Whose city is it anyway?

Vancouver rejects Keefer St. proposal in Chinatown

Chinatown decision: Vancouver council rejects controversial 105 Keefer St. proposal

This recent Vancouver Sun article describes one small victory for community residents over a large property developer (in this instance the Beedie group).

This is a perfect example of community involvement working to resist ever-increasing population density, which is the mantra of both municipal governments and the provincial government. in this province.

The government’s rationale goes something like this.

There is too much demand and not enough supply so the housing prices are becoming unaffordable for most residents.

In their view the solution is to build more units in the same space (hence, increasing density).

With all due respect, that rationale is flawed.

Firstly as the authors below point out, it is not possible to build enough units to satisfy the world-wide demand for housing in Vancouver (and the Lower Mainland).

https://www.theglobeandmail.com/real-estate/vancouver/vancouver-housing-supply-isnt-the-issue-affordability-is-data-shows/article31794288/

http://theconversation.com/housing-blame-game-here-to-stay-in-world-of-infinite-demand-24716

Other so-called “world class” cities like New York, San Francisco, London and others have hundreds of more high rise apartments than Vancouver could ever dream of building and they are still way out of reach for the average buyer.

Adding more towers is like adding more lanes to the highway and expecting to solve the traffic problems (ask LA residents how well that has worked out for them).

Secondly, it is patently unfair to pay attention ONLY to the demand side (everybody and their dog wants to live in Vancouver), while not giving equal consideration to the neighborhood residents (me and my dog already live here).

The proliferation of unlimited high rise apartments has a definite negative impact on the quality of life of the neighboring residents and the city at large (i.e. congestion, pollution, overcrowding, traffic problems, lack of parking, etc.)

Unfortunately our governments at every level have an insatiable appetite for tax dollars, so the prospect of collecting property taxes, GST and PTT from six hundred owners in a high rise apartment block, versus a hand full of single family residents invariably wins the day –at the expense of the people who live in the neighborhood.

It’s high time that the citizens of Vancouver and surrounding cities take a page out of Chinatown and TAKE BACK control of development from the developers and the government shills who accept their political donations.

Ever increasing DENSITY is NOT GREEN (as the current mayor of Vancouver would have you believe), nor is it sustainable.

At the end of the day, too much density is a LOSE-LOSE proposition –housing still remains unaffordable AND the quality of life of the city’s population diminishes for all residents!

Unfortunately, that’s pretty much the normal result we can expect from our politicians.

With BC’s newly elected government will we see more “locals last” policy or will things change? (don’t hold your breath)

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) 2017 Pazder Law Corporation 

Is our FOOD SECURITY for sale?

Farm land is EXEMPT from the 15% foreign buyer’s tax in British Columbia.

B.C. government’s decision to exempt farmland from the 15-per-cent foreign buyers tax is fuelling runaway speculation on property in the Agricultural Land Reserve.

Comment: Is our FOOD SECURITY for sale?

The Sun’s article illustrates that one result of the farm land exemption is that foreign buyers are snapping up acreages and building mega homes on them, thus driving up the cost of acreage from $750,000 to $1,500,000 per acre.

Just as aggravating is the fact that many foreign buyers then construct mega homes on the acreages (and take advantage of extremely low property taxes by planting the minimum amount of crops to qualify the property as “farm class.”)

It is hardly a news flash (except to the current provincial government) that foreign buyers are acquiring real estate in British Columbia for their own benefit and not to make the province a better or more prosperous place.

Of equal or greater concern however is the fact that we are allowing foreign buyers to buy BC farm land in the first place.

The issue of FOOD SECURITY has been raised in the US, China and many other major countries, but it seems to have gone unnoticed in Canada.

Do we want foreigners owning Canadian farm land?

Given the low prices of prime agricultural land in Canada compared to other countries (together with the fact that most foreigners are buying with USD, giving them a 35% price reduction right off the bat), it is possible that foreign buyers (which could include corporations and governments) could easily snap up most if not all of the prime farmland in this country.

At the risk of sounding like the late, Canadian nationalist, Mel Hurtig (1932-2016), I believe that the time is long overdue for Canadians to have a conversation about what resources in this country should be for sale to foreign buyers.

In our view farmland should be off the table from the get go.

And MINIMALLY, the foreign buyer’s tax should be extended to every piece of real estate in the province.

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) 2017 Pazder Law Corporation 

Foreclosure disclosure [podcast]

Last week, I had the pleasure of speaking with the Vancouver Real Estate Podcast team about the foreclosure process in British Columbia.

Listen here: VREP Episode #70

The Podacast is titled THE FORECLOSURE DISCLOSURE.

Here, we delve into questions like:

What is a foreclosure?

How does it happen?

How can one buy a property under a court-ordered sale?

Is this an opportunity for buyers?

What are the advantages of making the first offer?

What are the risks of buying a foreclosed property?

Are there ways to mitigate the risks?

Do we have an effective model for dealing with court-ordered sales in BC?

Find the full podcast episode here: VREP Episode #70

We hope you Enjoy!

Whether you’re buying, selling, refinancing (or simply want to know more), the Vancouver Real Estate Podcast is an excellent source of timely and relevant information about our sizzling (and controversial) property market. We listen to their material regularly and encourage you to check out their other podcasts.

On the topic of foreclosures, did we miss any burning questions?

