Unable to complete your Pre-sale Condo Purchase?

Kenneth Pazder

12 minutes ago

6 min read

Buying a pre-sale condo in British Columbia used to be like shooting fish in a barrel. You made a deposit of 10-15% of the price, waited three or four years for construction to wrap up, and watched the market value of the strata unit rise by ten, twenty or even thirty per cent before you even picked up the keys (or perhaps you may have even flipped the contract of purchase and sale before the completion date). But today’s real estate landscape in BC looks very different. Higher interest rates, stricter mortgage stress tests, declining property valuations, and unexpected personal financial shifts have left many pre-sale buyers facing a daunting realization: completion day is approaching, and they may not be able (or willing) to complete the purchase.

1. Presale Contracts in British Columbia

To get a grip on this situation, you first need to understand the nature of the contract you signed but likely did not read carefully (or at all). Presale contracts in British Columbia are drafted by developers’ solicitors for the benefit of developers. Unlike the Residential Tenancy Act which prescribes the necessary terms for apartment rentals in BC, the Real Estate Development and Marketing Act and regulations, which govern pre-sales in BC do not require any specific form of contract nor the inclusion of any consumer protection terms (although there is a mandatory 7-day rescission period for you to re-consider the purchase and/or have the contract and disclosure statement reviewed by a lawyer. In our experience, few buyers ever take advantage of this option).

Custom Contracts

Unlike the standard, relatively balanced CBA/BCREA Real Estate Board contracts used when buying an existing resale home, a pre-sale contract is a customized legal agreement drafted by the developer’s legal team. Its primary purposes are to 1) protect the developer’s interests, 2) minimize its risk and 3) maximize its flexibility. As a buyer, you have virtually no bargaining power to alter these terms when you sign a pre-sale contract. Key clauses regarding completion dates, construction delays, finishings, and default remedies are written strictly to protect the seller, leaving buyers with very limited recourse. These issues are detailed in our blog post at: https://www.pazderlaw.com/post/the-7-main-risks-of-buying-a-pre-sale-condo-revisited

Buyer vs. Developer Liability for Default

The most severe aspect of a pre-sale purchase agreement is the imbalance of legal liability if either party fails to fulfill the contract:

• Buyer's Default Liability: If you default your financial liability is NOT capped at the loss of your deposit. We have reviewed thousands of pre-sale contracts over the past twenty-five years and in our experience your financial liability is invariably the GREATER of your full deposit OR the developer’s actual loss when they re-sell the unit to someone else. For example, if you agreed to buy a condo for $1,000,000 with a $100,000 deposit, but market values fall and the developer can only resell the unit for $875,000, the developer's loss is $125,000 plus legal, marketing, and carrying costs. In this scenario, the developer keeps your entire $100,000 deposit and can sue you in court for the remaining $25,000 plus ancillary expenses. Note that forfeiture of your deposit is not dependent on the developer’s loss of profit on the sale. Even if the developer was able to re-sell the subject unit at a higher price than your original purchase price, he is entitled to keep the deposit (Tang v Zhang (BC Court of Appeal) 2013 BCCA 52).

• Developer's Default Liability: Conversely, if the developer fails or refuses to complete the sale under the terms of the agreement, the buyer's sole remedy in every presale contract we have seen, is simply the return of their initial deposit (often less an admin charge to their lawyers for handling the deposit). The buyer cannot sue the developer for lost equity or market appreciation or ancillary costs such as legal fees. This stark inequality underlines why presale defaults must be handled with extreme care.

Warning on Presale Liability: Key Takeaway: Never assume that walking away from your presale deposit settles the deal. In a declining or stagnant market, a developer can legally pursue you for any total loss they suffer above the deposit amount upon resale.

2. Actionable Steps If You Cannot Complete

While the contractual landscape favors developers, buyers facing completion troubles are not entirely powerless. Here are four critical strategic steps every buyer should explore:

Step 1: Hire a Real Estate Lawyer to Review Your Contract & Disclosure Statement

Your first call should be to an experienced British Columbia real estate lawyer. You need a thorough legal examination of your purchase agreement and the developer’s Disclosure Statement (required under BC's Real Estate Development Marketing Act, REDMA).

A lawyer will review the file to see if there are legitimate legal grounds to terminate the contract or refuse to complete.

Legal Review Costs: What to Expect on Legal Fees: Conducting a comprehensive legal review of a pre-sale contract and disclosure statements is a complex and time-intensive process. It is not an inexpensive option—legal fees for this specialized analysis typically run in the $3,000 to $5,000 range. However, spending a few thousand dollars on proper legal counsel could potentially save you a six-figure deposit or protect you from a future lawsuit.

Step 2: Negotiate a Release

On a rare occasion you may be able to negotiate a full release from the developer from further liability in return for signing off on forfeiture of your deposit. This may be because the deposit is larger than usual or that there may be some potential problems with the developer’s handling of the project (lack of required disclosures under REDMA, being past the “outside completion date” before serving a Notice to Complete, etc.)

Step 3: Contact a Mortgage Broker for Alternative Financing Options

If traditional “A” lenders like Canada's major chartered banks reject your mortgage application due to higher stress tests or lower unit appraisals, do not throw in the towel immediately. Speak with an experienced, licensed mortgage broker who specializes in alternative lending.

Brokers can connect you with “B” lenders (trust companies and specialized financial institutions) or private lenders. While interest rates and setup fees on mortgage loans from “B” lenders or private lenders are markedly higher than traditional bank rates, taking on a short-term, higher-cost loan (e.g., a 1-year or 2-year term) might be a worthwhile temporary bridge. It allows you to complete the purchase, avoid defaulting, and salvage your original deposit while giving you time to re-sell or rent the subject unit.

Step 4: Obtain Accounting Advice

If you purchased the presale property strictly as an investment (rather than a primary residence) and you ultimately forfeit your deposit or pay damages upon default, you should consult a professional accountant.

An accountant can review your situation under Canada Revenue Agency (CRA) rules to determine whether the financial loss incurred from the failed presale contract can be claimed as a capital loss. If eligible, this capital loss can be used to offset future capital gains from other investments (such as stock portfolios or other real estate sales), helping to soften the long-term financial impact of the lost deposit. If you end up purchasing the unit and the rent doesn’t cover the expenses (mortgage payments, strata fees, insurance, taxes etc.) you may be able to write off the losses against your personal income.

Final Thoughts: Don’t wait.

Facing an inability to complete a pre-sale condo purchase in BC can feel overwhelming, but waiting until the day of completion limits your options and puts your assets at risk. Developers and their legal teams are bound by strict timelines, and early communication paired with professional guidance is your best defense.

If you think that you cannot (or don’t want to) complete the purchase, immediately engage a real estate lawyer to explore legal exits, consult a skilled mortgage broker to explore alternative financing, and talk to an accountant regarding potential tax write-offs. Taking swift, informed action gives you the best chance to minimize losses and make the best of a bad situation.

DISCLAIMER: This article is for information purposes only. It is not intended to constitute legal advice or create a solicitor/client relationship with the reader. Statutes and case law are constantly changing and may render this information inaccurate at a later date. Always consult a lawyer before taking action involving significant legal consequences such as defaulting on a real estate contract.