Help! My Strata Wants to Sell My Building From Under Me

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In cities like Vancouver where the mantra is eco-density (which is actually an oxymoron as there is nothing ecologically friendly or sustainable about increasing density), every property developer and his dog is seeking out older three or four story strata complexes for redevelopment.

A strata council may believe the best decision is to dissolve the strata corporation especially if:

  1. the strata complex is on its last legs;
  2. the future cost of repairs and capital upgrades may no longer make economic sense;
  3. the owners don’t have the financial wherewithal to finance the costs and upgrades; or
  4. the neighbourhood is being redeveloped pursuant to a new “community plan” which is encouraging redevelopment.

However for anxious strata property owners caught in this predicament there are two very important things to be aware of:

Strata councils CANNOT unilaterally make any decisions regarding the dissolution of the strata corporation.

Strata councils CANNOT “sell the building” nor bind the individual owners of the strata units in the building to sell their units to a developer.

Prior to 2017, a unanimous vote of the existing strata property owners was required to allow the strata council to dissolve a strata corporation.

Last year the BC government changed that threshold to 80% of the strata property owners, doubtless as a concession to property developers who have donated tens of thousands of dollars to the liberal party of BC year after year.

As a result, a plethora of realtors and developers have been let loose on unsuspecting strata property owners in older buildings seeking to purchase their units, often one by one with a view to reaching that threshold.

Once the developer has 80% of the units it is pretty much game over for the remaining owners as it can effectively wind up the strata corporation on its own accord, regardless of the wishes of the remaining owners.

What then should the owners of an older, low rise building do?

The first and foremost thing is to be proactive.  Don’t wait until a developer or realtor is knocking on doors to solicit sales in your building.

STEP 1    Organize your owners.  It is easy to break a stick, but difficult to break a bundle of sticks. Get the bundle in place right away.

STEP 2   Set up a Facebook page or website specific to the building so that all the owners can freely communicate with each other.  Unfortunately in many cases when the strata council gets involved, it tends to both restrict and horde new information and then release it to the owners on a redacted basis as it sees fit.  Strata council members may also be in a conflict of interest when they are offered extra incentives by developers to “make the deal happen.” Collectively the complex belongs to all the owners, so every owner should have full, unrestricted access to all available information.

STEP 3   Call a meeting of all of the owners to discuss your options.  Find out who wants to sell and who does not. Develop a protocol for dealing with realtors and developers who attempt to solicit individual owners.

STEP 4   If there is significant interest in selling by a majority of the owners OR its evident that the community plan for the neighborhood is being changed to encourage much higher density, then get some expert legal and marketing advice (How does “winding up the strata” work?  Are there other sale options, like selling 80% or more of the individual units to a developer at the same time? How do you find an interested property developer? How do you know how much to ask for our units? How do you find a good property appraiser? Can one law firm represent everyone?  Should the same sale formula apply to everyone (i.e. 2X or 3X tax assessment value)? Should everyone get the same amount of “free rent,” to allow them to find other accommodation? What does a comparable unit cost “out in the market?”)

These are but a few of the questions to be asked and answered BEFORE anyone agrees to anything.

STEP 5   Get a real estate lawyer, an experienced realtor and an appraiser to attend an owner meeting to discuss the foregoing and answer other questions for the owners.

STEP 6   Have an appraisal done on the building based on what can be built in its place (the appraiser can obtain this information from city hall).  When a property developer presents an offer and proffers am appraisal in support you will have something to compare it to.

STEP 7   Get a consensus on the procedure to market the building and whether the preferred route is to wind up or to sell off the individual units as a group and then engage a realtor or other marketing representative to market the developers for proposals.

STEP 8   When a proposal or offer comes in, call a meeting to discuss it with all the owners and negotiate your best deal.  In my view, it’s best if every owner is treated identically, that is the same sales formula applies to each unit and each owner gets the same amount of free rent or other incentives (such as first dibs on a unit in the new building).

STEP 9    Sell the units directly to the developer concurrently and disburse the proceeds.  If you can get a developer to buy 80% or more of the units in one coordinated sale, that will maximize the value for all of the owners and save you the expense and stress of having to make a court application to dissolve the strata corporation.

Needless to say if there is little or no interest in selling the complex, the protocol should be to have all offers go to a specified owner, the strata’s legal representative or other agent for a firm rejection.

If an acceptable offer comes in to purchase the whole complex (as opposed to purchasing individual units) then the strata corporation must be wound up. In such case the following procedure must be followed:

Notice of General Meeting to Consider Windup Resolution

At least 4 weeks’ notice must be given of a general meeting that includes a resolution to wind up the strata corporation.

Who must be given notice?

Notice must be given to every owner regardless of whether notice must also be sent to their tenant or mortgagee. Notice must also be given to every mortgagee who has given the strata corporation a mortgagee request, and every tenant who has been assigned their landlord’s right to vote. Notice must be given to these individuals regardless of whether a person has previously waived their right to receive notification.

Voting

Effective July 28, 2016, approving a strata wind up resolution requires an 80% vote of approval FROM ALL STRATA OWNERS NOT A QUORUM VOTE of those owners present at the meeting. Previously, passing a wind up resolution required unanimous approval, however, the BC government changed this to 80% to make it easier for strata corporations to wind up.

Voting to wind up the strata corporation is an important matter, thus all owners are eligible to vote despite any provisions in the bylaws making a strata owner ineligible to vote (i.e. if owner has unpaid strata fees).

The termination resolution will authorize termination of the strata plan, authorize the strata corporation to apply to the Supreme Court for termination orders and a vesting order authorizing the cancellations of the strata plan and winding up of the strata corporation; approve expenditures (funding for the lawyer, liquidator, liquidator’s legal representation, fees and commissions); and may also address miscellaneous matters like move out timelines or rent-free periods.

Court Supervision

If the resolution to wind up the strata corporation is passed, then for strata corporations that have more than 5 units, the strata corporation must then apply to the BC Supreme Court for an order confirming the winding up resolution. This must be done within 60 days after the resolution is passed.  If the strata corporation has less than 5 units no application to court is necessary.

The application to court gives strata owners extra protection. The court in confirming a resolution to wind up the strata corporation must consider: (a) the best interest of the owners, (b) the probability and extent, if winding up resolution is confirmed or not confirmed, of the significant unfairness to one or more owners or holders of registered charges and (c) the significant confusion and uncertainty in the affairs of the strata corporation or of their owners.

There are many reasons why owners may oppose the winding up of the strata corporation, including: proximity of amenities, pets, safety of the neighbourhood, money put into renovations, health issues and proximity to medical facilities, strong ties to neighbours and neighbourhood, or their unit was purchased as a life home and they have no intention of selling.