If you have ANY additional questions, are currently going through a foreclosure (sale) process….. or are looking to purchase a property through a court-ordered sale, we help you ‘get your ducks straight’. Simply call us for an obligation-free phone consultation today, our priority is YOUR HOME.

Email: plc@pazderlaw.com

Tel: 604-682-1509

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) 2017 Pazder Law Corporation 

The BIG SIX: How to draft a good BC Real Estate Purchase Contract (Six Mistakes to Avoid)

Writing a good contract of purchase and sale:

The contract of purchase and sale governs the transaction between the buyer and the seller. As you are representing the buyer or seller, you must ensure that the agreement properly reflects the intentions of your clients and fully protects their interests.

Most real estate contracts for residential transactions use the CREA/CBA standard “Contract of Purchase and Sale.”

Note that paragraph 18 of the standard form Contract of Purchase and Sale (the “Purchase Contract”) in use in BC presently states:

18. REPRESENTATIONS AND WARRANTIES: There are no representations, warranties, guarantees, promises or agreements other than those set out in this Contract and the representations contained in the Property Disclosure Statement if incorporated into and forming part of this Contract, all of which will survive the completion of the sale.

This means that if you fail to include the necessary clauses to protect your client’s interests, often they cannot be enforced pursuant to this clause.

NOTE that most of the following issues are NOT addressed in the Purchase Contract, so it’s up to you to make sure that they are added in to the contract (when applicable).

“AVOIDING THE MOST COMMON MISTAKES” LIST

1. SIZE DOES MATTER

The Purchase Contract is silent on this matter. The listing agreement usually indicates the square footage of a house and lot size and also the square footage of a condominium or townhouse (it also carries disclaimers about the information being believed to be accurate but not so warranted).

Have the home professionally measured and surveyed or review the current strata plan to verify the home size by way of a subject condition unless your buyer instructs you explicitly not to have this done.

Rarely will the seller make a representation concerning the size of his property.

When size discrepancies are discovered, they invariably show a smaller size home, lot or unit than the buyer expected. That means you have an unhappy buyer on your hands.

GOLDEN RULE: Never rely on the facts contained in the Listing Agreement.

2. GST

The Purchase Contract makes no mention of Goods and Services Tax (“GST”). The vast majority of realtors do not add any clauses dealing with this tax. They leave it to the conveyancing lawyers to try to paper over an “after the fact” representation by the seller that the property is GST exempt because it is “used, residential, not substantially renovated property.”

However, the seller is not contractually or legally bound to provide such a representation after the contract is signed and subject conditions are removed (and most non-conveyancing firms will advise their sellers not to make such a representation, as it can’t help them and may indeed hurt their position if GST is later found to be payable).

The applicability of GST to the transaction depends on what the Seller was doing with the property NOT what the Purchaser plans to do with it.

For example, if the property was used for commercial purposes or has a commercial element (i.e. live/work studio) or has been rented out for short term rentals (i.e. “Air B & B”), GST may be payable, despite the property not being new. This will be an unpleasant surprise to the purchaser.

If your guess about the applicability of GST is wrong, you (or your errors and omissions insurance carrier) will be paying the tax after closing on the buyer’s behalf. 5% on a two million dollar property is a lot of money.

Golden Rule: If acting for a buyer, put a clause into the offer stating that the purchase price is inclusive of Goods & Services Tax if applicable. If the Seller balks at it, you know there is something to investigate further. If the Seller leaves it in, then GST becomes his problem.

3. PROPERTY TRANSFER TAX

Some jurisdictions (i.e. Alberta) don’t have this tax. Purchasers (who only buy or sell every five to ten years), don’t necessarily know about this tax even if they live here. Make sure that they do BEFORE they make the offer and how much that tax will be (its 1% on the first $200,000 and 2% up to $2,000,000 and 3% over that. Add 15% on to that if the buyer is not a Canadian citizen or permanent resident of Canada.*

First time buyer exemptions are subject to MANY conditions.

Keep in mind that TAX rules and conditions are constantly changing.

Golden Rule: Don’t guess whether there is tax or not unless you are absolutely sure. If you are wrong, you (or your insurance carrier) will be paying the tax for the purchaser. Refer the person to your conveyancing lawyer or the PTT branch to assess whether he will qualify for the FTB exemption.

4. SALES BY NON-RESIDENTS

Many non-residents own Canadian properties. The high price of real estate in the Lower Mainland has prompted many to sell. When a non-resident sells, the buyer is entitled to require a holdback of a portion of the sale price of the property under s.116 of the Income Tax Act (generally 25% of the gross sale price, but if the property is held as inventory or is depreciable property, the holdback is 50% on the building value). This holdback is available to the purchaser whether it is a term of the Purchase Contract or not.

The Purchase Contract attempts to deal with this with a check-off box on the top left hand side of page one or on the bottom of the last page (depending on which version you are using). Many realtors don’t know why it matters so they leave it blank.

If you are acting for a seller find out at the outset whether he is a non-resident and advise the buyer’s realtor.

If the seller has a large mortgage on the property, the required holdback can scuttle the sale (unless the seller has money to come up with out of his own pocket to allow his lawyer to pay off the mortgage and holdback the required amount). Alternatively, the seller can apply for a clearance certificate before closing if he knows the sale price and has sufficient time prior to closing. CRA has been known to expedite clearance letters in these circumstances (their normal turnaround time is three to four months).

