Bill 17: New Amendments to REDMA
June 2, 2014
The real estate market in British Columbia has long been a driver of our province’s economy. Due in part to increases in real estate prices over the last several decades, investors and home–buyers alike have flocked to this market to purchase property. In an attempt to more heavily regulate the burgeoning market, in 2005 the province enacted the Real Estate Development Marketing Act (“REDMA”).
Following the enactment of REDMA was the 2008 financial crisis, which resulted in an increase in the number of homebuyers and investors seeking to rely on technicalities within REDMA as a means of escaping their contractual obligations. Early on, courts predominantly treated REDMA as “consumer protection legislation” and often required near perfect compliance with the Act from developers. This strict reading of REDMA resulted in uncertainty within purchase and sale agreements, as well as within the real estate development sector as a whole. However, over time the courts began to recognise the twin purposes of REDMA as both providing consumers protection while also enabling the efficient and profitable operation of the real estate development sector. Despite this shift from the courts, the need for statutory reform continued to exist. Enter Bill 17, titled the Miscellaneous Statutes Amendment Act, 2014, that came into force on May 29, 2014. This Bill, among other things, amends several sections of REDMA, including sections that govern rights to rescission and agreements that are void for non–compliance.
This article outlines the framework of REDMA, summarizes the jurisprudence under REDMA leading up to Bill 17, and lists the various amendments to REDMA under Bill 17.
1. Framework of REDMA
REDMA applies to developers who market, within British Columbia, development units, and governs purchasers’ rights to rescission. REDMA requires developers to make full disclosure relating to the development unit in writing before a purchaser signs a purchase agreement relating to the unit. REDMA also requires that a new disclosure statement be filed where the identity of the developer changes, a receiver or trustee in bankruptcy is appointed, or there is a substantial misrepresentation or failure to comply with the Act and the Superintendent requires a new disclosure statement. Finally, REDMA also requires a developer to amend the disclosure statement where there is non–compliance with the Act or regulations, or if the developer becomes aware of a “misrepresentation”. A misrepresentation is defined as a false or misleading statement or omission of a “material fact”. A material fact is defined in part as a fact “that affects, or could reasonably be expected to affect, the value, price, or use of the development unit or development property.”
Under REDMA a purchaser is given the absolute right to rescind a purchase agreement by serving notice of the rescission on a developer within seven days after the later of the date that the purchase agreement was made, or the date a disclosure statement was acknowledged in writing by the purchaser. A purchaser will also have the right to rescind the purchase agreement if the developer fails to immediately amend the disclosure statement where the developer becomes aware of a misrepresentation, or that the disclosure statement does not comply with REDMA or its corresponding regulations. Prior to Bill 17, this latter right of rescission afforded to purchasers under REDMA was extremely broad, as purchasers were entitled to rescind their purchase agreements at any time without any restrictions (except any applicable limitation period), and without regard to when they learned of the breach of REDMA, or whether the breach was even relevant to whether the purchaser would have entered into the purchase agreement in the first place. This right was further broadened by the fact that courts had historically interpreted “material fact” in a manner favourable to purchasers.
2. Jurisprudence under REDMA
Early on courts treated REDMA as “consumer protection legislation” and required near perfect compliance from developers with the Act, failing which, the contract would be found unenforceable. A few examples of this are the decisions of Dwane v. Bastion, Pinto v. Revelstoke Mountain Resort Limited Partnership, and Chameleon Talent Inc. v. Sandcastle Holdings Ltd. In Dwane the Supreme Court of British Columbia held that REDMA had been violated where the developer only delivered the original disclosure statement to the purchasers before they signed the agreement, in a situation where there had been three amendments in existence at the time. In coming to this conclusion, the Court noted that a purpose of REDMA was to maintain and enhance consumer protection, and that the Act provides purchasers with enhanced rescission rights. Similarly, in Pinto, where the developer failed to deliver four of the seven amendments to the purchaser, the British Columbia Supreme Court found that it was not sufficient that the missing amendments may have been incorporated into a “consolidated disclosure statement” that the plaintiffs received. Technical compliance was favored over a more purposive approach that could have looked to whether the purchaser actually received the necessary information.
In Chameleon the British Columbia Court of Appeal found the purchase agreement to be unenforceable because substantial delays in completion dates were not brought to the buyer’s attention via an amendment to the disclosure statement. The Court also held that, when determining if there has been a misrepresentation of a material fact, the individual characteristics of the purchaser are irrelevant because reference must be made to the nature of the disclosure statement and not to the state of mind of the purchaser. Therefore, the fact that one of the principals of the purchaser knew of the construction delays was irrelevant.
Following this period the tide appeared to be turning towards a more reasonable, common sense approach to REDMA when the Supreme Court of Canada released its judgment in Sharbern Holding Inc. v. Vancouver Airport Centre Ltd. In Sharbern the Court considered the pre–sale regime under the repealed Real Estate Act, the predecessor legislation to REDMA, and held that “an omitted fact is material if there is a substantial likelihood that its disclosure would have been viewed by the reasonable [buyer] as having significantly altered the total mix of information made available.” In keeping with the aforementioned trend the British Columbia Supreme Court held, in Mode Properties Ltd. v. Esposito, that REDMA did not require that purchasers acknowledge receipt of amendments to disclosure statements and that the developer obtaining financing for the project via a construction mortgage was not a material fact that had to be disclosed. In Esposito the Court also noted that while the developer should have described in the disclosure statement provisions from purchase agreement relating to extensions of time, it was not required to do so under REDMA.
