Article Detail



Article

British Columbia’s Real Estate Development Marketing Act Revisited

Date

April 17, 2014

AUTHOR(s)

Scott Smythe


For at least 10 years prior to the market correction in 2008, strata lot prices in British Columbia were on a decidedly upward trend. Not surprisingly, the market attracted not just homebuyers but also speculators who signed purchase agreements with a view to making a profit by either assigning their contracts or selling their strata lots. In the wake of the correction, litigation under the Real Estate Development Marketing Act (British Columbia) (REDMA) proliferated as homebuyers and speculators alike, realizing that they had agreed to pay more than current market value, sought to avoid their obligations by identifying technical deficiencies in the disclosure made by developers, as required by REDMA. Many of the ensuing court decisions, mindful of REDMA’s consumer-protection objectives, strictly applied the legislation in favour of the purchaser, regardless of his or her motive in seeking to avoid a purchase agreement. Consequently, real estate industry participants called for changes to REDMA to achieve a better balance between the goal of consumer protection and the practical realities of the development industry.

On March 10, 2014, B.C. Attorney General and Minister of Justice Suzanne Anton introduced Bill 17, the Miscellaneous Statutes Amendment Act, 2014, in the B.C. Legislature. Bill 17 contains several proposed amendments and additions to REDMA, which, according to the government, will "bring clarity to the scope of purchasers’ remedies and certainty to the enforceability of purchasers’ contracts" and are "designed to increase industry efficiency and provide purchasers with a more readable disclosure statement."

Delivery of Disclosure Statements to Purchasers

One common defence raised by purchasers in REDMA litigation is that the developer failed to deliver an amendment to the disclosure statement, as required. Depending on the method by which a developer delivered an amendment, proving delivery can be difficult. Bill 17 proposes to allow developers to deliver disclosure statements (including amendments) by electronic means (i.e., by fax or email), so long as the purchaser has given his or her written consent. Developers will therefore want to prepare purchase contracts that specifically provide for such consent because delivery of disclosure statements by fax or email will ease the administrative burden on developers, reduce cost and, depending on the delivery method used, sanction a simple method of obtaining proof of delivery.

Consolidated Disclosure Statements and Phase Disclosure Statements

Disclosure statements can be lengthy, complicated documents and, if one or more amendments have been made to a disclosure statement, they can be very difficult for purchasers to understand. As a result, it became standard industry practice for developers to provide purchasers with a "consolidated" disclosure statement that amalgamated the original disclosure statement and all subsequent amendments into a single document. This practice continued for several years until a judge noted, in a decision considering REDMA, that a developer who provided a purchaser with a consolidated disclosure statement technically had not complied with the statute. Although the judge’s observation was not the focus of his decision, it had a chilling effect on developers’ use of consolidated disclosure statements – even though, arguably, they advance the goal of consumer protection.

Bill 17 proposes to resolve this issue by allowing a developer to provide a consolidated disclosure statement to new purchasers. The developer must file any amendment (and deliver it to existing purchasers) and the consolidated disclosure statement (which may be delivered to all new purchasers) with the Superintendent of Real Estate.

Similarly, Bill 17 allows developers of a phased strata development to market strata lots in phases subsequent to the first phase by filing a "phase disclosure statement" (instead of an amendment to a disclosure statement), but only if the developer is not then marketing any strata lots in previous phases. This legislative amendment, if implemented, will again allow developers to provide new purchasers with a single document that is far easier to understand than a disclosure statement and a potentially lengthy series of amendments.

A new purchaser who receives a consolidated disclosure statement or a phase disclosure statement will have the right to require the developer to provide free copies of the original disclosure statement and any amendments within 30 days of written request by the new purchaser.

Post-closing Rescission Rights

REDMA currently provides that even if the sale of a strata lot has closed and title has transferred to a purchaser, a purchaser who is entitled to receive a disclosure statement (including an amendment) but does not receive one may rescind the purchase agreement at any time. There is no time limit on this right and, theoretically, a purchaser may rescind his or her purchase agreement years after acquiring the strata lot, regardless of whether the failure to disclose would have affected the purchaser’s decision to purchase the strata lot.

Bill 17 proposes to restrict a purchaser’s post-closing right of rescission to situations in which the amendment that should have been provided to the purchaser (but was not) discloses or would have disclosed facts that were material at the time of rescission or closing and were reasonably relevant to the purchaser. Additionally, the rescission right will only be available in situations in which the purchaser has owned the strata lot for less than one year. The bill’s proposal will assist in preventing purchasers from rescinding their agreements for technical reasons that are not in fact relevant to the purchasers. This will introduce a measure of transaction certainty by eliminating the current ability of purchasers to seek rescission years or even decades after closing.

Specifically, Bill 17 proposes that the right to rescind post-closing will not apply if the disclosure statement to which a purchaser is entitled (but does not receive) is:

  • an amendment to a disclosure statement; or
  • a disclosure statement that a purchaser who receives a phase disclosure statement or consolidated disclosure statement is entitled to request as contemplated in Bill 17 (which may include the original disclosure statement and any amendments, any previous consolidated disclosure statement and any consolidated disclosure statement or phase disclosure statement in respect of other phases of the development property).

