What Happens if a Buyer Backs Out After Removing Conditions in a BC Real Estate Transaction?
In British Columbia, a residential real estate purchase agreement becomes firm and legally binding once a buyer has removed all conditions, often referred to as “subjects.” If a buyer attempts to withdraw from the contract after this point, it’s generally considered a breach of contract, which can lead to significant legal and financial consequences for them.
The repercussions of backing out after subject removal are substantial. Primarily, the buyer will likely forfeit their deposit, which is typically a considerable sum. This deposit serves as a demonstration of the buyer’s commitment, and its loss is a standard outcome when a buyer fails to complete the purchase after the contract becomes firm. Beyond the deposit, the seller may also pursue legal action against the buyer for damages resulting from the breach. These damages can include the difference between the original contract price and the eventual resale price if the property sells for less, as well as additional costs incurred by the seller. Such costs might encompass legal fees, mortgage carrying costs, and expenses related to re-listing the property.
While backing out is generally problematic, there are a few exceptions and alternatives. As of January 3, 2023, BC law introduced the Home Buyer Rescission Period (HBRP), a non-waivable three-business-day “cooling-off” period after an offer is accepted. During this time, buyers can rescind the contract for any reason, provided they give written notice to the seller and pay a rescission fee equal to 0.25% of the purchase price. This right applies regardless of whether the contract is subject-free, but it must be exercised within this strict timeframe. For more information, you can refer to the BCFSA HBRP Information and the Home Buyer Rescission Period Regulation. Another alternative is for the buyer and seller to mutually agree to terminate the contract, with the terms, including the fate of the deposit, subject to negotiation.
It’s important to note some key distinctions. For presale (new construction) properties, buyers have a separate seven-day rescission right under the Real Estate Development Marketing Act (REDMA), and this period comes without a rescission fee. However, the general HBRP does not apply to properties on leased land, leasehold interests, properties sold at auction, or those sold under court order.
To prevent such serious situations, due diligence is paramount. Buyers should ensure all inspections, financing, and other conditions are thoroughly and satisfactorily addressed before removing any subjects. Additionally, engaging a real estate lawyer is highly recommended to clarify contractual obligations and understand potential risks before making a firm commitment.
In summary, backing out of a residential real estate transaction in BC after removing all conditions is a serious matter with significant legal and financial repercussions. Buyers risk forfeiting their deposit and facing lawsuits for damages. The only statutory “cooling-off” period is the three-business-day HBRP, which must be exercised promptly and includes a rescission fee. Otherwise, buyers should proceed with extreme caution and ensure all due diligence is completed before signing a firm agreement.
If you have questions about your real estate contract, contact Northam Law today to schedule an appointment. You can reach us by phone at 604-630-2350 or by email at admin@northam-law.com.
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