Canada’s first pre-sale register to crack down on flipping

construction crane

The BC government is announcing the creation what appears to be yet another make work project to create needless government jobs (doubtless for NDP supporters).

It’s called “The Condo and Strata Assignment Integrity Register.”

Even the name is odd.  It implies that there is a difference between condos and stratas.

However, in common parlance, a condo is a strata and vice versa.

Furthermore the BC Condominium Property Act (which used the term “condominium”) was replaced with the Strata Property Act over 20 years ago and the new act uses the term “strata” (and no mention of the term “condo” or “condominium” is made in its definition section).

While there are still some condominiums that exist (built pre-1998), they certainly are not going to be flipped by way of contract assignments.

Moreover, the misleading headline put out by the government says that the new assignments register will “crack down on flipping.”

With respect, it will do no such thing. It is simply a registry whereby data on assignments is collected.

“It is widely acknowledged that the practice of pre-sale flipping has been a factor in driving up real estate prices while facilitating tax evasion. Because of a lack of transparency regarding these transactions, it is unknown exactly how many assignment flips occur each year.  This new register will put an end to this lack of information.” (emphasis mine)

Rather than putting an end to the lack of information, how about putting an end to the practice!

If the government was serious in its assertion that pre-sale flipping is driving up the price of real estate it could easily pass a regulation under the Real Estate Development and Marketing Act (“REDMA”) prohibiting assignments of pre-sale contracts.

In fact, I wrote to the BC housing minister before this registry was proposed suggesting just that.

If assignments were prohibited, a buyer would have to complete the pre-sale purchase, pay the GST and PST (thus ensuring that the federal and provincial governments got their slice of the pie) and then, if the buyer chose to do so, he could re-sell the property to someone else.  There would be no need for another wasteful bureaucracy to track meaningless information, as there would be no assignments to be concerned about.

Exceptions could be made for special circumstances (such as a job loss, divorce, accident, death or other unforeseen circumstance that could befall a genuine purchaser), but by and large a prohibition on condo flipping would work far better than a registry to merely record the details.

Speculators, both local and foreign have made billions of dollars buying and re-selling pre-sale contracts in BC over the past 15 years.

Instead of putting an end to this highly SPECULATIVE practice, the government will simply record the details, which will in no way decrease condo flipping when the market starts to rise again.

Ironically, the NDP government just recently enacted the SPECULATION and VACANCY TAX which retroactively targets both local and foreign homeowners who happen to own a second property (or interest therein) in designated parts of BC.  There is little to suggest that this poorly drafted piece of legislation will penalize any speculator, but a great many of ordinary homeowners who find themselves on the title to a property that they don’t reside in, will be definitely be unfairly penalized.

More on the Spec Tax later, but for now, suffice it to say that the Condo and Strata Assignment Integrity Register is both a waste of time and tax payers’ money.

© 2019 Pazder Law Corporation

 

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Tel: 604-682-1509 Fax: 604-682-3196
Web: www.pazderlaw.com Email: plc@pazderlaw.com
Call Kenneth Pazder or Melissa Valana

DISCLAIMER: The foregoing is not legal advice. It is presented for information purposes only. Cases and/or statutes cited or contract provisions may change over time. When drafting a legal contract it is strongly suggested that competent professional advice be obtained by the parties prior to signing the contract or removing subject conditions contained therein.

Protecting condo buyers

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Kenneth Pazder was recently interviewed by Canadian Lawyer Mag on the topic of condo buyers’ protection. Here is the full article:

A series of condo cancellations and failures across the country have pre-construction investors crying foul. And while there are some protections in the ever-evolving condominium legislation, the rules vary from province to province and they don’t always apply to the principle investment and any lost interest or opportunities.

The number of condo buyers continues to increase, resulting in more Canadians living in condos — 13.3 per cent of households live in a condominium unit, according to Statistics Canada’s 2016 census figures. With the increased interest and construction of condo projects, there is concern that purchase and sale agreements for units not yet built place a great deal of risk upon the purchaser.

It is a lament Toronto condo lawyer Denise Lash has heard repeatedly. In Ontario, the principal is protected and returned to the purchaser in the event of a failure, but there are no other remedies. “That is the concern that I’ve had expressed by many people. And people have come to me for advice and I say: ‘Sorry, there’s nothing you can do.’ And they say: ‘Now to get into the market, it’s a whole other thing. I’ve lost the appreciation in value.’ And that’s where they’re at a loss. And I don’t think that’s going to change.”