However, despite the protection of court supervision, if the resolution has been passed, the Court will typically not interfere with winding up and confirm the resolution. If you are part of the minority who opposed the resolution, the court may not be the place to rest your hopes as there has been only one instance where a winding up resolution was not confirmed. In The Owners, Strata Plan VR 1966, 2017 BCSC 1661 (“Bel-Ayre”) the court did not confirm a winding resolution because of a technicality that the value estimates of the interest schedule which were an essential term was omitted.

The court has acknowledged that the debate on whether to wind up or not can be heated, passions tend to run high and usually the minority do not feel like they have been adequately heard (Strata Plan NWS837 (Re) 2018 BCSC 564).

However, the court tends to reiterate the words of the Honorable Madam Justice Loo:

“Just because members of the minority were intimidated to speak up and voice their concerns does not mean the majority of the process was significantly unfair. Property rights as a home should not be given greater emphasis in face of 80% or more owners who want to take advantage of the increased profits to be made as a result of redevelopment or rezoning.”

Language Barriers

Living in Vancouver, there are many families that don’t speak English. However, with regards to the process for strata dissolution not speaking/reading English may be an issue. In Strata Plan NWS837 (Re) 2018 BCSC 564, some owners made an application  to court stating that since some of the information materials were in English only, and many of the owners only speak Cantonese, this rendered the dissolution process significantly unfair as not everything was translated.

The court was not persuaded by this argument. The Court found that it would place too much of a burden on Council to discover what each owner’s main language was and to make sure all the information was translated into the many different languages.

Conversion/ Interest Schedules

A conversion or an interest schedule must be approved and attached to the resolution. If a liquidator is to be appointed an interest schedule must be attached to the resolution, otherwise a conversion schedule is required. The Conversion/Interest Schedule must meet the requirements as to form and content.

The Schedule must:

  • State whether or not the Strata Corporation holds lands in its name
  • Identify the land by legal description sufficient to allow the registrar at the land title’s office to identify it in the records of the strata plan
  • List the name and postal address of each owner and registered charge holder
  • List all registered interests in land at the time of the resolution and as they will exist if the registrar grants an order in shares calculated according to the following formula:

Most recent assessed value of an owners’ strata lot

Most recent assessed value of all the strata lots in the

Strata plan, excluding any strata lots held by or on behalf of

The strata corporation

  • If there is no assessed value for the owner’s strata lot or for any strata lot in the strata plan, an appraised value that has been determined by an independent appraiser and that is approved by a resolution passed by a ¾ vote at an annual or special general meeting may be used in place of the assessed value for the above formula.

If a liquidator is appointed and an interest schedule is required, the interest schedule will have all the above information contained in the conversion schedule and in addition will have the name, postal address and interest of each creditor of the strata corporation who is not a holder of a registered charge against the land.

Submitting an Application to the Land Title Office

To cancel a strata plan the strata corporation must submit the following documents to the Land Title Office:

  • The conversion schedule,
  • A reference plan that shows the land shown on the strata plan and the land held in the name of or on behalf of the strata corporation not shown on the strata plan,
  • If the strata corporation has more than 5 units:
    • A Certificate of Strata Corporation stating that the winding up resolution has passed and the strata corporation has no debts other than the debts held by holders of registered charges
    • a copy of the court order
  • If the Strata corporation has fewer than 5 units and does not obtain a court order:
    • The written consent of all holders of registered charges,
    • a Form E Certificate of Strata Corporation confirming the winding up resolution has passed and the strata corporation has no debts other than the debts held by persons who have consented in writing to the winding up of the strata corporation
  • Any other document required by the registrar to resolve the priority interests of any registered charges against the land shown on the strata plan or to transfer title.

Registrar Order

If the registrar is satisfied, the registrar may order that the strata plan is cancelled. Once the order is made, the registrar must file the order, register indefeasible titles to the land referred to in the order and give each owner and registered charge holder shown on the conversion schedule a copy of the order.

When the order is filed, the strata corporation is dissolved. The owners are then tenants in common of the land and the personal property of the strata corporation is held in shares equal to the owners’ shares of the land set out in the conversion schedule.

THE MORAL OF THE STORY

DON’T WAIT FOR EVENTS TO CATCH YOU BY SURPRISE IF YOU LIVE IN AN OLDER, THREE OR FOUR STOREY BUILDING.

Whether you organize a mass sale to an interested buyer or seek a court order approving the dissolution of the strata and approving a sale to a developer, your best chance of getting the optimal result for all the owners is to organize early and act collectively.

This phenomenon is not going away anytime soon in BC, so forewarned is forearmed.

pazder law house strata sale

© 2018 Pazder Law Corporation

Call Kenneth Pazder or Melissa Valana at 604-682-1509 if you have further questions.

DISCLAIMER:  The foregoing is not legal advice.  It is presented for information purposes only. The sale or dissolution of one’s strata complex is important one which merits professional legal and marketing advice well in advance of making such a decision.

Changes to the Residential Tenancy Act in British Columbia – the good, the bad and the ugly!

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Within the last six months the BC Government has made some significant changes to the Residential Tenancy Act (“RTA”) which will impact future and existing tenancy agreements –effectively making the legislation retroactive.

Retroactive legislation is NEVER advisable.  People make business and financial decisions every day on the basis of the existing legal and regulatory framework.  Changes to the law are inevitable, but normally they are prospective, meaning that they take effect on a go forward basis and leave existing contracts and other legal relationships alone.

The BC Government is ostensibly attempting to increase protection for tenants at the expense of limiting the freedom to contract by landlords.  Is that a good thing?

Here are the most significant changes –you be the judge!

Vacate Clauses in Fixed Term Tenancy Agreements

For many years the prescribed RTA form of residential rental agreement contained a section allowing for the use of fixed term leases which either 1) terminated at the end date or 2) turned into month to month tenancies at the end date.  The landlord and the tenant would agree to either option at the outset of the lease by checking the appropriate box on the lease.

There were pros and cons to this section.

On the con side, some landlords used the termination clause to avoid the annual rental increase limit prescribed by the Residential Tenancy Branch (“RTB”) by terminating the fixed term lease and then entering into a new lease with the former tenant or a new tenant at the market rent (which often had risen faster than the prescribed allowable rental increase).

On the pro side, landlords also used the vacate clauses in fixed term agreements to get rid of unsatisfactory tenants who were frequently late with rent payments, who did not keep the rental property in good condition or who were not abiding by the strata by-laws.

As usual, the NDP government decided that the tenants’ rights trumped the landlords’ and effective December 11, 2017, limits were imposed on landlords’ ability to terminate a fixed term rental agreement when the term expired.

The new provisions in the RTA now prohibit landlords from terminating fixed term tenancy agreements when they expire except when:  1) a tenancy agreement is a sublease agreement or 2) the landlord or a close family member of the landlord intends, in good faith at the time of entering into the tenancy agreement, to occupy the rental unit at the end of the term or 3) the tenant has abandoned the premises or 4) the tenancy is frustrated or 5) the Director of the RTB decides or 6) the landlord and tenant agree to terminate the lease.

