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A recent British Columbia Supreme Court decision has challenged the prevailing view that the Real Estate Development Marketing Act (REDMA) will habitually favour consumers in disputes with property developers. In Bosa Properties (Edgemont) Inc. v. Ban, Mr. Justice Cullen found in favour of the developer after condominium pre-sale buyers refused to complete a purchase-and-sale agreement because of the developer’s alleged breaches of REDMA.
REDMA is consumer protection legislation which, as the B. C. Court of Appeal has noted, is traditionally interpreted generously in favour of the consumer. One of REDMA’s central objectives is to ensure that notice of all material facts, including project changes occurring in the course of development, are provided promptly to pre-sale purchasers (see Letter of the Law, Winter 2009 and Fall 2011).
In many earlier decisions under REDMA, the courts have permitted pre-sale buyers to use Section 14 of REDMA to shield them from completing transactions if the developer has failed to, “without misrepresentation, plainly disclose all material facts” respecting the development and the purchaser’s interest. This provision has been used many times to justify a refusal to complete a purchase agreement when the developer has, in particular, not promptly disclosed delays to a projected completion date. It has undoubtedly assisted many buyers who have developed cold feet about closing, especially in times of falling market values. In Bosa Properties, however, Mr. Justice Cullen showed that REDMA’s protection for buyers has limits.
In this case, two individual defendants contracted to purchase a strata-titled unit in a project in Coquitlam, making deposits that totalled $86,235. Unusually, the project finished well ahead of the scheduled completion time. But there was a snag—the appraised market value of the property on the completion date was $115,000 less than the agreed purchase price.
The defendants sought to rely on the REDMA provisions and related policy statements requiring the developer to state the dates of commencement and completion of construction. They argued that the accelerated construction resulted in a new completion date which was a “material fact” requiring further disclosure. Mr. Justice Cullen rejected this position and accepted the plaintiff’s argument that an amended disclosure statement is only required where there is a material change to the completion date. An accelerated completion date was not a material change as it would not affect the “value, price or use” (the factors set out in REDMA to determine materiality) of the purchased unit.
At first blush this may appear to be a surprising conclusion since a buyer may be able to complete a purchase at a stipulated time but not sooner. Indeed, in this case, the buyers testified that the funds that they had planned to use for closing the deal would not be available to them until September 2009 (the originally contemplated closing date). However, the judgment shows that the limited definition of “material fact” in REDMA applied in this circumstance is considerably more restrictive than might be generally understood by buyers seeking to rely on it to their own advantage.
As consumer protection legislation, REDMA’s main beneficiaries have been pre-sale buyers and, until this case, the Act has usually been interpreted generously in their favour. Bosa Properties may be seen as an indication that the courts are not prepared to extend this protection infinitely, especially when the refusal to close appears (as here) to be motivated in part by the reduction in the unit’s value.
Conversely, developers should be chary of assuming that the case stands for a general proposition that closing dates can be brought forward with impunity and not disclosed to the pre-sale purchasers. In fact, in a 2009 Supreme Court decision, McEachern v. 752265 B.C. Ltd., the buyers’ assets were not in place to complete the purchase on an early completion date. They faced potential income tax issues and were liable for the early imposition of strata and mortgage fees.
In that case, the Court concluded that those facts constituted a material change that justified the buyer’s decision to refuse to complete the purchase. Although McEachern was explicitly decided on contractual terms outside REDMA’s parameters—and was not considered or referred to in Bosa Properties—the conflict in the methodology of these cases remains to be resolved at a future date.
For developers, neither case changes their obligations. Prudence would suggest that a desire to force the buyer to close sooner based on early project completion should (despite Bosa Properties) usually be seen as a material change and disclosed in accordance with REDMA. Clearly this will not be palatable in a falling real estate market due to the risk of losing buyers but may be an option in a strong economy. The developer that is unwilling to afford buyers such an opportunity to cancel would be best advised to offer early closing as an option to those who want it but be prepared to live with the disclosed closing date terms for those who do not.
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Our Commercial Real Estate Group has experience in all aspects of the law and practice related to commercial property acquisitions, management, structuring, development and sales.
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