Writing an Offer to Purchase to comply with the Vancouver Empty Homes Tax

The Vancouver Empty Homes Tax was signed by Mayor Robertson on November 16, 2016 for Class 1 Residential properties* located within the city of Vancouver pursuant to the Vacancy Tax By-Law no. 11674.

Thus far no other municipality in BC has enacted similar legislation. Accordingly, by February 1, 2018 all owners of said residential properties must have submitted an Empty Homes Tax declaration (by phone or online), failing which they will face a $250 fine and a property tax assessment of 1% of the assessed value of the property.

How do you protect your purchaser who wants to buy a residential property in Vancouver now?

At the moment, the standard CBA/BCREA approved Contract of Purchase and Sale does not make mention of said tax so the buyer has to include the following additional clauses in to the offer by way of an addendum:

1. The Seller shall provide a filed copy of the City of Vancouver Status Declaration to the Buyer prior to closing as an exhibit to a Statutory Declaration confirming that said declaration is true and accurate;

2. Depending on the status declaration, a warranty by the Seller that the subject property is NOT subject to payment of vacancy tax pursuant to Vacancy Tax By-Law no. 11674.

3. If the declaration confirms that the subject property is subject to the Empty Homes Tax, confirmation that payment will be made by the seller’s lawyer upon the completion date or adjusted on the Vendors Statement of Adjustments;

4. If the declaration indicates that the city has not made a determination regarding the applicability of the tax a holdback of 1% of the assessed value of the property should be required to be held in trust by the seller’s lawyer pending the final determination (and paid if the tax is applicable);

In addition, it is also advisable to order an owner’s policy of residential title insurance to protect your owner from the consequences of a false declaration having been made by a previous owner.

The Empty Homes Tax provides that the city can audit a declaration for up to 2 years after it has been made so presumably, the new owner would not be aware that a previous owner had made a false declaration in the past (at present, the only tax period which of relevance is January 1 – December 31, 2017).

The city’s website states that a prior owner who made a false declaration would be liable to pay the fines (which can be up to $10,000/day), but that the vacancy tax itself is assessed on the property and hence the new owner could be stuck with it. In such case, the new owner would be put to the trouble and expense of locating and suing the previous owner to recoup the tax –which is not always feasible or possible.

To cover off this possibility we recommend that the new owner purchase a policy of residential title insurance from FCT or Stewart Title. Upon compliance with their underwriting requirements, which are not onerous, the new owner would be insured against the outstanding taxes for a relatively modest, one-time premium (which incidentally covers off survey/encroachment issues, title fraud, unpaid property taxes or strata fees, lack of permits and many other things) – see here for a summary of title insurance coverage.

Unfortunately for pre-sale buyers or other buyers who made contracts with long closing dates, the above noted suggestions are not particularly useful, as the seller is not under any legal obligation to commit to additional representations or warranties or execute statutory declarations which are not already contained in or required by the contract of purchase and sale.

In such cases, a policy of title insurance is a must (although you might have to talk to the title insurer’s underwriting department to explain why you cannot obtain the necessary representations and documents from the seller).

MORAL OF THE STORY

Always protect yourself with the best possible contract of purchase and sale. We recommend that you have your realtor insert a condition (where possible) that the contract of purchase be subject to satisfactory review by your legal counsel within the time frame set for other subject conditions, so that this kind of issue can be identified before you become liable to buy.

We recognize that in this frenzied market (for condos in particular) that this is not always possible, so hopefully this article will help you avoid at least one pitfall.

* Class 1, Residential — single-family residences, multi-family residences, duplexes, apartments, condominiums, nursing homes, seasonal dwellings, manufactured homes, some vacant land, farm buildings and daycare facilities.

Disclaimer: The foregoing is for information purposes only and does not constitute legal advice to the reader. Always consult a qualified legal professional when drafting or customizing a contract.

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