If the sale is court-ordered (i.e. foreclosure or Court Order Enforcement Act) more searches and investigations MUST be performed before making the offer. A recent BC Supreme Court decision (Mao v. Liu (2017) BCSC 226) resulted in the buyer being assessed with $600,000 of unpaid capital gains taxes owed by the registered owner.

Golden Rule: Make sure that your non-resident seller knows about the holdback, that it won’t scuttle the sale and how long it will take to get the funds back from CRA (after payment of capital gains or income taxes). If it’s a court-ordered sale extra due diligence is warranted before the offer is written up.

5. UNDERGROUND OIL OR FUEL TANKS

Prior to the late 1950’s, most homes in the Lower Mainland were heated by way of underground fuel tanks containing 500 to 1000 liters of heating fuel. These were typically buried a few feet below the surface of the lot in the back or side yard. Pipes connected the tank to the home and allowed for periodic re-filling.

By the late 1950’s many home owners had switched to natural gas heating and abandoned the fuel tanks. Often tanks were simply closed up by sealing or removing the filling pipe without using up or draining the existing fuel.

As there was little or no environmental legislation back then, no one was concerned that after 40 years or so, the tanks would corrode and the fuel would leak out.

Municipal by-laws in Vancouver require the removal of any underground oil tank not in use. Thus, if there is an underground tank, it is the seller’s legal responsibility to remove it.

Removal of a tank by a qualified company usually costs about $2,000-2,500. If fuel oil has leaked out however, we have seen costs up to $100,000 and above, as the fuel oil can leak under foundations and roadways and all contaminated soil must be removed and replaced.

The PDS is of little help for this issue as it simply requires the owner to state that he is “unaware of any existing oil tank”.

GOLDEN RULE: Include a warranty by the seller that there are no underground oil or fuel tanks on the property. To be on the safe side, also include by way of subject condition, a clause permitting your buyer to carry out an inspection in this regard before closing and indicating that should a tank be found that the seller would be responsible for its removal, (including any necessary soil remediation if oil has leaked out) before completion.

6. ASSIGNMENTS

Clause 20A of the standard real estate contract in use in BC now prohibits the buyer from assigning the contract of purchase to a third party without the seller’s written consent. Furthermore it allows the seller to obtain the profit from any such assignment.

This is a MAJOR change to the long standing practice of permitting assignments of residential contracts (unless otherwise prohibited).

If prices rise dramatically between the offer date and the closing date and your purchaser has the opportunity to “flip” the contract to a third party, he will be most disappointed to learn that he is prohibited from so doing.

Make sure that you explain this to your buyer BEFORE you write the contract. Like all clauses it can be DELETED before the offer is made.

GOLDEN RULE: Make sure that your buyer understands the concept of assigning his interest in the contract to someone else before you write the offer.

… The moral of the story:

Buyers and sellers hate surprises (as they are almost invariably unpleasant). The best way to eliminate surprises is to draft a proper contract of purchase and sale and to have a good real estate lawyer as part of your team.

© April 11, 2017 Pazder Law Corporation

**Materials are current as of this date and are for information purposes only. They are not intended to constitute or replace legal advice when dealing with the subject matter. Check with the author or conduct your own due diligence to update if referring to these materials in the future.

About Pazder Law Corporation

  • We have completed more than 30,000 sales and purchases
  • We are approved solicitors for all major financial institutions
  • We set up the legal program for the Home Owners Protection Office to assist the owners of leaky condos
  • We set up the first title insurance office in BC
  • We set up the first province-wide mortgage program for a major chartered bank;
  • Members of the Law Society, Canadian Bar Association, CHOA, RELAN and PETA.

We welcome referrals:

  • We are accessible 7 days a week to answer your questions (yes, even weekends)
  • We spend time with your clients (usually about an hour) making sure that they understand what they are signing (most lawyers and notaries spend about fifteen minutes and the client can’t remember their name the next day)
  • On average, eight out of ten of our existing clients are past clients of the firm
  • We care whether the clients come back as much as you do
  • Clients may come back to us with questions or concerns for as long as they own the property at no additional charge

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) 2017 Pazder Law Corporation 

$600,000 Mistake made in purchasing from Non-Resident

Beware when you are buying real estate in Canada from a NON-RESIDENT!

S.116 of the Income Tax Act requires a buyer to “make reasonable inquiries” to ascertain the residency status of any seller of real property.

That generally starts with the seller checking the “resident or non-resident” box contained on the first or last page of the standard BC real estate contract (depending on which version you are using).

Realtors for the Seller often overlook this VERY IMPORTANT clause either because they don’t know why it is there or they have not asked the seller that question when the Buyer’s offer is accepted.

The clause serves a first step in alerting the Buyer of the residency status of the Seller. Normally, if the Seller indicates that he is a resident of Canada the Buyer’s lawyer will have this confirmed with a Statutory Declaration ( which is a document akin to an affidavit) to be signed by the Seller at his lawyer’s office before the closing date.

Obtaining a declaration of residency which is in effect, under oath generally constitutes a reasonable inquiry, unless the Buyer ought to have known otherwise.

If the Buyer fails to make reasonable inquiries and the Seller is a non-resident and does not pay the applicable capital gains taxes on the sale, then THE BUYER is assessed the entire tax by Canada Revenue Agency (“CRA”).