Except in these limited circumstances (or the parties agree to another fixed term lease), the tenancy will automatically continue as a month-to-month tenancy under the same terms as the original agreement or until either party serves notice on the other or both parties agree to end the tenancy.

These new rules are RETROACTIVE! They will apply to both new and existing tenancy agreements!

For existing fixed term tenancy agreements, tenants will not be required to vacate at the end of the term unless the landlord meets the specific circumstances described above. If both parties agree to end the tenancy its necessary that they a mutual agreement to end the tenancy.

If you are a landlord who wants to rely on a vacate clause, you will need to first advise your tenant and try to obtain their consent to end the tenancy at the end of the term. If your tenant does not agree to end the tenancy, you must apply for an order of possession through the Residential Tenancy Branch where you must meet the specific circumstances described above to enforce the vacate clause.

Rental Increases

The BC Government has also made changes with regards to rental increases between fixed term tenancy agreements with the same tenant. Effective December 11, 2017, a landlord must now give a tenant 3 full months’ notice of a rental increase. Landlords are not to impose a rental increase for at least 12 months from when the rent was first payable or from when the rent was last increased.

A landlord may impose a rental increase that is no greater than the Percentage Amount calculated at the inflation rate + 2%.

Furthermore, landlords are now prohibited from applying for an additional rent increase on the basis that the rent is significantly lower than other similar rental units in the same geographic area.

Investigations and Administrative Penalties

The BC Government has also changed the RTA in attempts to strengthen the ability of the Residential Tenancy Branch to investigate and levy administrative penalties. The Residential Tenancy Branch (“the Branch”) may conduct investigations to ensure compliance with the RTA and its regulations regardless of whether there is an application for dispute resolution in relation to the matter.

A monetary penalty, not exceeding $5,000, may be imposed if the Branch is satisfied that on a balance of probabilities the person has contravened a provision of the RTA or its regulations or failed to comply with a decision or order.

The Branch will give the person an opportunity to be heard and consider: the gravity and magnitude of the contravention; previous enforcement actions for contraventions of a similar nature; the extent of harm to others resulting from the contravention; whether the contravention was deliberate, repeated or continuous; economic benefits derived by the person from the contravention; and the person’s effort to correct the contravention.

If the contravention or failure occurs over more than one day or continues for more than one day, separate penalties not exceeding $5,000 may be imposed for each day the contravention or failure continues. An administrative penalty imposed is a debt due to the government. Failure to pay may result in a filing of a certificate in court. The certificate has the same force and effect as if it were a judgment of the court.

Demolition, Renovation or Repair

Effective May 17, 2018, the BC Government is now requiring all landlords to give 4 months’ notice to end a tenancy for demolition, renovation or repair, or conversion. Tenants have 30 days to dispute such notice.

A landlord (or purchaser) must compensate a tenant 12 months’ rent if a landlord ends a tenancy under s. 49 of the RTA (Landlord’s use of the Property) and the landlord (or purchaser) does not take steps to accomplish the stated purpose for ending the tenancy within a reasonable time period after the effective date of the notice or use the unit for that stated purpose for at least 6 months beginning a reasonable period after the effective date of the notice.

A tenant has a right of first refusal to enter into a new tenancy agreement if the rental complex has 5 or more rental units. Although not yet evident in the RTA or on the RTB’s website, we are advised by the RTB staff that the rent on the suite will be set by the landlord, presumably based on the market rent, not the prescribed rental increase. This gives tenants a greater ability to re-rent after renovation or repair, but depending on the increase they may no longer have the financial ability to do so.

If a tenant exercises a right of first refusal and the landlord does not give the tenant both 45 days’ notice of availability or a tenancy agreement to sign, the landlord must compensate the tenant an amount equal to 12 months rent.

Conclusion

If you are a landlord, these rights may seem like an unwarranted intrusion on your freedom to contract.  Contrary to the government’s belief, all landlords are not wealthy individuals or large corporations with deep pockets. As the purchase price of strata properties has risen almost 40% in the past 2 years in the Lower Mainland, a landlord has to charge a high rent to cover his or her expenses including the mortgage, strata fees, insurance, property taxes, repairs and special strata levies where applicable.  Regulating a landlord’s ability to charge the market rental is a serious restriction on the landlord’s property rights.

On the other hand, if you are a tenant struggling to keep up with the sky high rents you may welcome these changes as being long overdue, as BC residents’ salaries are not keeping up with either rental rates or property values.

Questions? Contact us?

How these changes will impact residential tenancies in BC is yet to be determined. If you have any questions, or want to share your story we would love to hear from you!  Feel free to contact Kenneth Pazder or Melissa Valana at 604-682-1509.

PAZDER LAW CORPORATION © 2018

Disclaimer:  The foregoing is not intended as legal advice.  It is presented for information purposes only. When entering into residential contracts it is advisable to contact legal counsel (or the RTB has a telephone help line with staff who are prepared to answer questions regarding the RTA).

Inventory in the Lower Mainland reaches the highest it’s been in the last two years

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Buyers Take Your Pick

This summer, buyers are getting more of a selection to choose from. Prices and sales may be gradually increasing month to month but in comparison to last year the real estate market is slowing down. Sales throughout Metro-Vancouver, Chilliwack and the Fraser Valley are starting to increase as we head into the busy season, but the demand is much lower than last year.

Greater Vancouver

In May, sales were up 9.8% from April of this year, but down 35.1% from May 2017. There were 6,375 New Listings, a 5.5% increase from May 2017 and up 9.5% from April of this year.

Benchmark prices:
Single Family Detached: $1,608,000, up 2.4% from May 2017 and up 0.1% from April of this year. Apartments: $701,700, up 20.2% from May 2017, and up 0.1% from April of this year.

Fraser Valley

In May, sales in the Fraser Valley were down 35.1% from May 2017. There were 3,965 New Listings, a 15.6% increase from April 2018 and a 6.8% increase from May 2017. Fraser Valley is experiencing the most inventory they’ve had since 2015!

Benchmark prices:
Single Family Detached: $1,020,800, up 1.1% from April 2018 and up 11.6% from May 2017. Apartments: $452,900, up 1.2% from April 2018 and up 42.4% from May 2017.

Chilliwack & District

In May, sales were down 36.6% from May of last year. There were 715 New Listings, an increase of 18% from May 2017. Most of the units sold in May were in the price range of $400,000 to $700,000.

Want to Buy or Sell your property or looking to refinance and
have questions or concerns? Feel free to call us 24/7.

So far we have closed over 30,000 purchase and sales in BC!