 

While the condo investor waits for their condo to be built, the market can continue to climb beyond the price the purchasers had secured. Even with the deposit returned, they’ve lost any appreciation or interest the money used for the deposit might have gleaned had it been invested elsewhere when the project doesn’t materialize. It’s been enough of a concern for Ontario’s Condo Owners Association to argue for the establishment of an insurance program for appreciation lost when a condo project fails or is cancelled.

The purchase and sale agreement of a condo unit in Ontario typically includes a condition that the development achieves a certain threshold of sales within a certain period. Failure to reach those goals gives the developer the right to pull out of the project, says Barrie, Ont. real estate lawyer Andrew Ain of Ain Whitehead LLP, who represents both developers and purchasers.

But developers are required to register under Tarion, Ontario’s new home warranty corporation, which has a protection plan for deposits. And the deposits the builder receives must go to an escrow agent or the builder’s lawyer to be put into trusts, which the builder can only access when they satisfy the Tarion requirements.

While there are levels of protection in place for the purchaser of a pre-construction condo in Ontario, only a deposit of up to $20,000 is protected — although Ain anticipates that will increase.

Tarion went under the microscope last year, resulting in 37 recommendations presented by Douglas Cunningham, former associate chief justice of the Ontario Superior Court of Justice. Among the recommendations is increased regulation for developers and builders and sufficient protection for the consumer. That could include developing a record of builders who have had problems and perhaps preventing them from building in the future.

There are similar insurance programs across the country, including the Alberta New Home Warranty Program and the Atlantic Home Warranty Program. But no such program exists in Quebec, leaving purchasers to search for private insurance for their deposits.

Given that consumer protection legislation doesn’t apply to real estate purchase and sale transactions, there are limited protections for Quebec condo investors who don’t get insurance for their investment, says Jonathan Franklin, a real estate and commercial litigation lawyer with Franklin & Franklin Attorneys in Montreal.

The deposit can go to a notary in trust, but purchasers sometimes write their cheques directly to the developer to go toward construction costs. “It’s not regulated and it should be, like residential leases are regulated,” he says. “The real estate brokers have an excellent contract, which everybody uses on offers to purchase a building.”

Unless the contract specifically states that the deposit will be returned if the development isn’t completed within a window of time, investors and their money could be held in limbo or lost if a development is repeatedly delayed or when there is no activity on the project, he says.

Franklin sees benefit in the implementation of a common purchase and sale contract like those used by real estate brokers for pre-existing buildings. Vancouver real estate lawyer Kenneth Pazder agrees such an approach would help to level the playing field for purchasers in British Columbia as well.

While British Columbia does have protections in place for deposits, there are concerns in that often-hyper-inflated housing market that there are no further protections. A purchaser waiting for a condo after several years has lost the interest they might have achieved elsewhere and perhaps the opportunity to purchase again has vanished because of the ever-increasing housing values.

Contracts for purchase and sale of pre-construction condos, Pazder says, are heavily weighted in favour of the developer and shifts the risks to the purchaser. One of those risks is when the builder extends the closing dates when life goes on for the purchaser who may, in that period, have lost their job, become sick, divorced or subject to higher interest rates, impacting the viability of the condo purchase.

The test for further remedies beyond the return of a deposit has yet to be heard by a court, he says. “The buyers are not united … it’s very unlikely one person is going to take the developer to court and challenge this.” Developers also generally create a new company for each individual project, and if that project fails, the likelihood is that it has no money with which to pay damages.

Pazder thinks standard-form contracts would help to divide the risk more equally between the builder and the purchaser and he’s made that suggestion to the last two provincial governments. But it’s an idea he feels is unlikely to gain traction given the construction industry’s large contribution to the country’s GDP and the relatively low incidence of condo failures and bankruptcies in B.C.

A big problem with pre-construction projects is delays. Time schedules are rarely met, although provinces generally legislate limitations on extensions that developers are allowed. Extended delays can be cause for concern for the buyer for fear that the project will never be completed or that the final timelines extend beyond their moving plans, which may have involved the sale of their previous home.