For this reason, the Buyer’s lawyer must INSIST on a hold back from the sale proceeds of between 25% and 33% of the gross sale price (depending on the nature of the property) -although in my experience 25% is more than sufficient to meet the Seller’s tax liability.

This holdback remains in trust until the Seller can provide the Buyer with a Certificate of Compliance from CRA confirming that the taxes with respect to the sale have been paid.

This issue however gets much trickier on a FORECLOSURE SALE or a COURT ORDER ENFORCEMENT SALE.

BC case law holds that on in a foreclosure proceeding the foreclosing party (normally the bank) is considered to be the Seller. This makes logical sense as the bank’s representative accepts the Buyer’s offer on the purchase and sale contract -despite the fact that the bank is not on title to the property as an owner.

The registered owner signs NOTHING (not the sale agreement nor any transfer of title).

Hence, as most financial institutions in Canada are resident here, one would think that there is no residency issue to consider.

However CRA takes the opposite position -namely that in a foreclosure or Court Order Enforcement Act sale the registered owner is the Seller and hence if he is a non-resident, the capital gains tax must be paid out of the sale proceeds (fi applicable).

If the required tax is not paid, CRA will assess the Buyer with the unpaid tax!

Foreclosure lawyers will typically include a three page schedule to the purchase agreement (which few realtors or their purchasers read) which states that the property is sold “as is where is” and that the bank (Seller) makes NO REPRESENTATIONS whatsoever about the property (or the registered owner).

Hence, the Buyer’s lawyer’s requested statutory declaration to confirm residency is normally crossed out and the bank claims ignorance regarding the residency status of the registered owner.

This exact scenario happened in the recent BC Supreme Court case of Mao v. Liu (2017 BCSC 226) except that the sale was a COURT ORDER ENFORCEMENT proceeding.

That means that the Plaintiff obtained a judgment against the registered owner, filed it against the property and sold the property under the Court Order Enforcement Act to a third party.

Thee process is similar to a foreclosure in that the registered owner does NOT participate in the sale as the title is transferred by a court order (often over the objections of the registered owner, who may be contesting the sale).

The BC Supreme Court judge held that neither the Buyer nor his notary made reasonable inquiries as to the residency status of the Seller.

The Seller’s counsel refused to provide any information regarding the residency status of the registered owner.

No holdback was made ant the sale closed.

CRA then assessed the Buyer with a $600,000 tax bill and the Buyer promptly sued his notary and obtained a judgment for the entire amount. As of the time of writing, it is not clear whether the notary’s insurers will appeal the decision.

In this case it was unfortunate that the registered owner AND the judgment holder (who caused the sale) were BOTH non-residents, so it would not have mattered which argument was advanced (that the registered owner was the Seller OR that the judgment holder was the Seller). In this case the hold back should have been made.

The morals of the story:

  1. Do your due diligence regarding the residency status of the Seller BEFORE the completion date;
  2. Insist that the residency/non-residency box be checked at the time the contract is signed (or if that is not possible to determine at that time, make it a subject condition in favor of the Buyer that the Seller provide evidence of residency prior to completion);
  3. If buying under a COURT ORDERED SALE (foreclosure or Court Order Enforcement Act) take extra care, as the party causing the sale (be it a bank or judgment holder) will likely balk at making any representations regarding the residency of the registered owner. That can leave you in the same boat as the notary in the case cited above. Always get competent legal advice BEFORE you write up the offer to purchase and read the schedule to the contract which the selling party’s lawyer will invariably attach.

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) 2017 Pazder Law Corporation 

Home Inspection Reports (are they worth the paper they are written on?)

1. What is an “exculpatory clause?”

An exculpatory clause is a clause in a contract or other agreement which purports to eradicate or limit the liability of one of the parties (usually the party who drafted the contract).

Standard contracts often contain such clauses in an effort to limit the liability of companies and big organizations who deal with large numbers of customers.

You will find exculpatory clauses in airline tickets, parking receipts, baggage claims and sporting event tickets.

2. Exculpatory clauses in standard home inspection contracts

Prior to September, 2016 all standard BC Home Inspection Contracts contained a clause which purported to limit damages for negligence of a home inspector to the cost of the home inspection (usually about $500).

This clause was upheld in BC Supreme Court in in Gordon vs. Krieg (2013 BCSC 842), purporting to rely on a recent Supreme Court of Canada case (Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010]).

In the Gordon case the court found that the building inspector was negligent and would have awarded the plaintiffs $67,000 but for the exculpatory clause (which limited the claim to $400, being the cost of the inspection).

Thus, public policy (not to mention the legal requirement) for home inspectors to be insured was totally defeated by the provisions of their standard contract.

However, in September of 2016 the BC government disallowed the use of such clauses in standard home inspection contracts, so now an aggrieved homeowner has recourse to the courts to obtain proper compensation.

Home inspectors are now required to carry insurance for an amount up to $1,000,000 to insure that damage awards for negligence are actually paid.

3. Why was the law changed?

We are advised by the BC Consumer Protection Office that pressure from the public (which we hope included members of our network who read our article on this issue earlier last year) and other interested stake holders caused the government to eliminate the use of exculpatory clauses in standard home inspection contracts.

That is good news for home buyers.

A home is usually a person’s major asset and an inspection by a qualified home inspector is a standard item of due diligence when buying.

