The (Unexpected) BC Foreign Buyers Tax: Can it relieve a purchaser of her obligation to complete?

In the case of Wilke v. Jeong, (BCSC 2017 2131) released two days ago, Madame Justice Warren of the BC Supreme Court ruled that the enactment of the Foreign Buyers Tax did NOT did not provide a lawful excuse for the buyer, Kyeonga Jeong to fail to complete her purchase last year.

In this case the buyer entered into a contract of purchase and sale on June 16, 2016 to purchase the seller’s home in North Vancouver for $2,668,000 with a completion date of October 17, 2016.

The deposit of $180,000 was held in trust by the buyer’s agent, Sutton West Coast Realty.

The Foreign Buyer Tax which took effect on August 2, 2016, had the effect of increasing the Property Transfer Tax payable by the buyer from $58,040 to $458,240.

The BC government chose NOT to grandfather existing contracts of purchase and sale, so the purchaser was faced with the prospect of coming up with an extra $400,200 prior to the completion date. Her evidence was that she could not do so.

Her counsel argued unsuccessfully that the government’s decision FRUSTRATED the contract, thus providing her with a legal avenue to terminate.

In citing KBK No. 138 Ventures Ltd. v. Canada Safeway Limited (2000 BCCA 295) the court held that the legal doctrine of frustration required that the external circumstance had to in effect render the result something different than had been anticipated by the contract. Mere hardship, inconvenience or material loss were NOT in and of themselves, tantamount to frustration.

The buyer’s counsel cited numerous cases which found frustration of contract, but the judge distinguished all of them (found reasons why the reasoning or result in the other cases did not fit the facts of this case).

“The decision is consistent with a long line of cases where the courts have consistently enforced contracts and only rarely have applied the doctrine of frustration to allow a defaulting party to escape liability.” (Bryan Baynham, successful counsel for the Plaintiff)

The second argument was RELIEF FROM FORFEITURE under s.24 of the Law and Equity Act which states that the court may relieve against all penalties and forfeitures and in doing so may impose any terms as to costs, expenses, damages, compensations and any other matters that the court thinks fit.

This argument was also rejected as the court citing Tang v Zhang (2013 BCCA 52) found that the amount of the deposit was not penal in nature nor excessive (being only 6.7% of the purchase price).

The court went through an analysis of several more cases and concluded that 1) that it would not be unconscionable for the seller to keep the deposit, 2) the buyer’s decision not to complete did not arise from any action taken by the seller and 3) the deposit was not all out of proportion to the damage suffered by the seller (even though those damages had not been determined at the time of the hearing as the seller had been unable to re-sell the property to another buyer).

Accordingly, relief from forfeiture was NOT available to the buyer.

The court ordered that the $180,000 deposit be forfeited to the seller and that her damages (if any) be determined at a later date.

What that means is that if the seller cannot resell her home for at least the original purchase price (less the $180K deposit) the buyer will be on the hook for any further losses.

Apparently the seller has been trying to re-sell the uniquely designed property for the last year, so further damages could be in the works.

The MORAL OF THE STORY is that “the best laid plans of mice and men go oft awry” (Robert Burns).

In this case there was no legal avenue out of the problem (although there is a pending class action law suit against the BC government (http://www.cbc.ca/news/canada/british-columbia/b-c-government-wants-to-resolve-foreign-buyers-tax-lawsuit-without-full-trial-1.4122446), presumably to recoup damages for those buyers and sellers who have been adversely affected.

The Foreign Buyers Tax was long overdue, although incredibly, the Clarke government’s position only months before was that foreign money had no effect whatsoever on BC real estate prices.

In view of that, no one could have predicted that the government would implement the Foreign Buyers Tax on such short notice (about a week)!

Much of the negative fallout could have been avoided by simply exempting foreign buyers from the tax who had already entered into subject free contracts of purchase prior to August 2, 2016.

However the BC government chose not to take that obvious route.

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. 

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