Amendments to Policy Statements 5 and 6
Effective March 8, 2023, the BC Financial Services Authority (“BCFSA”) amended Policy Statement 5 (“PS 5”) and Policy Statement 6 (“PS 6”), published pursuant to the Real Estate Development Marketing Act (British Columbia) (“REDMA”), which govern a developer’s ability to market development units before receiving a “building permit” or a “satisfactory financing commitment”, respectively. The amendments to PS 5 (the “PS 5 Amendment”) and PS 6 (the “PS 6 Amendment”) are intended to help provide uniformity and clarity by:
- amending the concept of “approval in principle” so that it is now achieved when a municipal or other government authority has given third reading to a bylaw to zone or rezone the specific site on which a proposed development will be located, or, in areas that do not require third reading, the municipal or other government authority has taken an equivalent step to proceed with such zoning;
- amending the definition of “building permit” to clarify that a permit authorizing excavation or construction of the development site qualifies as a “building permit”;
- clarifying the definition of a “satisfactory financing commitment”; and
- clarifying that early marketing requirements apply on a phase-by-phase basis.
Policy Statement 5
Part 2 of REDMA sets out certain “preliminary requirements” that a developer must meet before marketing a project. Generally, most projects require the issuance of a building permit before marketing may begin (see Sections 4 to 9 of REDMA for the relevant preliminary requirements). However, PS 5 allows for early marketing up to 12 months prior to issuance of a building permit, but only if the developer has obtained “approval in principle” from the appropriate government authority. Prior to the PS 5 Amendment, a developer was required to satisfy this requirement by obtaining a development permit or written confirmation from the appropriate government authority that a development permit would be issued if certain conditions within the developer’s control were met (this was generally satisfied by the issuance of a so-called “prior to” letter).
The PS 5 Amendment eliminates the obligation for a developer, before commencing early marketing, to obtain a development permit or written confirmation that a development permit will be issued if the applicable conditions are met. PS 5 now only requires that the bylaw to zone or rezone a proposed development site passes third reading by the appropriate government authority, and, in areas where third reading is not required, that the equivalent step has been taken. In a discussion paper dated September 2022, BCFSA stated that, by linking the commencement of early marketing of development units to standardized, robust and well-understood development approval and rezoning milestones, developers, purchasers and local governments alike will benefit from the increased regulatory certainty at all stages of development. BCFSA further stated that the PS 5 Amendment would maintain strong consumer protection and might result in development units coming to market sooner, thereby enabling developers to obtain earlier access to financing (where financing is contingent on achieving minimum numbers of pre-sales).
The PS 5 Amendment also usefully expands the definition of “building permit” by including any permit that authorizes the excavation or construction of the development site.
Finally, the PS 5 Amendment clarifies that the requirements of PS 5 apply to each individual phase of a “phased strata plan” as defined in the Strata Property Act (British Columbia).
Policy Statement 6
In addition to the “preliminary requirements” under Part 2 of REDMA, a developer must not market a development unit without first making “adequate arrangements” to ensure payment of the cost of utilities and other services associated with the development units (see A Section 12 of REDMA for the relevant requirement). PS 6 provides that adequate arrangements will be deemed to have been made if a developer has received a “satisfactory financing commitment” for such utilities and services, and that early marketing is permitted for up to 12 months prior to a developer obtaining such a commitment..
The PS 6 Amendment clarifies that a commitment from a lender, where payment of funds to the developer is conditional upon the developer achieving a certain value of sales or entering into a certain number of purchase agreements, is not a “satisfactory financing commitment”. If a commitment includes any such condition, the commitment will only constitute a “satisfactory financing commitment” once the developer has satisfied the applicable condition, but the PS 6 Amendment makes it clear that if, at any time, either or both of those conditions cease to be satisfied, the commitment will cease to be a “satisfactory financing commitment”.
Finally, as with the PS 5 Amendment, the PS 6 Amendment clarifies that the requirements of PS 6 apply to each individual phase of a “phased strata plan” as defined in the Strata Property Act.
Policy Statement 13
BCFSA also amended Policy Statement 13 effective March 8, 2023. Policy Statement 13 deals with real estate securities. A discussion of these amendments to Policy Statement 13 is beyond the scope of this blog post. Please contact us if you require further information regarding Policy Statement 13.