However, even experienced, qualified and competent home inspectors can make mistakes or overlook deficiencies on occasion. That is why they are required by law to carry insurance. Thanks to the above mentioned legislative amendment, consumers can now obtain the protection of said insurance when appropriate.

7. Are exculpatory clauses used by other service providers or professionals?

Lawyers –   NO         Mortgage Brokers – NO

Doctors –   NO          Architects      –  NO

Dentists –   NO         Accountants   –  YES

Realtors –   NO

In addition, the biggest culprit by far is the GOVERNMENT which constantly limits its own liability for negligence by way of legislative exculpatory clauses.

If you are thinking of buying, selling, mortgaging or title insuring real estate in BC call us BEFORE you sign. We can often save you time AND money while ensuring that you fully understand all of the terms.

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) 2017 Pazder Law Corporation 

What are the 7 risks of buying a Pre-Sale Condo?

A pre-sale condominium is a townhouse or apartment that is available for purchase prior to it’s construction or before it is move-in ready. Buying a Pre-Sale has many benefits:

  • Pre-sale homes come with extensive warranty protection;
  • you don’t start paying the mortgage until completion of the building, thereby getting the chance to potentially save for the balance of the down payment; and
  • if prices rise over time (which they have done consistently for the past 15 years (except for 2007- 8), your new home will be worth more than what you paid for it – before you take possession!

However it’s equally important to be aware of the risks associated with pre-sales so you can make an informed choice to buy or not.

Pre-sales of Condominiums in British Columbia are governed by the Real Estate Development and Marketing Act [“REDMA”]. This Act permits developers to engage in sales and marketing of pre-sales prior to obtaining either a building permit or financing under certain circumstances.

Unlike the Residential Tenancy Act of BC, REDMA does NOT prescribe any particular form of pre-sale contract, so developers typically have their lawyers draft very one-sided contracts in favor of themselves. It is the nature of such contracts where most of the risk related to pre-sales arises.

The 7 main risks of buying a Pre-Sale condo are:

  1. Market Value
  2. Interest Rates
  3. Financing
  4. Completion date
  5. Size and layout
  6. Finished product
  7. Legal consequences

———————————-

1. Market Value

What will be the market value of the unit by the time it is ready to be occupied? Can anyone reliably say what the price of a property will be 2, 3 or 4 years from now? While the BCREA, CMHC and others try to predict housing trends in advance, no one pretends to know with any certainty what prices will do more than a year in advance, much less several years.

Would you advise your client to buy a “gold futures contract” for a half a million dollars at today’s prices with delivery in two years?

No? Is that because the price of gold could go DOWN and leverage works both ways?

Yet, that is exactly what a pre-sale contract is in BC. A pre-sale agreement is essentially a futures contract in real estate with an uncertain delivery date no less. So the buyer must carry the risk of market fluctuations and absorb the losses if the market goes down.

2. Interest Rates

Do you know what the interest rate will be 2 or 3 years from now? Will the current prime rate begin to climb or will it stay put?

While financing a condo at today’s best rate might seem feasible for a first- time buyer today, what if rates increase by the time the condo closes? On a $350,000 mortgage, each percentage point adds $300+/month onto the buyer’s monthly mortgage payment.

Predicting interest rates is even more of a gamble than real estate prices, as there are a multitude of factors which affect rates such as the economy, balance of trade, currency spreads and the government’s fiscal and monetary policies –which may be completely at odds with a buyer’s plan to finance a home purchase. Make sure your budget can handle a rise in interest rates before you buy.

3. Financing

While a purchaser may qualify for a mortgage today there are at least 3 ways he may not be qualified when the purchase closing date arrives:

  1. The rates have gone up and he can no longer afford the payments under the bank’s lending guidelines;
  2. The property value has gone down, in which case the bank will lend ONLY on the current reduced market value and he has to make up the difference;
  3. The purchaser and/or his partner have been laid off or had his hours reduced in the interim;

What if the buyer has a “rate hold” from the lender doing the construction financing on the pre-sale project? Most lenders no longer hold rates for more than 90-120 days and if they do so on a project, it’s normally for 18 months maximum. If the completion date gets extended beyond that date by the developer the rate hold expires. Also, if the market value goes down, the bank may require the buyer to make up the difference [see 2. above].

4. Completion Date

This is a moving target in pre-sale contracts. Most contracts provide an estimated completion date which is generally a year or two away. However, the contract will stipulate that the date is subject to change by the developer by a significant amount of time.

Thus, the developer may extend the closing date many times up to a specified “outside completion date” which may be several years past the original estimated closing date. The developer may be within its rights to extend the closing even in a declining market by years beyond the date the purchaser may have planned for.

Pre-sale contracts usually contain force majeure clauses which purport to allow developers to extend closing even beyond the outside completion date if the project has been delayed by “earthquake, terrorism, flood or other act of God, fire, explosion, accident howsoever caused, act of any governmental authority, strike, lockout, inability to obtain or delay in obtaining labor, supplies, materials or equipment, delay or failure by carriers or contractors, breakage or other casualty, climactic condition, interference by the Purchaser, or any other event of any nature whatsoever beyond the reasonable control of the Vendor.

In the meantime, the purchaser is on the hook to buy the unit for what amounts to an indefinite period of time.

