With a shortage of housing inventory on the market, many buyers have turned to pre-sale purchases.
A pre-sale purchase involves entering into a contract to buy a strata unit which has not yet been built. The condominium project containing the subject unit may still be a hole in the ground or a partially constructed building. There may be no strata plan filed, or even a building permit or financing in place when the pre-sale purchase contract is signed.
This is possible because REDMA (the Real Estate Development and Marketing Act) permits developers to engage in sales and marketing of pre-sale condominiums before they are constructed.
If the pre-sale project is still in the earliest stages, the completion date of the purchase could be years away.
For a general discussion of the seven main risks of buying a pre-sale please refer to our blog:https://www.pazderlaw.com/what-are-the-7-risks-of-buying-a-pre-sale-condo/
All pre-sale contracts in BC contain a seven-day rescission period, meaning that the buyer can back out of the purchase for any reason (or no reason) within that period of time (interestingly, in the current, super-heated real estate market, the BC government is considering implementing a similar rescission period for one-off home purchases from individuals (see: https://www.pazderlaw.com/proposed-rescission-periods-for-residential-property-sales-in-bc/).
The point of the rescission period is to allow the buyer to re-evaluate his or her decision to buy the subject unit and to take the time to understand the complex purchase agreement and disclosure statement which accompany a pre-sale purchase. Virtually no one reads these documents before making an offer to purchase! Indeed, many buyers never read them, other than to confirm the price and the number of parking stalls allotted.
A question that we are often asked is whether it is advisable to have a lawyer review the pre-sale contract during the rescission period.
My view is that it is always advisable. Why?
- Pre-sale contracts are much longer and more complex than standard real estate contracts used in BC by licenced realtors
- Pre-sale contracts are also completely one-sided in favor of the developer (as they are drafted by the developer’s lawyers)
- A pre-sale purchase usually represents a significant investment for most, so understanding the contract that you are signing is important.
Do you understand these clauses? (which often form part of the Schedule to a pre-sale contract)
“The Purchaser will cause his or her solicitor to prepare and deliver to the Vendor for execution at least five days prior to the Completion Date, the Vendor’s statement of adjustments and a Form A Transfer (the“Transfer”) of the Strata Lot. The Purchaser shall be responsible for obtaining a Form F Certificate ofPayment as required under the Strata Property Act(B.C.).Provided the balance of the Purchase Price or satisfactory provision for its payment to the Vendor has been made, the Vendor will execute and deliver such Transfer and the Vendor’s statement of adjustments to the Purchaser’s solicitor prior to the Completion Date on the condition that forthwith upon the Purchaser’s solicitor obtaining a post filing index search from the Lower Mainland Lan Title Office indicating that in the ordinary course of Land Title Office procedure the Purchaser will become the registered owner of the Strata Lot subject only to the Permitted Encumbrances(and the Vendor’s financing to be discharged),the Purchaser’s solicitor will cause the Balance to be paid on the Completion Date in accordance with section 5.2 hereof.In this Contract,“Permitted Encumbrances means subsisting conditions provisos, restrictions, exceptions and reservations, including royalties, contained in the original Crown grant or contained in any other grant or disposition from the Crown, registered or pending restrictive covenants and rights-of-way in favour of utilities and public authorities and owners of adjoining lands, covenants in favour of the District under the Land Title Act(British Columbia), the charges and encumbrances listed in the Disclosure Statement, the bylaws and limited common property designations, and except as otherwise set out herein.”“This Contract constitutes the entire agreement between the parties pertaining to the sale and purchase of the Strata Lot and supersedes any prior agreements, negotiations and discussions, whether oral or written, of the Vendor and the Purchaser and there are no agreements, covenants, representations or warranties, express, implied statutory, collateral, or otherwise, made by the Vendor, its agents or employees other than those contained herein.”
“Except for the Vendor’s covenant under paragraph 4.3 which shall continue and survive the Completion Dateand the payment of all monies payable hereunder, all the covenants of the Vendor in this Contract shall onlycontinue and survive the Completion Date to and including the date upon which the adjusted Purchase Priceand all other amounts payable under this Contract are paid, but not thereafter.”
If not, a consultation with a real estate lawyer is in order.
How about the Disclosure Statement? The disclosure statement is a document required by REDMA to be provided to the buyer when the contract is signed (the rescission period doesn’t start until seven days after the contract of purchase is signed AND the buyer has acknowledged in writing that he has had an opportunity to read the Disclosure Statement).
The Disclosure Statement generally describes the developer (including the developer’s experience in construction), the project in question (including parking, amenities, environmental issues etc.), the proposed by-laws, a draft budget (including projected strata fees for the subject unit) and a draft strata plan. Most Disclosure Statements are in the forty to sixty page range.
Some developments, however, have multiple Amendments to Disclosure Statements which can run into the hundreds of pages. They are particularly difficult to read, as they refer to amendments in previous Amended Disclosure Statements which are not replicated (so it’s necessary to go back to a previous amendment see what is being added or changed).
While lawyers can often provide an estimate of cost to handle a residential real estate transaction, the cost to review a pre-sale contract and disclosure statement will depend on how long they are and how many questions the buyer has. As a general rule, $500-700 is usually sufficient to review most pre-sale contracts and likely another $200-300 to review a standard Disclosure Statement (assuming that there are not multiple, long Amendments).
Given that the cost of a pre-sale condominium is likely many hundreds of thousands of dollars or more, an outlay of around a thousand dollars is not a bad investment for the peace of mind of understanding the contract and the associated risks.
To keep the costs down, we always advise a purchaser to attempt to read the contract and the DisclosureStatement and to highlight any sections that they don’t understand or that they have questions or concerns about. We are then able to address those sections of the documents rather than having to read the entire text. On the other hand, some purchasers simply instruct us to read everything and then discuss the documents with them in detail. It amounts to an individual preference for buyers.
As a general rule, the onerous terms of a pre-sale contract are not negotiable but understanding them is a critical component to assessing the risks of buying. A good real estate lawyer can help a purchaser with this task.
In our view, its always money well spent – even if the buyer ends up rescinding the contract!
For questions about pre-sales, feel free to call Kenneth Pazder or Melissa Valana at 604-682-1509.
© 2022 Pazder Law Corporation
DISCLAIMER: The foregoing is for information purposes only and does not constitute legal advice. Laws can change over time, so it’s always advisable to consult a real estate lawyer before executing a complex contract involving the purchase or sale of property (particularly when the property may not yet be built).