Sellers still occupying home on Vancouver's west side that they sold for $3.9 million a year ago

The former owners of a home on Vancouver's west side have continued living in it despite selling it for nearly $4 million last June. Last week, they won a court case that will prevent the new owners from evicting them for at least a little while longer.

Feng Xia Liu and Lian Bin Feng were the owners of a home on West 36th Avenue, according to B.C. Supreme Court Justice Kevin D. Loo's decision, which was issued Friday and posted online Monday. 

In April 2023, Liu and Feng entered a contract of purchase and sale with Shan Guang Wang and Hua Yun Zhang, in which they agreed to sell the property for $3.9 million.

The sale closed on June 15, 2023, but before closing, the buyers and sellers entered a residential tenancy agreement that would allow Liu and Feng to continue living in the home through the end of September.

The rental agreement was dated May 1, 2023, according to Loo's decision. It called for Liu and Feng to pay $5,500 a month in rent, and required them to maintain the property and continue paying utility bills.

As quoted in the decision, the contract of purchase and sale acknowledged the tenancy agreement, noting that "the seller is not required to pay a security deposit," but the buyers would "hold back" $100,000 from the purchase price until shortly before the end of the tenancy.

"Since Sept. 30, 2023, when the fixed term under the tenancy agreement ended, the petitioners have taken the position that they are entitled to continue to live in the property on a month-to-month tenancy and that rent ought to be paid from the $100,000 holdback, from the end of September 2023 forward," Loo's decision reads.

RTB decisions

Despite continuing to reside in the home, Liu and Feng applied for dispute resolution with the province's Residential Tenancy Branch in December 2023, according to the court document.

They argued that the holdback was a security deposit, and sought to have the RTB order Wang and Zhang to pay it to them, with interest, plus a "statutory penalty for wrongful withholding of deposit."

The court decision indicates that in February of this year, an RTB arbitrator concluded that the holdback was not a security deposit, citing – among other reasons – the clause in the contract of purchase and sale that said no such deposit was required.

Wang and Zhang responded to the RTB ruling by issuing the tenants a 10-day notice to end tenancy for unpaid rent on March 1.

Liu and Feng filed a dispute against this notice, again turning to the RTB for arbitration.

The second RTB case was heard in April, with the arbitrator concluding that the previous RTB decision holding that the holdback was not a security deposit meant that the tenants were, indeed, in arrears of rent.

The arbitrator issued an order of possession in favour of Wang and Zhang, but that order was stayed when Liu and Feng petitioned the B.C. Supreme Court for judicial review of the two RTB decisions.

Loo's decision was the result of that judicial review petition.

'Patently unreasonable'

The judge noted that because the second RTB decision relied on the determination about the holdback made in the first RTB decision, both decisions would either be upheld or quashed based on an analysis of the arbitrator's reasoning about the holdback.

Loo found the arbitrator's finding that the holdback was not a security deposit "defective for at least two reasons."

First, the arbitrator based his reasoning, in part, on the conclusion that the holdback was not related to or contingent upon the condition of the unit. Loo's decision notes that this interpretation of the purpose of a security deposit is too restrictive, citing the Residential Tenancy Act, which defines security deposits as being "for any liability or obligation of the tenant respecting the residential property."

Second, the clause in the contract of purchase and sale did, in fact, tie the holdback to the condition of the unit when it noted that the seller was obliged to maintain the property.

"It is my view that the $100,000 holdback was clearly a security deposit as that term is defined in the (Residential Tenancy Act)," Loo's decision reads.

"It is clear that the holdback was intended, on the face of the documents, to secure obligations of the tenant with respect to the property. The respondents have not been able to identify any other viable reason for its imposition."

Further, the judge noted that, as a general legal principle, the labels parties place on their relationships "are not determinative." The question of whether the holdback was a security deposit must be answered by its function and the legal definition of the term, not how it was described in the tenancy agreement.

"In my view, the fact that the parties chose not to call the holdback a security deposit could not have, by itself, reasonably led the arbitrator to conclude that the holdback was not a security deposit given that the holdback clearly fell within the definition of a security deposit in (the RTA)," Loo's decision reads.

Having reached this conclusion, the judge ruled that the first RTB decision should be quashed for being "patently unreasonable," and the second should be quashed for relying on it.

He stayed the order of possession that would have allowed the buyers to evict the sellers, and ordered the RTB to reconsider the issues underlying both decisions. He also awarded court costs to Liu and Feng, as the successful parties in the litigation.