The trend continued in the British Columbia Supreme Court decision found in 299 Burrard Residential Limited Partnership v. Essalat, where a developer failed to amend a disclosure statement with information concerning a four–month delay in the project’s completion date. The Court held that although REDMA expressly defined “material fact”, Sharbern was relevant to determining “whether a statement contained in a disclosure statement concerning a material fact [was] false or misleading.” Thus, based on the pertinent facts of the case, the Court framed the question as whether “there was a substantial likelihood that the undisclosed delay in completion would have had actual significance to a reasonable purchaser in making a decision whether to purchase a unit.” The Court also expressly rejected the buyer’s argument that “anything more than a trivial change in the completion date meant that the statement contained in the Disclosure Statement had become false and that the plaintiff was therefore required to file an amendment to the Disclosure Statement.” Ultimately, the Court held that there was no material misrepresentation because there was “no evidence that the delay that was experienced was in any way unusual or arose from anything other than the normal construction delays that a person would reasonably expect to be encountered in a construction project of this scale.” Furthermore, the Court also approved and applied the proposition in Sharbern that “surrounding circumstances” must be taken into consideration. In doing so the Court found relevant the fact that the purchaser’s real estate agent had been informed of the anticipated construction delays. Thus, in this case, the developer was entitled to keep the deposit – until the decision was appealed, as noted below.
In another pro–developer decision the British Columbia Supreme Court in Drake v. North Ellis Developments Ltd. held that the developer did not violate a Policy Statement related to REDMA that limited the deposit maximum to 10% because a “deposit” under REDMA does not include a bond that was not payable until completion, and was thus outside the marketing period. Importantly, Drake also accepted that REDMA has twin goals of protecting consumers as well as enabling efficient and profitable operation of the real estate development sector.
Also of note is the decision in Bosa Properties (Edgemont) Inc. v. Ban, where the Supreme Court of British Columbia held that although the purchaser signed the purchase agreement without fully reviewing the disclosure statement, the court refused to find that the purchaser was not given a reasonable opportunity to review it, and found that the purchaser did review key parts of the disclosure statement. In Ban the Court also held that the disclosure requirements will not be violated “[i]f from an objective person’s standpoint, the difference in what is represented as likely to occur from what actually occurs has little or no impact on” the value, price or use of the unit. The Court in Ban further opined that “acceleration is qualitatively different than delay and would not similarly influence the mind of a reasonable person.” In holding this the Court implicitly held that “material facts” that require amendments are those that negatively affect the price, value or use of the unit.
Two judgments that followed Ban, however, casted some doubt on whether REDMA would continue to be interpreted in the same aforementioned manner. The British Columbia Supreme Court in Woo v. Onni Ioco Road Five Development Limited Partnership held that the developer’s failure to disclose an amendment which stated that “everything [is] on track” was a “material fact” because this information would have reduced the risk of the developer failing to complete the project. What is also noteworthy in Woo is that the Court refused the developer’s plea for occupational rent or compensation for diminution in value of the units. In coming to this conclusion the Court considered other similar regimes to REDMA in Canada and relied on the notion that REDMA is consumer protection legislation. As noted below, this decision was reversed on appeal.
The second and potentially more far reaching decision is the Court of Appeal’s decision in 299 Burrard Residential Limited Partnership v. Essalat. In this decision, the Court of Appeal reversed the trial Court’s judgment referred to above and opined that, crucially, the trial “judge failed to recognize that in Sharbern the Supreme Court of Canada had to formulate a test for the key phrase in the absence of a statutory definition, whereas in REDMA the Legislature expressly covered both materiality and falsity in the definition section [and therefore] Sharbern was not a binding precedent.” Moreover, the Court held that Chameleon “negated the relevance of individual circumstances on the logic that a misrepresentation of a material fact refers not to the state of mind of the purchaser but to the nature of the Disclosure Statement” and that the trial judge was “bound to follow this decision.” The Court also found that, apart from true trifling matters, delays in the estimated date of completion will be considered a material fact, and that a roughly four month change in the estimated date of completion was a material fact that needed to be disclosed. The Court declined the invitation, however, to provide any guidance on the appropriate margin for error in estimating the completion date of a development. Finally, the Court noted that “the strictness of the filing regime must be maintained in order for the protection to be meaningful to the consumer.”