However, when the developer is finally ready to go, the contract provides for a short closing notice [usually 7-10 days] wherein the purchaser must be ready to close or face being in breach of contract.

5. Size and layout

Most pre-sale contracts grant the developer the discretion to alter the layout of the unit. Although few buyers seem to think that this will ever happen, when it does they are generally very upset –especially when they find out that they have agreed to allow the developer to do so in the contract.

The size of the unit can generally be 5% smaller than set forth in the draft strata plan or marketing materials with no recourse to the buyer. Size discrepancies of 6% or more can usually only be addressed by a price reduction – not the right to rescind by the buyer.

6. Finished Product

What you see [or rather what you saw a few years ago in the display suite, brochures, videos or other marketing materials several years earlier] is not always what you get. Pre-sale contracts normally allow developers to substitute materials and finishing to a large extent.

In addition the quality of finishing and workmanship may also be far less than expected [or recalled from viewing the display suite].

There is also a “no warranties or representations” clause in the contract which prevents the buyer from relying on any marketing materials or verbal promises made at the time of sale UNLESS they are specifically recorded in the contract of purchase.

A pre-closing inspection occurs about 10 days prior to closing so by the time a buyer sees the final product it is too late to do much about it. The contract will provide for NO deficiency holdbacks even if substantial deficiencies are apparent.

7. Legal Consequences

When a buyer is called upon to close and he finds that one or more of the aforesaid risks have materialized he will usually start learning about the contents of the contract for the first time.

If a purchaser fails to close without lawful excuse, he will normally forfeit his deposit without prejudice to the developer’s legal right to pursue further damages if the deposit is not sufficient to offset them.

On the other hand, if the developer fails to close, it has the option to simply return the deposit to the purchaser with NO FURTHER LEGAL CONSEQUENCES.

If the unit has poor workmanship, less-than-acceptable substitute finishes, changed lay out, smaller than expected size or lesser view (or no view), the developer will normally not admit any fault or responsibility and insist on closing with no price adjustment.

If promises made to the purchaser by the developer’s sales staff have not been met, unless they have been reduced to writing and included in the pre-sale contract the developer will deny them or rely on the no warranties or representations (“if it’s not in the contract it doesn’t matter”) clause contained in the pre-sale contract.

If the purchaser decides to fight the matter in court, he will generally run legal expenses of $50,000 or more and his legal fees are NOT tax deductible. The developer on the other hand, has much deeper pockets, a litigation firm on retainer and its legal bills are tax deductible as a part of the cost of doing business.

The moral of the story:

LOOK BEFORE YOU LEAP (or rather, do your due diligence before you sign).

If you feel that you can handle the aforesaid risks then:

  1. ALWAYS have your own realtor represent you when you buy a pre-sale. The developer will usually pay him or her a pre-arranged commission for bringing in a buyer (so your realtor gets paid and you get independent representation).
  2. After you sign, bring the purchase agreement (and the Disclosure Statement) to your lawyer for review. REDMA gives you a 7 day rescission period. If you change your mind after reviewing all of the documents in detail with your lawyer, you can cancel the contract within this period.
  3. ALWAYS retain your OWN lawyer to represent you on the closing. Often the developer will provide a “recommended lawyer” for closing who may have (what appears to be) a discounted legal fee package for buyers.

Remember, you get what you pay for. Discounted fees generally means discounted service.

Also, if a problem arises upon closing, the “recommended lawyer” is in an ethical bind. He is legally bound to represent your interests, but he is also beholden to the developer for permitting him to advertise his services on site. You are only one client out of hundreds of potential clients the developer may send his way on the project in question (and on future projects). Why put yourself in this predicament for a couple hundred dollars savings (on a half a million dollar investment)?

If you need advice on purchasing a Pre-Sale, call or email our office and we’ll be glad to help you.

© 2017

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PAZDER LAW CORPORATION  

Barristers & Solicitors         

1460 – 800 W. Pender St.      

Vancouver, B.C., V6C 2V6

604 – 682 – 1509        

Email: plc@pazderlaw.com

Website: www.pazderlaw.com

  • Call us ANYTIME with questions or concerns;
  • Our aim is to provide unparalled service to our clients;
  • We are approved solicitors for all major lending institutions;
  • We have completed in excess of 30,000 purchases and over 60,000 mortgage re-finances;
  • We set up the legal program for the Home Owner Protection Office to assist leaky condo owners;
  • We were involved in the mortgage processing set-up of the first title insurance company in BC;
  • We pioneered the first province-wide mortgage refinance program in BC for a major chartered bank;
  • Members of the Law Society, Canadian Bar Association, Mortgage Brokers Association of BC, Mortgage Investment Association of BC, Condominium Home Owners Association of BC and the Real Estate Lawyers and Notaries Association of BC, People for the Ethical Treatment of Animals;
  • Clients may come back to us with questions or concerns for as long as they own the property at no additional charge;

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Schedule

BASIC Pre-sales contracts general checklist:

