Can I get my deposit back if I back out of buying a house in Alberta?

Can I get my deposit back if I back out of buying a house in Alberta?

Short answer

Usually, not automatically. If you back out after your conditions have been satisfied or waived, you may be in breach of the purchase agreement. The seller may be entitled to keep the deposit and, depending on the contract and the seller’s losses, claim additional damages. (Lozcal Holdings Ltd. v. Brassos Developments Ltd., 1980 ABCA 72 (CanLII), [5], [12]); (Bowlen v. Digger Excavating (1983) Ltd., 2001 ABCA 214 (CanLII), [32])

The answer depends primarily on the wording of the purchase agreement, including its conditions, deposit clause, default provisions, closing date, and any time-of-the-essence clause.

What happens to the deposit?

A deposit generally serves as security for the buyer’s performance. If the buyer defaults, the deposit may be forfeited if the agreement allows it. (Lozcal Holdings Ltd. v. Brassos Developments Ltd., [12])

For example, a deposit-forfeiture clause was enforced where the buyer failed to close on time, the contract made time of the essence, and the buyer was not ready, willing, and able to complete. (Bowlen v. Digger Excavating (1983) Ltd., [21], [26], [37])

A seller may also be able to claim damages beyond the deposit. In one case, the seller could pursue its resale-price loss while giving credit for the deposit. (Lozcal Holdings Ltd. v. Brassos Developments Ltd., [5], [44])

However, the contract may limit the seller’s remedies. Where a deposit was described as a genuine pre-estimate of damages and the agreement did not clearly provide broader remedies, the seller was limited to retaining the deposit. (Bucci Xenex Project Ltd. v. Ramasiuk, 2010 ABQB 389 (CanLII), [67])

When might you get the deposit back?

A buyer may have a stronger claim to the deposit where:

• A contractual condition was not satisfied or waived.

• The agreement gives the buyer a right to terminate.

• The seller failed to perform an obligation required before closing.

• The seller made a material misrepresentation.

• The parties mutually agree to terminate.

• The contract became impossible to perform in circumstances addressed by the applicable frustration rules. (Frustrated Contracts Act – Open Government program)

Conditions can suspend the parties’ obligation to complete without making the agreement non-binding. If a condition fails, the contract may end, but the exact result depends on the wording of the condition and the agreement. (Dynamic Transport Ltd. v. O.K. Detailing Ltd., 1978 CanLII 215 (SCC), [1978] 2 SCR 1072, [at 1082–1085]); (Castledowns Law Office Management Ltd. v. FastTrack Technologies Inc., 2009 ABCA 148 (CanLII), [65])

What if the seller breached?

A seller may not be able to rely on a strict closing deadline or default provision if the seller has not first performed its own material obligations.

In one Alberta case, the seller could not rely on the buyer’s failure to tender funds because the seller had not provided documents expressly required by the contract. The court concluded that the missing documents were material and that the buyer’s obligation to tender had not yet arisen. (1613185 Alberta Ltd v 837757 Alberta Ltd, 2015 ABQB 224 (CanLII), [47], [52])

The same principle applies to time-of-the-essence clauses. A party relying on such a clause generally must be ready and eager to perform, must not have caused the delay or been in default, and must act in good faith. (Bowlen v. Digger Excavating (1983) Ltd., [15], [24]); (1613185 Alberta Ltd v 837757 Alberta Ltd, [52])

Do sellers have to warn buyers before keeping the deposit?

Not necessarily. The contract may allow the seller to terminate by written notice after the buyer’s default without providing an additional warning.

In one commercial real estate case, the seller was entitled to terminate after the buyer failed to close and was not required to give a further warning because the agreement contained no warning requirement. (H&C S Holdings PTE Ltd v Pengrowth Energy Corporation, 2020 ABCA 473 (CanLII), [19])

The seller’s delay in sending the termination notice did not necessarily waive its rights where the agreement contemplated termination after the closing date and required written notice of termination. (H&C S Holdings PTE Ltd v Pengrowth Energy Corporation, [19], [26])

What if the deposit is unfair or excessive?

A deposit is not automatically invalid merely because the buyer loses it. Courts may consider whether the deposit was a genuine protection for the seller or an excessive penalty.

A forfeiture provision was upheld where the deposit represented only a small percentage of the purchase price and was not out of proportion to the seller’s potential loss. (Bowlen v. Digger Excavating (1983) Ltd., [31])

The characterization depends on the contract and the circumstances when it was made, not simply on whether the agreement calls the amount a “deposit,” “liquidated damages,” or “penalty.” (Lozcal Holdings Ltd. v. Brassos Developments Ltd., [15], [38])

Special rules for new condominiums

Different cancellation rights may apply when buying a new condominium unit from a developer.

The Alberta government’s condominium guidance states that a buyer may generally cancel within 10 days of signing the purchase agreement. If required disclosure documents were not provided before signing, the cancellation period may extend to 10 days after receiving the required documents. The buyer is entitled to a refund of the deposit within 15 days after the developer receives the cancellation notice. (For more information, visit servicealberta.ca or call 1-877- 427-4088)

These rights do not necessarily apply to an ordinary resale of an existing house. Buyers should carefully review the agreement and any applicable statutory cancellation rights before assuming they can cancel. (May 3, 2011); (For more information, visit servicealberta.ca or call 1-877- 427-4088)

What should you check before walking away?

Before refusing to close, review:

• Whether all buyer conditions were actually satisfied or waived.

• Whether any financing, inspection, document-review, or other contingency remains outstanding.

• The exact deposit-forfeiture wording.

• Whether the seller can claim damages in addition to the deposit.

• Whether the closing date is subject to a time-of-the-essence clause.

• Whether the seller has completed all required pre-closing obligations.

• Whether the agreement provides a specific termination or cancellation right.

• Whether the transaction involves a new condominium unit and statutory cancellation rights.

What this means practically

Backing out of a house purchase in Alberta can put the deposit at risk, particularly after conditions have been removed and the seller is ready, willing, and able to close. The seller may also claim losses arising from the failed transaction, although the deposit may need to be credited against those damages. (Lozcal Holdings Ltd. v. Brassos Developments Ltd., [5], [44]); (Telsec Developments Ltd v Abstak Holdings Inc, 2020 ABCA 40 (CanLII), [90])

The deposit question cannot be answered from the deposit amount alone. The full purchase agreement, the status of the conditions, the parties’ communications, and each party’s performance leading up to closing may all affect the result.