Most recently, however, came the Court of Appeal’s judgment in Onni, reversing the trial Court’s judgment referred to above. This decision appears to mark yet another change in the tide, towards a more reasonable and common–sense approach to interpreting REDMA. In this decision, the facts of which are briefly stated above, the Court of Appeal held that a developer is not required to disclose an amendment which states that “everything [is] on track”, because such a fact is not a material fact. The Court also expressly noted that “a proper interpretation of the definition of ‘material fact’ engages the notion that the effect on value, price and use must be adverse to the interests of the purchasers and not to their benefit.” In this decision, the Court also noted the twin goals of REDMA cited in Drake, and expressly chose not to require a developer to file an amendment to the disclosure statement where a change occurs that brings into being a fact or proposal which should have been disclosed if the fact or proposal had existed at the time of filing. Finally, while Court relied on its interpretation of “material fact” to dismiss the purchaser’s claim to rescission, implicit within the judgment, as a whole, is the Court’s concern regarding the potential open–ended nature of this right to rescission.
3. Amendments and Additions to REDMA
In keeping with the Supreme Court’s decision in Drake and the Court of Appeal’s judgment in Onni, where both Courts acknowledged the “twin purposes” of REDMA, the province briefly described the intended impact of the amendments, noting that they “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.” The following is a list with brief explanations of the various amendments to REDMA found in Bill 17. It is expected that the Policy Statements will also soon be amended to ensure consistency.
This amendment adds definitions of “consolidated disclosure statement” and “phase disclosure statement” and includes them within the broader concept of disclosure statement, and also adds a definition of “new purchaser” to ensure that only purchasers who have not previously received disclosure statements can receive consolidated disclosure statements and phase disclosure statements instead of amendments. Finally, this amendment amends the definition of “developer” by striking out “development property” and substituting it with language that allows for the exclusion of persons or classes of persons from REDMA by regulation.
Phase Disclosure Statements
Section 14 is amended, giving a developer who markets strata property in phases the option of filing a phase disclosure statement, instead of an amendment to a disclosure statement, if the developer is not marketing any units in previous phases.
Delivery of Electronic Disclosure Statements
This amendment amends section 15 to permit a developer to provide disclosure statements by electronic means with written consent of the purchaser. As a result, it is advisable for developers to prepare purchase and sale agreements that contain clauses specifically obtaining the purchasers’ consent regarding the delivery of electronic disclosure statements.
Phase and Consolidated Disclosure Statements
This amendment adds subsections 15.1 and 15.2. Section 15.1 provides for the filing of phase disclosure statements for phases of strata developments with information relevant to each phase, and allows developers to provide these disclosure statements to new purchasers instead of the original disclosure statement and subsequent amendments.
Section 15.2 provides for the filing of consolidated disclosure statements when the content of the disclosure statements has been modified by amendments. The amendment also allows developers to provide these disclosure statements to new purchasers instead of the original disclosure statement and subsequent amendment, a practice that was previously held to be a violation of REDMA by the Court in Pinto.
Finally, this amendment gives new purchasers the right to require developers to provide free copies of original documents and amendments within 30 days of receiving a written request.
Release of Deposits
Subsections 18(4)(b) and (c) are amended to permit the release of the deposit when the purchaser fails to pay the balance of the purchase price when that balance is due.
Purchaser’s Right to Rescission
Amendments to section 21 of REDMA restrict the right of rescission of a purchaser who does not receive an amendment to a disclosure statement that he/she was entitled to receive to circumstances in which all of the following apply:
- the purchaser in question has not become entitled to receive the amendment to the disclosure statement only as a result of a request made under section 15.1(4) (relating to phased disclosure statements) or 15.2(4) (relating to consolidated disclosure statements);
- the amendment would disclose a material fact on the earlier of the date on which the notice of rescission is served or closing;
- the amendment the purchaser is entitled to receive would be reasonably relevant to the purchaser in deciding to enter into the purchase agreement; and
- the purchaser has not owned the development unit for more than one year.
This part of the amendment addresses a couple of issues that have arisen in the case law. Firstly, the fact must not only be a “material fact”, but also “reasonably relevant to the purchaser in deciding to enter into the purchase agreement”. This additional requirement effectively supersedes the decisions of the Court of Appeal in Chameleon and Essalat, where that Court held that the individual characteristics or circumstances of a purchaser were irrelevant. Secondly, this part of the amendment, by restricting the timeframe in which a purchaser can exercise its right to rescission, reacts to the concern identified by the Court of Appeal in Onni regarding the open-ended nature of a purchaser’s right to rescission where a developer fails to file a required amendment to a disclosure statement. This amendment also gives the courts the power to order a purchaser to pay market rent when the purchaser occupies a unit and then rescinds.
Agreements Void for Non–Compliance
This amendment repeals and replaces section 23 of REDMA, and now limits the number of purchase agreements that can be found to be unenforceable due to breaches of the Act. Section 23 as revised prevents a purchaser from walking away from his or her purchase agreement where the breach of REDMA is not a misrepresentation of a material fact that was “reasonably relevant” to the purchaser in deciding to enter into the purchase agreement. A purchaser also does not have an out from his or her purchase agreement where, provided the developer did not know of the misrepresentation at the time the purchase agreement was entered into, the breach of REDMA is remedied by an amendment to the disclosure statement no later than 30 days after the developer becomes aware of the misrepresentation and at least 14 days before closing.
Definition of “Developer”
This amendment amends section 34 by giving regulatory authority to create exclusions from the definition of “developer” and therefore from the applicability of REDMA.