Bill 17 also proposes that, regardless of whether title has been transferred to a purchaser, the purchaser may rescind a purchase agreement if he or she does not receive an amendment to a disclosure statement to which he or she was entitled and all of the following apply:

  • The purchaser is a recipient of a phase disclosure statement or consolidated disclosure statement and does not become entitled to receive an amendment only as a result of a request for the original disclosure statement or any amendments;
  • The amendment relates to or would have related to a fact or proposal to do something that is a material fact on the earlier of:
    • the date on which the notice of rescission is served on the developer; and
    • the date on which the purchase agreement requires the developer to transfer title to the purchaser;
  • The amendment relates to or would have related to a fact or proposal to do something that was or would have been reasonably relevant to the purchaser in deciding to enter into the purchase agreement; and
  • No more than a year has elapsed after the transfer of title.

Lastly, Bill 17 proposes that if a purchaser rescinds post-closing and recovers the purchase price paid, a developer may recoup some of its losses by applying to court for an order requiring the purchaser to pay the developer market rent for the occupation of the strata lot.

Agreements Void for Non-compliance

REDMA currently provides that an agreement to purchase or lease a strata lot is not enforceable against a purchaser if the developer has breached any provision of Part 2 of REDMA (which deals with marketing and holding deposits). Bill 17 retains this concept as a general principle but goes on to provide that a purchase agreement will be enforceable against a purchaser if either:

  • the breach involves a disclosure statement that does not comply with REDMA but contains no misrepresentation concerning a material fact that was or would have been reasonably relevant to the purchaser in deciding to enter into the purchase agreement; or
  • the breach involves a disclosure statement that contains a misrepresentation concerning a material fact, but the developer was not aware of the misrepresentation when it entered into the purchase agreement and the misrepresentation is corrected in an amendment to the disclosure statement that is:
    • filed with the Superintendent no later than 30 days after the developer becomes aware of the misrepresentation and the amendment is provided to the purchaser within a reasonable time after filing; and
    • filed with the Superintendent and provided to the purchaser no later than 14 days before the closing date.

Identity of the Developer

At present, there is uncertainty whether registered (but not beneficial) owners of development property that are not themselves developing the property and selling strata lots to purchasers must nevertheless sign a disclosure statement. Several types of registered owners of land should not be required to sign disclosure statements. For example:

  • a university that grants a long-term ground lease to a third-party developer who then develops a strata project and sells strata lots to purchasers;
  • a municipality that retains registered title to land pending completion of a development by a third-party developer;
  • an owner that is contractually obligated to transfer land to a developer but has not completed the sale at the time the developer files its disclosure statement; and
  • a bare trustee (even if related to the developer) that holds registered title to land on behalf
    of a developer but has no beneficial ownership or economic interest in the development.

Bill 17 provides express authority for the government, by regulation, to exclude a person or class of persons from the definition of "developer" and, therefore, from the application of REDMA and the requirement to sign a disclosure statement. It is hoped that the government will clarify the current uncertainty by excluding the registered owners listed above, and perhaps others, from the application of REDMA.

Handling Deposits

One major gap in the current version of REDMA is that, although a trustee (such as a law firm) holding a purchaser’s deposit may release the deposit to the developer if the developer certifies that the purchaser has failed to pay a "subsequent deposit" (e.g., a second or third deposit), there has been uncertainty whether the trustee may release the deposit to the developer if a purchaser pays all deposits when due but fails to pay the balance of the purchase price on the closing date. There is no obvious policy reason why a developer should be permitted to claim the deposit when a purchaser fails to pay a subsequent deposit, but required to obtain a court order authorizing the release of the deposit if the purchaser fails to complete the transaction. Bill 17 fills this legislative gap by expressly permitting a trustee, upon receipt of a developer’s certificate, to release the deposit to the developer if the purchaser fails to pay the balance of the purchase price when due. This is a significant (and overdue) legislative amendment that will avoid unnecessary court proceedings.

Summary

While parts of Bill 17 may face criticism from consumer-protection advocates, the proposed changes will be welcomed by developers and other industry participants. Developers will need to remain vigilant in meeting their disclosure obligations under REDMA, but Bill 17 will do the following if implemented:

  • expand the permissible methods of delivery of disclosure statements to purchasers (including the use of email and fax);
  • enhance the ability of developers to provide purchasers with understandable disclosure by way of consolidated disclosure statement and phase disclosure statements;
  • reduce the ability of purchasers to avoid their purchase agreements on technical grounds that are not actually material or relevant to the purchasers;
  • facilitate the release of deposits to developers without court proceedings if purchasers have defaulted on their obligation to complete their purchases; and
  • enable the government to prescribe, by regulation, persons or classes of persons who will not constitute "developers" under REDMA and therefore will not be required to sign disclosure statements.

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