Amendments to Real Estate Development Marketing Act
On May 29, 2014, several amendments to the Real Estate Development Marketing Act (REDMA) came into effect that significantly alter the rights of both purchasers and developers of real estate development property in British Columbia. The amendments, which arrived within three months of the Court of Appeal’s decision in Woo v Onni Ioco Road Five Development Limited Partnership (Woo), address some of the concerns raised in Woo while further tilting of the scales in favour of developers.
Combined with the recent case law, the amendments serve to counterbalance the early judicial treatment of REDMA as strictly-interpreted consumer protection legislation. The following provides a brief synopsis of the most recent judicial interpretation of REDMA’s disclosure provisions, the amendments introduced by Bill 17, and some practical consequences both purchasers and developers should anticipate.
Woo: Limiting remedies to material breaches in light of the twin goals of REDMA
In Woo, the developer filed an amendment to its disclosure statement for a pre-sale development with the Superintendant of Real Estate, but failed to disclose the amendment to the purchasers. The amendment related to subdivision approval, issuance of a building permit, and construction progress, and generally confirmed that construction was proceeding as planned. One year and a half after closing their purchase contracts and taking possession of their units, the purchasers gave notice to the developer that they were rescinding the purchase contracts pursuant to section 21(3) of REDMA.
At trial, the Supreme Court trial judge applied the definition of “material fact” set out in REDMA and concluded that the facts in the amendment to the disclosure statement would indeed affect the “value, price or use” of the development units. Consequently, the absence of the information in the disclosure statement was an “omission of a material fact” and constituted a misrepresentation within the meaning of section 16 of REDMA. Characterizing REDMA as consumer protection legislation, the trial judge held that the statute must be interpreted generously in favour of the consumer and granted the purchasers the right to rescind their purchase contracts under section 21(3).
The trial judge also dismissed the developer’s counterclaim for occupational rent for the period that the purchasers had possession of their units. The Court of Appeal overturned the trial decision, finding it to be at odds with what it cited as the twin goals of REDMA: “to afford consumers protection whilst also enabling efficient and profitable operation of the real estate development sector, a ‘key economic driver in British Columbia’”.
The Court of Appeal held that only facts that can be objectively characterized as adversely affecting the value, price or use of a unit are “material facts” requiring disclosure in an amendment. Because the amendment at issue simply confirmed the good news that the real estate development was proceeding as anticipated in the original disclosure statement, the failure to deliver such information to the purchasers did not entitle them to exercise the right of rescission.
The Court emphasized that REDMA is not exclusively consumer protection legislation, and that “there is a difference between consumer protection and a windfall that allows purchasers to rescind purchase agreements that delivered to them precisely what they contracted for merely on the basis that they had not been informed before they closed that the project was progressing as anticipated without changes or delays.” Unfortunately, the trial judge’s dismissal of the developer’s counterclaim for occupational rent from the purchasers was not addressed.
Chaisson: No relief for developer’s minor breaches of disclosure obligations
In the recent case of Chaisson v Avra Development Corp. (“Chaisson”), two purchasers sought relief under sections 21(3) and 23 of REDMA because the developer did not disclose the calendar date upon which the deposit insurance contract became effective, and failed to notify the purchasers that it had renumbered the strata units prior to completion.
The Supreme Court trial judge held that for a defect in a disclosure statement to render a purchase contract non-binding under REDMA, the defect must meet the objective threshold for adverse effect set out in Woo. “Technical deficiencies or immaterial omissions” in a disclosure statement would not be sufficient to entitle the purchasers to walk away from their purchase contracts. The trial judge held that there was indeed a deficiency in the disclosure statement to the extent that the effective date of the deposit insurance contract was not a specified calendar date. However, there was no evidence that the deficiency would harm the plaintiffs by causing a loss in price, value or use of their unit.
With respect to the renumbering of the plaintiffs’ strata lot, the judge found that the purchase contract permitted the developer to make numerous changes as part of the construction of the development, including renumbering the strata lots. In addition, the renumbering was not a material change that engaged s. 16 of REDMA or that met the threshold test described in Woo. Again, the undisclosed information failed to meet the objective “minimum threshold consequence on price, value or use” built into REDMA.
The Bill 17 Amendments
The Bill 17 amendments continue the judicial trend toward shaping REDMA to be more nuanced and less draconian (particularly for developers). The following summarizes the changes to REDMA now in effect:
1. Broader Disclosure Options:
Addition of Phase Disclosure Statements: Sections 14 and 15 are amended to give a developer who markets strata property in phases the option of filing “phase disclosure statements”. Developers may now file phase disclosure statements that include information relevant to each phase of a development and provide only one such statement to new purchasers, instead of the original disclosure statement and all subsequent amendments.
Addition of Consolidated Disclosure Statements: Section 15 is amended to permit the filing of a “consolidated disclosure statement” when the content of a disclosure statements has been modified by amendments. Developers may provide consolidated disclosure statements to new purchasers instead of the original disclosure statement and each subsequent amendment. Prior to this amendment, the courts held that a developer who only provided a purchaser with a consolidated disclosure statement was technically not in compliance with REDMA.
Free Copies upon Request: Sections 15.1 and 15.2 provide that new purchasers who receive phase disclosure statements or consolidated disclosure statements have the right to require the developer to provide copies of the original disclosure statement and any amendments within 30 days of their request, free of charge.