Heartless North Vancouver Strata Council Tries to Evict Golden Retriever Puppy

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For true animal lovers, pets are family – FULL STOP.

They provide us with countless benefits like reducing stress, lowering blood pressure, promoting social interaction, providing security, fighting allergies, alleviating depression and fostering higher self-esteem to name but a few.

This is an instance where one pet owner decided he was going to fight for his dog.

In a recent case heard by the BC Civil Resolution Tribunal, a North Vancouver strata council tried to evict Parham Esfahani’s golden retriever puppy, Zoey.

Esfahani’s purchased the condo in 2016. In October 2016, when Zoey moved into the building, the strata advised Esfahani that Zoey did not meet the definition of “small dog” as defined in the strata bylaws.

The bylaw in which Esfahani was in contravention reads as follows:

  1. 3 (4) An owner, tenant or occupant must not keep any pets on a strata lot other than one or more of the following:

(d) one small dog…; small being defined as an animal that can comfortably be picked up and carried.

Esfahani received a letter from the strata manager in October of 2016 advising him that “while the puppy at the time fit within the definition of a ‘small dog’, that breed of dog would mature into a larger dog which would not be permitted under the bylaw”.

In response to this letter, Esfahani met with 3 members of the strata council to ask the strata to exercise their discretion in allowing Zoey to remain in the complex once fully grown, arguing that they have made exceptions in the past which included a wheaten terrier, a pit bull and a golden doodle.

In December 2016, the Strata sent another letter to Esfahani stating that “the dog does not fit within the definition of ‘small dog’ now and it is not permitted in the building under the bylaw.” Esfahani was told to remove the dog from the property no later than June 30, 2017.

If the dog was not removed a fine of $200 could be imposed every seven days until the dog vacated the premises.

The strata gave the Civil Resolution Tribunal definitions of golden retriever from various websites which described the breed as a medium-large or large dog. The strata also quoted the American Kennel Club which defines “small dog” as weighing between 7 to 35 pounds. According to the American Kennel Club, a golden retriever is a “large dog” typically weighing between 55 to 75 pounds.

Esfahani provided two videos to demonstrate that he could pick Zoey up and carry her without difficulty for a minute or so. Esfahani also argued that the strata was inconsistent with enforcing the bylaw law in allowing the wheaten terrier, pit bull and golden doodle who didn’t meet the criteria of a small dog to be grandfathered into the bylaw.

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Tribunal Member Baird determined that the meaning of “small dog” in the bylaw was vague.

The bylaw defines “small dog” in terms of it being able to be comfortably carried and not by specific breed according to the American Kennel Club as argued by the Strata.

Comfortability is a very subjective factor and it was not clear who must be able to pick up and carry the animal, what is considered comfortable and at what point in time the measurement should be made. Moreover, Esfahani provided videos which were clear evidence that he could pick up and carry Zoey without any signs of distress while holding her.

Baird continued that “there is no objective criteria to determine if a dog is or is not in compliance with the bylaw. There may be cases where a golden retriever weighs less than 35 pounds, in which case it would be a small dog by the American Kennel Club definition. This may be because of age, condition or perhaps breeding.”

In this case, justice prevailed!

Baird held that bylaw was unenforceable for vagueness. Baird stated that the strata will have to pass a new bylaw and Zoey will be grandfathered into the new bylaw. Any fines levied against the Esfahani were reversed.

THE MORAL OF THE STORY

READ THE BYLAWS BEFORE YOU PURCHASE! Many Strata units in Metro Vancouver have pet bylaws with specific restrictions regarding type, size and number of pets permitted.  This should be one of the due diligence items in your contract of purchase and sale expressed as a “subject condition.”

If you are a member of a strata council and have pet restrictions in your bylaws make sure that the criteria to determine violations are specific and objective if you want to be able to lawfully enforce those restrictions.

Note on the Civil Resolution Tribunal

Due to the skyrocketing cost of housing, most newly constructed residential buildings in BC are strata properties –apartments or townhomes.

When many people are located in a comparatively small space, problems and disputes inevitably occur.

Sections 164 and 165 of the Strata Property Act allow aggrieved owners to seek redress in court for unfair acts and to compel a strata corporation to carry out its duties or refrain from contravening the Act among other things.

Unfortunately, the cost of even fairly minor litigation is prohibitively expensive for most owners.

To address this situation the Civil Resolution Tribunal was established in BC.

The Civil Resolution Tribunal (CRT) is the first online tribunal that has the authority to hear certain strata property disputes and civil claims. Using collaborative problem solving methods, the CRT resolves disputes in a timely and cost effective manner. The CRT is available 24/7 from any computer or mobile device, offering timely access to justice.   

The small claim disputes that the CRT can resolve are disputes under $5000 which include:

  • Debt or damages
  • Recovery of personal property
  • Personal injury
  • Specific performance agreements involving personal property or services

Strata disputes that the CRT can resolve include:

  • Non-payment of monthly strata fees or fines
  • Strata’s failure to enforce its bylaws
  • Financial responsibility for repairs
  • Unfair, arbitrary or non-enforcement of strata bylaws such as noise, pets, parking rentals and more.
  • For more information on what disputes the CRT has jurisdiction to resolve and how to start your dispute visit their website at https://civilresolutionbc.ca/
  • If you don’t like the decision, a party to the proceeding can file an application for leave to the BC Supreme Court in a strata dispute or file a Notice of Objection in a small claims matter.

Is the CRT a good idea?

Time will tell, but if you have had a good or bad experience with them, let us know!

 

©2018 Pazder Law Corporation

Disclaimer:  The foregoing is not legal advice, but is provided for information purposes only.

Tax Me I’m Canadian! A commentary on the latest Speculation Tax

Like the title to Mark Milke’s excellent book (well worth a read) suggests, Canadians –born under the colonial mantra of “peace, order and good government” roll over again and again as the federal and provincial governments in this country systematically tax them to death.

The BC NDP’s latest shake down is called the “Speculation Tax.”

It follows on the heels of Vancouver’s “Empty Homes Tax,” a draconian measure that penalizes anyone with a property in that city who dares to leave it empty for more than 6 months a year (unless it falls within an exemption, such as a principal residence).

Although the BC government has not yet thought out all the details of the Speculation Tax which is set to come into law later this fall, it seems so far to be nothing more than an expansion of the Empty Homes Tax into other parts of British Columbia, including Metro Vancouver, the Capital Regional District (except the Gulf Islands), Kelowna and West Kelowna, Nanaimo-Lantzville, Abbotsford, Mission and Chilliwack.

It will tax owners from between .5% to 2% of the assessed value of their homes unless they are rented out for at least half the year.

This poorly conceived strategy does not take into account that most renters don’t want to rent for six months or less, so how that will increase the housing stock for non-owners is not immediately evident.