  1. PriceTotal price
  2. Extras or add-ons
  3. Additional parking stall(s)
  4. Deposit(s)How many deposits made
  5. Cash or deposit bonds
  6. Liquidated damages or not
  7. GSTPrice is inclusive or exclusive of GST
  8. New housing rebate available or not
  9. Developer will process rebate or not
  10. Transitional rebate available or not [must claim after closing]
  11. BCTT payable or not
  12. Closing dateEstimated completion date
  13. Outside completion date
  14. Force majeure clause
  15. Closing notice to purchaser
  16. ParkingKind: [ ] cp [ ] cp with lease [ ] lcp [ ] fixed lease only
  17. Number of stalls
  18. Lien holdback – 7% of purchase price for 55 days after completion
  19. Permitted changesSize
  20. Lay out
  21. Materials and finishes
  22.  AssignmentsAssignability
  23. Assignment fee
  24. Continuing liability for assignor
  25. PTTPayable on purchase price for original purchaser
  26. Payable on assignment price for assignee
  27. First Time Homebuyer limits and restrictions
  28. Disclosure Statement and amendments
  29. 7 day right of rescissionTime limited rescission rights for building permit and financing approvals
  30. Final occupancy permit
  31. New Home Warranty certification
  32. Subject conditions for buyer:financing

Other

  • Any ability to negotiate adverse clauses from agreement?

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) 2017 Pazder Law Corporation 

Title Insurance Re-visited

In light of the December 18, 2015 decision of the B.C. Court of Appeal in Lin v. CIBC Mortgages Inc., 2015 BCCA 518, it’s worth mentioning again that one of the best values in Canadian real estate is title insurance.

In 2013 Lin re-mortgaged his home with CIBC to pay out an existing Bank of Nova Scotia (“BNS”) mortgage and to have some left over funds for other purposes. While he and his wife received the left over funds, their BC notary, Agatha Chung stole the mortgage proceeds destined to pay off the BNS mortgage (along with millions of dollars of other clients’ money).

Much to their chagrin Lin and his wife then had TWO mortgages on their home instead of just the new CIBC mortgage.

Fortunately for them they had purchased an owner’s title insurance policy* some ten years earlier and the title insurer defended their claim that CIBC’s registered mortgage was invalid.

The legal reasoning of the Court of Appeal is in my opinion, dubious, BUT as it is the highest court in BC, its decision is now the law in this province.

It was held that CIBC’s mortgage was not valid and enforceable in these circumstances (as the funds were never really “advanced,” given that the bank’s notary’s undertakings were not complied with by the borrower’s notary).

The net result was that CIBC’s mortgage was struck from the borrowers’ title and the borrowers did not have to pay it back (other than the “left over monies” which they actually did receive). The title insurance company also covered all of their litigation costs through the BC Supreme Court and then the BC Court of Appeal (which would have likely been well over $100K).

Why is Title Insurance such a great bargain?

1. The owner’s policy only cost a few hundred dollars.

2. NO annual premiums are charged after the policy is purchased.

3. There is NO deductible when a claim is made.

4. The policy remains in place for the full purchase price for as long as the owner owns the property.

5. The coverage is much wider than any legal opinion that a lawyer or notary can provide.

6. There is no need to sue the notary (who in this case had fled to China with the mortgage proceeds by then), as the policy is “no fault,” meaning that if the claim is covered it is not necessary to prove negligence or malfeasance to collect (as it is against a notary or lawyer).

How Do You Buy Title Insurance?

Title insurance in BC is generally purchased through a buyer’s lawyer or notary when the property is bought, however it can also be obtained after a purchase as well (called an “existing home owners policy.”)

It covers many risks including title fraud, forgery, survey issues (i.e. encroachments), unpaid liens, taxes or strata levies, outstanding work orders or lack of proper building permits and generally any other claim against the title to the property which a.) the purchaser did not know about and b.) did not cause or agree to.**

Major title insurance companies in Canada include First Canadian Title, Stewarts Title Guarantee Company,* Title Plus and Chicago Title. They are regulated in British Columbia by the Financial Institutions Commission (“FICOM”).

*Stewarts Title Guarantee Company was the title insurer involved in this case which offered protection to its insureds under the “duty to defend” provision of the owners policy.

**Refer to individual policy wording for terms and conditions of coverage.

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) 2016 Pazder Law Corporation 

COOLING OFF THE BC REAL ESTATE MARKET FROM THE TOP DOWN

In our real estate law practice we have seen houses steadily rise over the past seven or eight years and jump drastically since January of this year.

For example, homes in Vancouver on Connaught Drive which were selling for $3-4,000,000 a few years ago are now on the block for $10-15,000,000 (a client of mine recently turned down an offer on her home in this area at $15.8M.  The home was purchased for $6M!)

Correspondingly, homes which were $1-2,000,000 are now $4-5,000,000.

Even condominiums which were valued at a half a million dollars a last summer are now worth $800K to $1M.

Prices are rising so fast, one has to buy a property BEFORE putting one’s own property up for sale, for fear of being priced out of the market!

Before the completion date occurred, another client of mine who bought a home in North Vancouver for $1.5M was offered $250,000 by the seller NOT to complete the purchase!

In my view, this lunacy is being fueled to a large extent by foreign money which is pouring into the Lower Mainland at an unprecedented rate and pulling the prices UPWARDS from the top end.

This inflow of money (Chinese principally, but there is also a lot of Iranian, Indian and American capital coming in, as there is still a very substantial discount on the Canadian dollar for those who deal in USD), is destabilizing the BC real estate market for everyone who lives and works here.

Tragically, the only people who can’t seem to see this are the provincial and federal politicians and the many pundits who make a living commenting on things they t know nothing about (newspaper columnists, economists, business school profs and other so-called experts).