Electronic Delivery: Section 15 is amended to permit a developer to send disclosure statements electronically with the purchaser’s written consent. In order to benefit from this convenient provision, developers may wish to amend their contracts of purchase and sale to include a term by which the purchaser consents to receiving electronic disclosure statements.
2. Release of Deposits Upon Failure to Pay Balance
Subsections 18(4)(b) and (c) are expanded to permit the release of the purchaser’s deposit upon the purchaser’s failure to pay the balance of the purchase price when it becomes due. The amendment is a response to an oversight in the previous version of REDMA which permitted a trustee holding a purchaser’s deposit to release the deposit to the developer if the developer certified that the purchaser had failed to pay a “subsequent deposit” (e.g., a second or third deposit), but did not specify whether it could release the deposit in the event the purchaser paid all deposits when due but failed to pay the balance. The uncertainty meant that trustees would often require the developer to go through the time consuming process of obtaining a court order authorizing the release of the deposit. The Bill 17 amendment clarifies the uncertainty by expressly permitting a trustee to release the deposit to the developer if the purchaser fails to pay the balance of the purchase price when due.
3. Restrictions on Purchaser’s Rescission Rights
Section 21 is amended to restrict the purchaser’s right of rescission under REDMA. A purchaser who does not receive an amendment to a disclosure statement that he or she was entitled to receive may only rescind the purchase contract in cases where all of the following apply:
(a) the purchaser did not become entitled to receive the amendment only as a result of a request made under section 15.1 (4) (phase disclosure statements) or 15.2 (4) (consolidated disclosure statements);
(b) the amendment would have disclosed a material fact on the earlier of the date that (i) the notice of rescission was delivered to the developer, and (ii) closing of the contract of purchase and sale;
(c) the amendment was reasonably relevant to the purchaser’s decision to enter into the purchase contract; and
(d) no more than a year has elapsed since title was transferred to the purchaser.
The amendments to section 21 represent a measured response to previous judicial concerns regarding the purchaser’s problematically broad right of rescission under REDMA. In order for the remedy of rescission to be on the table following a developer’s breach of its disclosure obligations, the information the developer failed to disclose must be both “material” and “reasonably relevant” to the purchaser’s decision to enter into the purchase agreement. The amendment imports a subjective component into the analysis not previously considered by the courts. In future cases, the court will enquire whether, given the evidence available, the wrongfully omitted information was in fact relevant to the purchaser’s decision to purchase the unit from the developer on the terms that he or she did. By limiting the timeframe in which a purchaser may exercise its right of rescission to one year, the Bill 17 amendments add a necessary measure of certainty and finality to the agreements entered into by purchasers and developers.
4. Developer’s Right to Apply for Occupational Rent
Bill 17 adds subsection 21(7), which gives developers the right to apply to court for an order that the purchaser pay market rent for occupation of the development unit in circumstances where the purchaser succeeds in rescinding its purchase contract. Like the restrictions imposed on the purchaser’s right of rescission, this amendment represents a fair response to the uncertainty created by the trial decision in Woo. A developer’s success in obtaining such an order will presumably depend on various factors, including the extent of the developer’s breaches under REDMA, the damages suffered by the purchaser, and the conduct of the parties.
5. Agreements Void for Non-Compliance
Bill 17 repeals and replaces section 23 of REDMA and creates exceptions to when a developer’s breaches under REDMA will render a purchase contract unenforceable against the purchaser. As amended, section 23 provides that a purchase contract will not be unenforceable if the developer’s breach (1) is not a misrepresentation of a material fact that was “reasonably relevant to the purchaser” in deciding whether to enter into the purchase contract, or (2) does involve a misrepresentation of a material fact, but the developer was not aware of the misrepresentation at the time the purchase contract was executed, and the misrepresentation is corrected within 30 days of the date the developer becomes aware of it, and the amended disclosure statement is provided to the purchaser at least 14 days before closing of the purchase contract.
6. Definition of “Developer”
Section 46 is amended to give the Lieutenant Governor in Council the authority to exclude certain people or classes of people from the definition of “developer”. The amendment will permit the government to pass regulations as needed in order to clarify the parties intended to be bound under REDMA. It is anticipated that the government will pass regulations to settle ongoing uncertainty as to whether registered owners of development property that do not beneficially own the property and are neither developing the property nor selling units of it to purchasers must nevertheless sign a disclosure statement.
Conclusion
According to the government bulletin announcing Bill 17, the amendments to REDMA were intended to “bring clarity to the scope of purchasers’ remedies and certainty to the enforceability of purchasers’ contracts,” while “increas[ing] industry efficiency and provid[ing] purchasers with a more readable disclosure statement.” While Bill 17 arguably does as advertised, developers are more likely to appreciate the amendments than purchasers. The restrictions placed on a purchaser’s right to rescind a purchase contract or treat it as void favours developers, as do the creation of the developer’s limited rights to obtain market rent from a purchaser with a court order, or the release of a purchaser’s deposit without one. Nevertheless, both developers and purchasers should benefit from the availability of more manageable disclosure options and greater transactional certainty under REDMA. For further information about real estate development contact Andrew in our Vancouver office. Andrew is an experienced real estate lawyer in Vancouver and is happy to go over any real estate contracts you may require.
Andrew Guerra
Real Estate Law
LK Law – Vancouver Law Firm