The Speculation Tax is estimated to bring in about $200M per year, with BC residents picking up about $60M and the rest being paid by out-of-BC owners.

No mention has been made as to what the $200M speculation tax revenue will be used for.

While it could be earmarked for social housing or other housing related initiatives, most governments simply take the dough, plunk it into general revenue and then use it as they please. I would put money on the latter option.

The ostensible justification for yet another tax is to address housing affordability by penalizing those who don’t pay taxes here, but own property which is not used in a politically correct way (i.e. rented out).

Rather than just exempt BC residents, the government is proposing a refundable tax credit, which may or may not offset the tax to be assessed against a BC resident’s property.

While it is clear that foreign (i.e. non-Canadian) money has destabilized BC real estate markets in BC for the past 15 years and the government has sat back and done nothing but encourage it (and collect billions of dollars of Property Transfer Tax in the process).

The Speculation Tax would be far more palatable if it JUST APPLIED TO NON-CANADIANS (or “foreign entities” as defined in the Property Transfer Tax Act).

Instead, the BC government seeks to penalize both British Columbians who own a second home as well as other Canadians with the Speculation Tax.

With no due respect, there is no justification to hose those who live in BC (and thus pay taxes here), nor those who live in Canada, who are our fellow county men and women.

This seems to me to be yet another tax grab –plain and simple.

It’s necessary to fund the NDP’s social welfare agenda at the expense of any BC or Canadian resident who has had the wherewithal to scrape up enough money to purchase a second property.

Clearly the NDP government of BC is ideologically opposed to both private property rights as well as the accumulation of wealth.

As with all levels of Canadian government, if the the BC NDP could govern half as well as they can think up new ways to pick taxpayers’ pockets, we would have few problems in this country.

 

Pazder Law Corporation

© 2018

DISCLAIMER:  The foregoing is not legal advice. Details of the BC Speculation Tax are at present few and far between. As several changes to the as yet non-existent tax have already been announced, what the final version will look like is uncertain.

Presale Vancouver: Understanding the practice of flipping pre-sale condo contracts

Pazder-Law-Presale-Vancouver-Understanding-practice-flipping-presale-condo-assignments

With respect to the recent article in the Vancouver Sun regarding pre-sale assignments some clarification is in order.

The media has recently coined the term “shadow flipping,” to describe the practice of assigning pre-sale contracts in BC.

This practice has been going on in BC for over 15 years.

Firstly, there is nothing “shadowy” (or illegal for that matter) about assigning the contract of purchase before the completion date comes up.

In fact in almost every case the assignment sale is listed on the MLS and realtors are involved on both sides. It is advertised and marketed like any other sale (only it’s more complex to close on the legal side).

Pre-sale contracts are permitted under REDMA (the Real Estate Development and Marketing Act).

S.36 of the Law and Equity Act of BC allows all contracts to be assigned (except where a contrary intention appears in the contract or otherwise prohibited by law).

In response to the many stories in the media about “shadow flipping,” last year the BC government of the day (the Liberals) caused the standard BC CBA/REABC contract of purchase and sale in use in the province by virtually every Real Estate Board to include a “no assignment clause” (s.20A).

Ironically, very few contracts between individual buyers and sellers have EVER been assigned to a third party prior to closing!

This is because the closing dates are typically within 30 days of the contract being entered into and thus, the price will not have appreciated much if any in the interim.

Thus, as is often the case, the government wanted to appear to be “doing something” about a perceived problem, but ended up accomplishing nothing.

On the other hand, assignments of pre-sale contracts are quite common.

In the BC real estate marketplace, the values of pre-sale condominiums have appreciated substantially over the past 15 years (with the notable exception of 2007-8, being the era of the melt down of Wall St.)

Due to the long completion dates for pre-sales (1-3 years), the price differential between what the original buyer agreed to pay and what the completed unit will be worth several years down the road can make an assignment a tempting choice for many would be purchasers –even if their intention was to buy for themselves or as an investment.

Why?

Apart from pocketing the price increase, the original buyer (“the Assignor”) avoids paying GST (5%) and Property Transfer Tax ((“PTT”)(2%) (which may also include a 20% Foreign Buyers Tax) as he does not actually buy the property.

The new buyer (“the Assignee”) buys the property from the developer under the original contract (including GST and an increased amount of PTT based upon the new market value), but also pays a “lift” to the Assignor to compensate him or her for the increased value.

The Assignor will have to pay a fee to the developer (usually 2-2.5% of the sale price) to allow the assignment to take place.

The Assignor will have to pay tax on the “lift,” to Canada Revenue Agency be it capital gains tax or income tax, depending on the circumstances.

The problem that the BC government has with this process is that as the assignment is not registered anywhere (at least as of yet), it does its “cut” of the action so to speak. PTT is only payable upon the actual registration of title at the land titles office –so instead of getting PTT twice, it’s only payable once in the case of an assignment.

I wrote to the housing minister before the last budget and suggested that to fix that problem the government could simply amend the regulations under REDMA to prohibit all pre-sale assignments (unless special circumstances could be shown to demonstrate that the buyer could not close such as a divorce,  job loss or illness).  That way any speculator, foreign or local would have to buy the presale strata unit and then resell it, thereby paying full PTT and GST in the process.

Instead of heeding said advice, the BC government is apparently coming up with a new registry to track assignments.

This will solve nothing and will just expand the government bureaucracy yet again! (however that could be the actual purpose, knowing governments)

Like the previous Liberal government, it’s an attempt by NDP to appear to be doing something to address affordability and housing supply, while actually accomplishing little.

 

DISCLAIMER:  The foregoing is not legal advice, but is presented for information purposes only. Buying or flipping presale strata units is complex and it is suggested that the reader obtain proper legal and other professional advice prior to entering into such agreements.

© 2018 Pazder Law Corporation

TIME OF THE ESSENCE clauses in Real Estate Contracts

“I can be late for a date that ’s fine, but he better be on time!”– Shania Twain, Any Man of Mine

*tribute to Shania Twain visiting Vancouver!

We have all experienced the horrible consequences of being late on occasion.

This especially holds true for real estate. Timing in a real estate conveyance is critical.  In the standard CBA/BCREA contract of purchase and sale one of the important terms of the contract is paragraph 12, the “time is of the essence” clause.

12. Time will be of the essence hereof, and unless the balance of the cash payment is paid and such formal agreement to pay the balance as may be necessary is entered into on or before the Completion Date, the Seller may at the Seller’s option, terminate the contract, and in such event the amount paid by the Buyer will be absolutely forfeited to the Seller in accordance with the Real Estate Services Act on account of damages without prejudice to the Seller’s other remedies.

Do not take this clause for granted! It not only stresses the importance of the timing in which the contract must be completed but also the consequences of being even “a minute too late.”

What does “Time of the Essence” mean?

