Understanding contracts

Many day-to-day activities require you to sign a contract, so it’s easy to forget how powerful they really are. Contracts have a major impact on your finances – they can protect your rights and keep you safe, or leave you vulnerable in unexpected ways.

The information below will help you understand what these contracts mean and ensure you don’t sign your name to something you regret later on.

What is a contract?

A contract is a legally binding agreement between two or more people or organizations.

To be legally binding, a contract must meet certain conditions. Everyone who signs the contract must give their informed consent, which means they can’t be forced or tricked into signing, and must have all the facts in front of them. Everyone must also be considered legally competent, which is why contracts signed by young children (and sometimes even minors) and people with mental disorders aren’t enforceable.

You must do everything you agreed to in the contract. If you don’t, there can be some serious consequences. For example, your credit rating could be damaged. Or you could be taken to court and forced to pay the balance of your contract or other fees.

Common types of contracts

Here are some of the most common contracts, along with tips on how to understand the terms and protect your rights.

Rental contracts

When you rent a home in BC, you must sign a rental agreement or lease. As part of the agreement, you will be asked to pay a security deposit no greater than ½ of your first month’s rent. (If you have a pet, you may need to pay an additional security deposit no greater than ½ of your first month’s rent.) You and your landlord will inspect the property together and complete a detailed report on its condition. When you move out, you’ll both inspect the property again to determine whether you have damaged it during your tenancy.

You have a right to:

  • Receive a copy of the tenancy agreement within 21 days of signing
  • Pay no more than one security deposit, no matter how many people will live there
  • Pay no additional money towards the security deposit, even if your rent increases
  • Receive your security deposit within 15 days of your move-out date if no deductions were required
  • Receive a request for your written consent within 15 days if deductions are required

For more information on your rights as a tenant, refer to the Residential Tenancies Act.

Mobile phone contracts

You have options when it comes to your mobile phone service. You can sign a contract, pay month-to-month, or purchase packages of minutes. Before you sign a contract, be aware of the advantages and disadvantages.


  • Your service rate won’t increase during the contract period
  • You usually pay less for the same service compared to paying as you go
  • You may not need to pay the network setup fee
  • You may receive other bonuses, such as extra minutes or features


  • You must pay a certain amount each month, whether you use the services or not
  • You may pay a hefty fee to break the contract—sometimes hundreds of dollars

Before you sign anything, shop around to find the best plan for you. You can conveniently compare the plans offered by Canadian wireless carriers at CompareCellular.com.

Car leases

When you lease a car, you pay a monthly fee. At the end of the lease period, you can either return the car to the dealership or buy it at market value. It can be a good option, but it’s not the best choice for everyone.

Consider a car lease if:

  • You want to pay a lower monthly fee than you would to finance the purchase of a new car
  • You want the flexibility of trading up to a new car every two or three years
  • You don’t mind paying more for the car in exchange for lower payments up front

Rent-to-own contracts

Rent-to-own purchase contracts allow you to rent an item—usually furniture or electronics. The contract usually allows you two options: return the item after a certain period of time and make no further payments, or continue to pay until you own the item.

Rent-to-own is popular because it enables people to enjoy the use of an item with no down payment, no credit check, and no commitment.

However, there are some significant drawbacks:

  • You’ll end up paying more for the item—as much as three times the original price
  • There may be hidden costs, late-payment fees, and damage charges
  • The item will be taken away if you miss a single payment

To learn more about your rights as a consumer, visit the website of the Office of Consumer Affairs.