist.
For buyers in trouble before closing. Talk to us as soon as you suspect the deal is going to fail. Sometimes a private mortgage refinance closes the gap. Sometimes a short extension (with the seller’s consent) saves the deal. Sometimes acknowledging the default early and negotiating a partial deposit return costs less than fighting it after the fact.
For sellers facing buyer default. Document everything. Keep all communications in writing. If the deal fails, immediately put the property back on the market — the seller’s duty to mitigate damages requires reasonable effort to relist and resell. The relisting price, the marketing efforts, and the eventual sale price all become evidence in any later dispute.
For either side facing a deposit fight. Do not assume the deposit is forfeit (or returnable) based on what the contract appears to say. The standard BCREA contract has nuance, and BC courts have refined the deposit framework over many decades. Get advice on the specific facts before signing a release.
We act on both buyer-side and seller-side deal collapses. The work is part real estate (understanding the contract, the title work, the deposit trust conditions) and part civil litigation (demand letters, deposit-release negotiations, court applications, Certificates of Pending Litigation). The two fit together on a failed-deal file.
If you are watching a deal start to come apart, contact us. The least expensive version of this fight is the one resolved before pleadings are filed.
Written by Lime Law Corporation. This article is general information about BC law as of May 6, 2026. It is not legal advice. If you have a specific matter, contact us — and please do not rely on a blog post in place of advice on your file.
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