It means that the parties must perform their obligations strictly within the time frame stipulated in the contract.

Failure to act within said time frame will constitute a breach of the contract, giving the other party the right to pursue his or her legal remedies forthwith.

When time is of the essence, the consequences of being a minute too late can be disastrous to the offending party.

Losing the Deal

In Gill v Bal 2017 BCSC 2015 the Supreme Court re-enforced the importance of not being late. The contract stated that the transfer documents were to be registered by 4:00 p.m. on the closing date.  However, at 4:00 p.m. the Buyers were not in a position to close as their lawyer had not yet received the money in his trust account to enable him to register the conveyance pursuant to the standard CBA undertakings which are made part of the contract pursuant to paragraph 14. At 4:19 p.m. the Seller required the executed transfer documents to be returned as the Buyers were not in a position to close and had missed the 4:00 p.m. deadline. At 5:36 p.m. the Buyers were finally able to close, having received the mortgage funds. The Seller refused to complete. The court held that the Buyers were in breach having not been ready to close at 4:00 p.m. as required by the contract. The court awarded the Seller not only the deposit but additional damages as the Seller had to obtain additional financing in order to close on another property.

Forfeiting the Deposit

One of the basic principles of contract law is that damages are calculated on the actual loss suffered by the innocent party. An exception to this rule exists in the context of a real estate deposit. In British Columbia, if a purchaser defaults or is otherwise unable to complete a real estate purchase he is liable to forfeit his or her deposit even if there was no actual loss suffered by the seller. In Tang v Zhang 2013 BCCA 52, the BC Court of Appeal confirmed that the Seller was entitled to keep a $100,000 deposit even though the Seller suffered no actual loss as he was able to resell the property at a higher price.  The court considered the deposit to be earnest money (a term borrowed from US jurisprudence) and therefore subject to forfeiture upon default by the buyer.

Extending the Completion Date

Sometimes circumstances occur where it is impossible for one of the parties to complete on the closing date. If the parties agree to extend the closing date, then the time of the essence clause must be expressly reinstated to give sufficient notice to the other party that the new closing date is being relied on. It is not sufficient to state “all other terms and conditions to remain the same” (Ambassador Industries v Kastens 2001 BCSC 484).

If timing of the contract is critical to a party, anytime the contract is amended or extended, the time is of the essence clause should be reasserted for further assurance that the timing of the deal remains an essential part of the contract.

Waiving Time is of the Essence

Like all other terms, time being of the essence can be waived.

If by words or conduct a party waives the time is of the essence clause, timing of the contract will cease to be strictly enforceable.

In such case the party is given a reasonable time to perform her contractual obligations (Whittal v Kour 1969 CanlII 701 (BCCA) cited in Salama Enterprises (1988) Inc v Grewal 1990 CanLII 1677 (BCSC)).

 

The Moral of the Story

In today’s hot market where property values are sky high, a purchaser needs to make sure that she and her lawyer get everything done on time! A purchaser stands to lose not only her dream home but potentially a substantial deposit as well.

A realtor who cavalierly assumes that a seller “will be reasonable” in the face of a request for a last minute, short term extension may be in for a rude awakening when the seller digs his heels in and refuses to agree to it (perhaps a back-up offer is in the wings), resulting in the realtor’s client losing the deal and forfeiting her deposit in the process! (guess who’s getting sued after that happens?)

Remember the words of William Shakespeare which are apropos in every real estate transaction:

“It is better to be three hours too soon, than a minute too late!”

 

P A Z D E R LAW CORPORATION,    

Real Estate Lawyers           

© 2018

DISCLAIMER:  The foregoing is for information purposes only and does not constitute legal advice.  The reader is urged to consult a lawyer prior to acting or relying on the information contained herein.  Such information can change over time due to many factors. In addition the reader’s own particular legal or financial circumstances may affect his or her ability to make use of this information.

Everything you ever wanted to know but were afraid to ask about SUBJECT CONDITIONS in Real Estate Agreements

contract-with-reading-glasses
First off, “what is a subject condition?”

It is a condition in a contract of purchase and sale which must be removed or waived by the benefitting party before a certain date, failing which the contract will terminate.  

The benefitting party is usually the buyer, but it could also be the seller or both the buyer and seller.

Subject conditions are essential because they allow a party to carry out their due diligence (inspections, documentary reviews, searches and other confirmations) PRIOR to the contract becoming binding.

Typical subject conditions for a buyer could include: 

 – Financing;

 – Building inspection;

 – Review of title, strata plan, by-laws, strata minutes, Form B, insurance, financial statements, parking arrangements, depreciation or other engineering reports;

 – Confirmation that: a. GST or PTT are not applicable, b. no underground oil tanks are located on the property, c. the water is potable, d. the septic system is approved and properly functioning, d. the zoning is appropriate for intended use, e. insurance is available on the property, f. the property was not subject to a stigmatizing event (such as a murder, suicide, paranormal event or other).

Too often subject conditions are carelessly thrown into contracts of purchase and sale without regard to their wording or significance. The importance of subject conditions should not be overlooked as a poorly drafted subject clause may give a party room to walk away from a deal or prevent a contract from even forming.

Typically when entering into a contract of purchase and sale each party has the same goal in mind, namely to complete the transaction. Once the price is agreed on the contract is a done deal, right? WRONG! While the negotiation of the purchase price is always important it is not all that matters. 

In the standard form Contract of Purchase and Sale, those conditions that your real estate agent lists under Terms and Conditions play a very significant role. In fact, a party’s obligations under the contract do not commence until those subject conditions are removed.

A typical subject condition might be: “Subject to the Buyer obtaining and approving a building inspection. To remove a subject condition, the benefitting party must waive or declare fulfilled the condition AND give written notice of the removal of the subject clause before the deadline stipulated in the contract.

Duty of Good Faith

In removing a subject condition, a party has a duty to act in good faith and make all reasonable efforts to remove their subject conditions and complete the contract (Dynamic Transport Ltd v O.K. Detailing Ltd., 1978 CanLII 215 (SCC), [1978] 2 SCR 1072). To act reasonably and good faith is to not act in a capricious or arbitrary manner (Mason v Freedman, 1958 CanLII 7 (SCC), [1978] SCR 483 at 487).

Subject conditions can on occasion play a critical role in aiding a party to get out of his or her contract. Unless the subject condition is waived or fulfilled by written notice the contract is terminated. 

However, as noted above, a party cannot refuse to remove a subject condition for an illegitimate reason.

For example, a Seller cannot refuse to remove her subject to legal review clause merely because she has found another Buyer who is willing to pay more money for the property (Zhang v. Amaral-Gurgel 2017 BCSC 1561).