In Nova Scotia, builders can extend closing by 360 days. “We did have people who were looking to get out of their agreements to purchase their units. The Nova Scotia legislation gives developers basically a full year of extensions without having to get the permission of the purchasers,” says Lauren Randall, an associate lawyer in the BoyneClarke LLP real estate practice in Dartmouth. “They’re selling units long before there is a product. I’ve never been involved in one that has actually closed when it was originally expected to close.”

She tells clients that they can ask for their money back when a project is delayed but the developer has no obligation to provide any remedies. If the project is delayed beyond the 360 days allowed, purchasers have the right to demand their deposits be returned, but they are unlikely to get any interest or other compensation.

Roberto Noce, a partner at Miller Thomson LLP in Edmonton and a specialist in condo law, says condo law is relatively new in Canada. “In fact, Alberta was the first province in Canada to adopt condo legislation in 1966,” he says, adding that Canada’s first condominium plan was registered in Edmonton.

But it wasn’t until Jan. 1 this year that Alberta’s condo laws were amended to provide greater clarity to developers in terms of their expectations and provide protections for buyers, ensuring their deposits are held in trust by a lawyer and returned in the event of a default by the builder.

“Today, I would say to a potential buyer that your money and position are much safer today than they were last year,” Noce says. But even with the deposit returned, the buyer loses out on any appreciation or interest their investment may have earned during the time they were waiting for the condominium to be built.

Noce says buyers are often swayed by the emotional attachment to the purchase and don’t always look at it objectively. The result is that they could end up signing contracts that provide them with few protections. Important factors often overlooked at the time of purchase are a certain move-in date and any remedies the builder might offer if that’s delayed.

And although the developer retains the right to cancel development if a certain threshold of sales isn’t achieved by a certain date, the contract could possibly include damages that can flow to a purchaser in the event of a cancellation.

“People have the freedom to contract,” but the market demand could dictate the buyer’s bargaining power, Noce says. “The chances of you having any clout to suggest any changes are on the low end.”

Visit Canadian lawyer Mag for more topical information about Canadian law and legal culture.

Police investigating pre-sale development; condo buyers out hundreds of thousands

‘In court reports… they’d found some of the [pre-sale] units were pre-sold more than once – and as many as four times in some cases.’

How risky is buying a pre-sale condo?

‘Future homebuyers considering a pre-sale property might be surprised to find out what’s in the fine print.

They’re drawn in by glitzy showrooms that allow them to choose their unit and finishes, and many sign contracts without really understanding them.’

“People don’t read the last 10-15 pages. They just look at the first page, the price, how many parking spaces I get, is there GST on it? And that’s it,” said real estate lawyer Kenneth Pazder.

Full CTV News article: here.

 

 

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

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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

“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 

Enough is enough! Pre-sale condo buyers seek justice

Fed up with the one-sided nature of pre-sale contracts, a group of disgruntled Langara West pre-sale buyers are challenging the status quo. This is yet another cautionary tale about the risks involved in buying a pre-sale condo.

In this instance the developer did not complete the project and sought to return the buyers’ deposits (plus 50%) in lieu of damages.

The case involves a novel legal argument put forth by the buyers’ lawyer. The typical custom-drafted, one-sided pre-sale contract usually contains an egregious clause which says the if the seller defaults the buyer’s sole remedy is to get his deposit back (usually with no interest). On the other hand, if the buyer defaults, he loses his deposit (Tang v. Zhang, BCCA, 2013) and he’s legally responsible for any further losses the seller incurs.

The buyers’ lawyer is arguing that this clause is not operational because the seller/developer allegedly committed a “fundamental breach” of the contract (i.e. did not deliver any manner of condo).

We tried this argument on a mortgage company that failed to advance funds (for no legitimate reason) on a commercial mortgage twenty years ago (mortgages usually have clauses that say that the lender has “no obligation to advance funds” -which is the main purpose of a mortgage). That would also seem to be a fundamental breach of contract , but the Alberta Court of Appeal didn’t see it that way.

Unfortunately buyers are stuck with these grossly unfair contracts as there is no legislatively mandated form of pre-sale contract under the Real Estate and Development Marketing Act.

Perhaps the new NDP government will change that, not being as beholden to the development industry as the former Liberals.

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 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

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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;
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  • 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