They remind me of the referees at a World Wrestling Entertainment match. Everyone in the stands is screaming that the bad guy has a concealed weapon and the only one in the building who can’t see it is the referee!

However in the WWE the refs are paid to look clueless.

Our politicians are paid to govern in the interests of Canadian citizens, not foreign speculators -but looking at their behavior, one would never guess that.

While it is reported that foreign ownership may be as little as 3-5% of the housing stock that is more than enough to affect the entire market adversely -and it has done so in spades as few can now afford to own a house in Vancouver and even condominium ownership is becoming a stretch.

WHAT TO DO?

1. Make foreign buyers confirm the source of their funds

Right now any foreign buyers can wire any amount of money into  their lawyers’ or notaries’ trust accounts from any bank in the world to buy a property in BC with no questions asked.

Realtors and mortgage brokers are required to fill in a bunch of useless FINTRAC forms and obtain client identification documents, but NO ONE is asking where the money came from in the first place!

I have heard many stories from realtors of bidding wars where a property is listed at a certain price and then a half a dozen or more offers come in steadily bidding up the price by fifty or one hundred thousand dollar increments and then the final offer comes in at a half a million dollars over everybody else’s!

A lawyer in our office recently had the same experience in BC Supreme court on a foreclosure sale.  The offer the court was asked to approve was $1.5M and a six or seven other buyers showed up at the hearing.  As is the court’s practice, everyone  was advised of price of the original offer and given the opportunity to bid or re-bid in a sealed envelope.  The Master opened the sealed bids at $1,55M, $1.65M, $1.725M, $1.9M and the WINNER was $3.1M!

It would appear that the winner wanted to pay AS MUCH AS POSSIBLE.

It has been our experience that much like locals, foreign buyers usually don’t want to pay a penny more than is necessary to purchase a property here (much less an extra million dollars on a foreclosure purchase).

As most foreign buyers have local realtors who are well aware of the market prices, the only explanation which seems to make any sense is that some foreign purchasers are using the Canadian real estate system to launder their money.

Once a house is purchased in BC the seller has effectively washed it and it can be moved anywhere in the world easily by selling the property (as the seller then has the contract of sale and all the documents necessary from the lawyer’s office to “prove” that his funds came from the legitimate sale of Canadian real estate). No foreign country will look past the most recent transaction to confirm the legitimacy of the funds.

In the criminal world, the fee to launder money can be 50% or more.  In Canada, it seems to be NIL.

I believe that many foreign buyers when confronted with a requirement to show where their funds came front would balk and refuse to complete the purchase.

Stemming the flow of dirty money into Canadian real estate would terminate a number of high end purchases, which may push down some of the prices at the $10M – $15M range which would in turn push down the medium high end prices and so on.

2. Increase taxes significantly on those who purchase property in Canada but do not live here or pay taxes here. 

It is commonplace for foreigner investors to park some of their money in Canada (as they do not trust their own governments).  They typically put the title of a property into the names of their wives or children (it is always interesting to look at the occupation listed on the titles to high end real estate like “worker,” “student” or “home maker”).  The wife and kids live in the property as their principal residence and pay no taxes as they have no income.

The father, who is a non-resident, continues to make money in a foreign state at a much lower tax rate.  Canada taxes income on the basis of RESIDENCY, so the father pays NO CANADIAN TAX.  The family enjoys the benefits of the Canadian health care system, school system etc. while paying nothing other than property taxes.

The misguided view of the premier of this province is that the above situation constitutes FOREIGN INVESTMENT IN BC, to be encouraged at every step.

With all due respect, that is nonsense.

As the BC government is perpetually short of money for every worthwhile endeavor (hospitals, schools, pubic housing, seniors, homeless shelters, transit, mental health, child poverty -the list is endless), it would seem obvious that one source of revenue which would be virtually unopposed by BC taxpayers would be to increase Property Transfer Tax and municipal property taxes on foreign buyers who are simply taking advantage of the laxity of the current legal and regulatory framework in BC.

An appropriate rate would be perhaps 20% Property Transfer Tax and triple current property taxes for those who choose to evade paying Canadian income tax (or pay only a token amount for appearance purposes) or simply leave their BC homes vacant.

A sale of a residence so occupied (or unoccupied as the case may be) should also attract income tax on any increase in value (not capital gains tax).

A capital gains exemption for a principal residence should also be disallowed for such owners (these two changes would of course require an amendment to the Income Tax Act which is a federal statute).

These  even for so-called “legitimate” off-shore funds would also dampen foreign demand for Canadian real estate, however to the extent that it does not, then at least there is SOME benefit flowing back to the Canadian tax system.

Are these measures discriminatory?  Absolutely!  They discriminate against foreign buyers who are simply seeking to take advantage of the Canadian real estate system, while parking or washing their funds.

These changes should apply to ANY foreign buyer of any nationality (US, Europe, Britain and Australia included).

UBC already does this with foreign students who are required to pay much higher annual tuition than local students –and no one is complaining!

Will this “fix” the real estate affordability problem?  Maybe not, but you have to start somewhere and you might as well start with the most obvious cause.

Are either of these measures likely to come to come to pass?  I would not hold my breath.

Generally, by the time the government gets around to doing anything of consequence “the proverbial horses are already out of the barn and the farm has been sold off to a foreign syndicate.”

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