For a hesitant or risk adverse party, the impulse may be to draft the subject clauses as subjectively in an attempt to give that party the ability to walk away from the contract. However, if the wording of the subject conditions are too subjective it may prevent a contract from even forming. To form a contract there must be some degree of certainty as to the essential terms of the contract. The more subjective a subject clause is, the more uncertain the criteria of the terms are. Therefore, instead of a binding contract, the parties may only have an offer to purchase and a binding contract will not be formed until the subject conditions are removedThis may give either party the ability to walk away before the subject conditions are removed.

Most parties when entering into a contract are not looking for a way out. To promote efficiency and certainty, subject conditions should be drafted objectively. Objective conditions are usually dependant on the happening of an external event, for instance “subject to the Buyer obtaining mortgage financing with an institutional lender.” The criteria of this condition is clear and precise as to when and how it will be fulfilled.

Is a “satisfactory” subject condition enforceable?

Often, a real estate agent will insert the word “satisfactory” to give the party some wiggle room as to the acceptableness of the conditionTake for example, “subject to arranging satisfactory financing.” The term satisfactory implies a subjective standard, leaving concern of the certainty of the clause. However, the Court of Appeal in Griffen v Martens (1988), 1998 CanLii 2852 (BCCA) stated that the purchaser has to use “his best efforts” to obtain financing as the meaning of “satisfactory” means “satisfactory to a reasonable person with all the subjective but reasonable standards of a particular purchaser.” Thus the term satisfactory invokes an objective standard of a reasonable person so the clause is not the subject to the whims and fancies of a particular individual. Therefore, there is a sufficient degree of certainty to the condition

The moral of the story

In today’s hot real estate market, most everyone want the deal done quickly –BUT in a professional and enforceable manner

Properly drafted subject conditions can aid in this goal (although, admittedly in many cases, particularly in Vancouver, buyers are forced to make offers with no conditions at all due to the many bidders all vying for the same property).*

A real estate transaction is one of the biggest transactions most people ever make, so it is not in anyone’s best interest that the deal collapses because of a poorly worded subject condition clause!

When in doubt, feel free to call us for advice 24/7.**  So far we’ve successfully closed over 30,000 purchase and sale agreements!

*In such cases, it is often possible to put in some of the buyer’s due diligence items by way of warranties or representations by the seller.  Also, if the buyer wants to spend the extra money without knowing whether he will be the successful bidder, most of the subject conditions can be carried out BEFORE the offer is made, in which case the offer need not contain any conditions.  However, after losing out on a few such offers, the buyer may become hesitant to continue this expensive and somewhat time consuming procedure.

© 2018 Pazder Law Corporation

1460 – 800 W. Pender St., Vancouver, BC, V6C 2V6, 

tel(604) 682-1509www.pazderlaw.com

Kenneth Pazder (ext. 245)Melissa Valana (ext. 258)

 

DISCLAIMER:  The foregoing is not intended as legal advice, but is presented for information purposes only. Statutory law and case law changes from time to time and it is always advisable to consult experienced, competent legal counsel prior to entering into a major contract such as a purchase or sale of real estate.

How to avoid buying a Stigmatized House

There are many stigmatized properties all over the world.

These properties are “stigmatized” due to circumstances or events which transpired in or around them. For example:

  1. The home could have been the scene of a murder;
  2. It might have been occupied by a serial killer or sex offender;
  3. The former resident was a member of an organized crime group or gang;
  4. The property was robbed or vandalized on prior occasions as it was used to carry out criminal activities;*
  5. The property is alleged to be haunted or plagued by other paranormal phenomena;
  6. The former owner committed suicide on the property;

In BC a seller of property is not legally obliged to disclose any of the above circumstances to a potential buyer.

This is because such circumstances do not at law constitute a material latent defect.

As noted by the judge in the decision referred to below:

A vendor has an obligation to disclose a material latent defect to prospective buyers if the defect renders a property dangerous or unfit for habitation. A latent defect is one that is not discoverable by a purchaser through reasonable inspection inquiries. See McCluskie v. Reynolds (1998), 65 B.C.L.R. (3d) 191 (S.C.), and Cardwell et al v. Perthen et al, 2006 BCSC 333 [Cardwell SC], aff’d 2007 BCCA 313 [Cardwell CA].

This term is also defined in the standard Property Disclosure Statement in use in most residential real estate transactions in BC:

material latent defect means a material defect that cannot be discerned through a reasonable inspection of the property, including any of the following:

(a) a defect that renders the real estate

(i) dangerous or potentially dangerous to the occupants,

(ii) unfit for habitation, or

(iii) unfit for the purpose for which a party is acquiring it, if

(A) the party has made this purpose known to the licensee, or

(B) the licensee has otherwise become aware of this purpose;

(b) a defect that would involve great expense to remedy;

(c) a circumstance that affects the real estate in respect of which a local government or other local authority has given a notice to the client or the licensee, indicating that the circumstance must or should be remedied;

(d) a lack of appropriate municipal building and other permits respecting the real estate.

However, the aforesaid standard Property Disclosure Statement approved by the Real Estate Board does not contain any mention of circumstances which would or could render a home a stigmatized property.*

Thus the doctrine of caveat emptor (buyer beware) is applicable when purchasing a property in this province.

In the recent case of Wang v Shao (BCSC 2018 377) contains an extensive summary of the law concerning the disclosure of stigmatizing circumstances by sellers.

In said case the seller failed to disclose that her husband, Raymond Huang was the victim of a targeted murder likely by a criminal organization just outside the gates of the property.

Although the judge found that this did NOT in itself constitute a legal reason for the buyers to renege on the purchase, he ruled that the vendor’s partial answer as to why she was selling (her daughter was being transferred to another school where she could improve her English skills) amounted to a fraudulent misrepresentation.

At paragraph 217 the judge stated:

[217] As Ms. Shao acknowledged, the inquiry about why the owner was selling is a general question, rather than a specific inquiry about deaths at or near the property, or latent defects. However, having put the question to the plaintiff through her agent, Ms. Shao was entitled to an accurate answer, rather than one calculated to conceal Mr. Huang’s death as a reason for the plaintiff’s decision to sell the property. Ms. Shao did not ask if the daughter’s change of school was the only reason why the plaintiff was selling the property because she believed the representation made by the plaintiff through Mr. Yee. For Ms. Shao, the representation was material, and she relied upon it as an inducement for her purchase of the property.

In other words, an incomplete although technically or partially true representation can amount to a fraudulent misrepresentation in some circumstances –like these.

The vendor sought then to rely on the “entire agreement” clause in standard BC real estate contracts as stated below, but the judge gave short shrift to that argument:

[38] Clause 22 of the agreement of purchase and sale, which is Exhibit 3 in these proceedings, is the “entire agreement” clause. It provides, in part, that:

There is no representation, warranty, collateral agreement or condition, whether direct or collateral or expressed or implied, which induced any party hereto to enter into this Agreement or on which reliance is placed by any such party, or which affects this Agreement or the property or supported hereby, other than as expressed herein.

This clause is vitiated by fraud and it is not open to the defendant to rely upon it in the circumstances. See Ballard v. Gaskill (1955), 14 W.W.R. 519 (B.C.C.A.).

As this case was just reported a few days ago, it is not clear whether the vendor will appeal the decision, as there is about $600,000 on the line depending on the final outcome.

In my view the case could have gone either way, as the failure to disclose was not that blatant and the representation that was made was partially true.

The moral of this story is that it is much better to make NO REPRESENTATION than a half or incomplete representation which can be construed as fraudulent or misleading. Had the seller said nothing about her reasons for selling this would have been an open and shut case –the plaintiff would have lost.

THUS, HOW CAN A PROSPECTIVE PURCHASER AVOID BUYING A STIGMATIZED PROPERTY?

First, advise your realtor that you don’t want to buy a stigmatized home and let him or her know what that subjectively means to you. Ask the realtor to make inquiries with the vendor’s realtor.

Second, do a GOOGLE search of the property to see if the subject property comes up with a story about an unsavory event or circumstance. I have never tried it, but there is a website called www.housecreep.com which purports to have over 25,000 listings of stigmatized properties across North America.

Third, write a representation into your offer to purchase which covers off any of the circumstances which are important to the purchaser (“the vendor warrants and represents that to the best of his knowledge, information and belief that the subject property was a) not the scene of a murder, b) not previously occupied by a sex offender, member of a gang or organized crime, serial killer or other criminal, c) not a former marijuana grow-op, drug lab or place for the manufacture, storage or distribution of illicit substances, guns or explosive devices or illegal products or services, d) not used for other criminal activities, e) not haunted or subject to other paranormal phenomena.”)

Even in these days of “no subject offers” vendors don’t seem to mind making warranties and representations about the property –but they often balk at any “subject conditions” which could allow the buyer the opportunity to lawfully walk away from the purchase.

Fourth, if time permits, which is usually not the case, talk to the neighbors who invariably know what is going on next door.

Given that any kind of purchase in BC involves a lot of money, the more due diligence you can do the less chance you have of being surprised.

And as I have said many times before, in real estate no surprise is ever a good surprise.

*With respect to a property that was formerly used for criminal activities such as a grow op or meth lab, if such activities rendered the home dangerous, unfit for habitation or otherwise defective, that could well be construed as creating a latent material defect in the home (as is often seen in former grow-ops which may have mold, mildew, unsafe electrical wiring etc. which may not always be discerned by a routine building inspection). For that reason the standard PDS used in the real estate industry does contain a question to be answered by the seller as to whether he was aware that the property was formerly used to grow marijuana or to manufacture illegal drugs.

Disclaimer: The foregoing is for information purposes only and not intended as legal advice to the reader. Always consult with an experienced real estate lawyer when modifying the standard real estate contract in use in BC. In addition statutory law as well as case law may change from time to time which could render this analysis inaccurate in the future. 

(C) 2018 Pazder Law Corporation

 

“What do you mean, the price went up?” Risks of buying a pre-sale strata

As I mentioned in previous blogs, there are at least 7 major risks associated with buying a pre-sale strata property in BC, summarized as follows:

1. Market Value (can go down by the time the project is completed)

2. Interest Rate (can go up by the time the project is completed)

3. Financing (rate holds can be lost by the time the project is completed, buyer may no longer qualify for any number of reasons)

4. Completion date (is a moving target. It can be moved up or backwards almost indefinitely by the developer –but not the buyer)

5. Size and layout (can be changed by the developer)

6. Finished product (may be substandard and there is little that can be done about it)

7. Legal consequences (if buyer doesn’t close he loses his deposit and possibly more. If the developer doesn’t close the buyer gets his deposit back –that’s it!)

The recent case of the Westbourne Residences project at 5th Avenue and 13th Street is a perfect example of risk number 7 above.

This developer alleges that it ran into unexpected costs and delays and it has now approached the buyers asking for an increase of 15% from the original price so it can complete the project later this year.

If that doesn’t work, the developer has offered to return the buyers’ deposits plus 50% or re-sell the unit when it’s ready and give the original buyer 40% of the net increase in the sale price (after various adjustments, incentives etc.)

The buyers have been given until February 28, 2018 to decide or have their purchase agreements terminated.

The subject strata development has likely appreciated about 25-30% since the pre-sale buyers signed the contracts, so essentially the developer is asking the buyers to split the price appreciation with it.

To my knowledge the developer has not provided any documentary evidence to the buyers to substantiate these cost overruns nor any explanation as to how the 15% price increase was arrived at.

The contract of purchase and sale in this case is pretty standard for developers and contains the usual clause which says that if the developer fails to complete the sale, the buyer’s sole remedy is to get his deposit back.

This clause has not yet been tested in the BC courts, so on its face, it permits the developer to simply change its mind and not complete the sales with virtually no liability to the buyers.

Simply getting one’s deposit back (even with a 50% increase) does not nearly compensate a buyer, who will have to attempt to buy another strata unit at a price 25-30% higher than the one he or she just lost.

Let’s imagine that the proverbial shoe was on the other foot.

If the buyer defaulted, the developer would be legally allowed to keep the deposit AND to sue the buyer for any further losses (regardless of the buyer’s reason for not completing).

We saw this situation several times in 2007-08 when the market corrected and developers were suing buyers for not closing (as the prices had declined). To my knowledge, none of the developers were willing to “split the difference.”

That hardly seems fair.

While this scenario does not happen often, in my view, it should not happen at all.

Pre-sales are governed by REDMA (the Real Estate Development and Marketing Act).

Thus far the government has given the developers a free hand to draft their own one-sided presale contracts, which essentially foist all of the risk onto the buyers.

It is long overdue that a prescribed contract should be mandated which fairly attributes risk between the developer and the buyers.

In this regard, I urge all readers of this article to email Selina Robinson, the BC Minister of Municipal Affairs and Housing (selina.robinson.MLA@leg.bc.ca) and suggest that the NDP government adopt a fair presale purchase contract under REDMA. There is certainly precedent for this as the Residential Tenancy Act of BC requires the use of a prescribed form of rental agreement to prevent abuses by landlords.

A pre-sale purchase is a very big investment for most people and to have it blow up in their faces with virtually no remedy against the seller (other than perhaps a law suit which few individuals can afford) is in my view, unacceptable from a public policy perspective.

Disclaimer:  The foregoing is for information purposes only and not intended as legal advice to the reader.  Always consult with an experienced real estate lawyer when modifying the standard real estate contract in use in BC. In addition statutory law as well as case law may change from time to time which could render this analysis inaccurate in the future. 

(C) 2018 Pazder Law Corporation