Canada: Consolidated Disclosure Statements: On The Comeback Trail?

A consolidated disclosure statement combines the original disclosure statement and all subsequent amendments into a single document. Often it is not originally signed, and is not officially filed with the Superintendent of Real Estate, although a copy is generally provided to the Superintendent. Consolidated disclosure statements have typically been used when multiple amendments to a disclosure statement have been filed, thereby making it difficult for purchasers to understand the disclosure statement. Unfortunately, the use of consolidated disclosure statements has been in decline since a B.C. court decision a year and a half ago.

The Superintendent's Guide to Disclosure Statements (Guide), issued in April 1995 when Part 2 of the Real Estate Act was in effect, explicitly endorsed the use of consolidated disclosure statements. The Guide stated that "[w]here a developer has filed amendment(s) with the Superintendent that may confuse prospective purchasers, the developer may prepare a Consolidated Disclosure Statement for distribution to the prospective purchasers." This language reflected long standing practice in the development industry.

Part 2 of the Real Estate Act was replaced by the Real Estate Development Marketing Act (REDMA) in 2004. Seeing nothing in the new legislation to cast doubt on the practice of providing consolidated disclosure statements, developers and their lawyers carried on as before.

Fast forward to 2010. In Pinto v. Revelstoke Mountain Resort Limited Partnership (Pinto), 2010 BCSC 422, the defendant developer argued that, by providing a consolidated disclosure statement (which incorporated the terms of an amendment) to an existing purchaser in lieu of the actual amendment, it had met its obligation to deliver the amendment to the purchaser. The trial judge rejected this argument, rightly in our view, stating that "[n]either the clear language nor the general purpose of the [REDMA] is complied with if the existence and nature of an amendment is not drawn to the purchaser's attention." Of concern to developers, though, was his observation that "there is no provision in the [REDMA] for such a consolidated disclosure statement" as it raised the possibility that consolidated disclosure statements may not be proper to use in any circumstances.

In fact, most developers did take care to give existing purchasers the amendment itself, only giving the consolidated disclosure statements to new purchasers. Even so, the uncertainty created by the Court's statement in Pinto, and the favourable treatment given to purchasers in the raft of the REDMA cases that followed the economic downturn of 2008-09, caused many developers to adopt a conservative approach and stop providing consolidated disclosure statements at all.

The Pinto decision was appealed and, on April 21, 2011, the B.C. Court of Appeal affirmed the trial judge's decision on the merits. Regarding the specific issue of consolidated disclosure statements, however, it restricted its reasoning to the fact that a consolidated disclosure statement does not meet the requirements of an "amendment" under the REDMA. In particular, the Court noted that a consolidated disclosure statement does not "clearly identify and correct the defect" as required by the REDMA, and that a consolidated disclosure statement, which "requires purchasers to make a line-by-line comparison of two lengthy documents in order to locate any amendments, is not sufficient." The Court did remark that the consolidated disclosure statement was not filed with the Superintendent, but the significance of that statement is not made clear and the Court said nothing further to imply that delivering a consolidated disclosure statement to new purchasers would not satisfy a developer's disclosure obligations.

Five days before the Court of Appeal decision in Pinto, the B.C. Supreme Court decided Watson v. Havaday Developments Inc., 2011 BCSC 505, a case where the purchasers of a condominium unit successfully sued for the return of their deposit. The purchasers were originally given a consolidated disclosure statement and argued that, under the REDMA, the developer should have given them the original disclosure and all amendments so that they would be aware of the specific disclosure contained in the amendments. This argument was resoundingly rejected (although the case was decided on other grounds). According to the judge, "[t]he consolidated disclosure statement disclosed the correct state of affairs at the time the purchasers signed the contract. The history of any changes was of no importance to them. But clearly future changes would be, which is why the REDMA obliged [the developer] to file and serve upon them any amendments that were incorporated into the disclosure statement after the point at which those changes became relevant to them, i.e., after the date they signed agreements to purchase their strata properties."

The Court's position in Watson is not inconsistent with either the trial or appeal decisions in Pinto; that is, a consolidation clearly does not take the place of providing an amendment to an existing purchaser. However, a consolidation provides all the disclosure that a purchaser needs, and that a developer is required to give, at the time the purchaser signs a purchase contract.

Where does that leave us from a practical perspective? On one hand, the B.C. Supreme Court has endorsed the delivery of consolidated disclosure statements to new purchasers and the B.C. Court of Appeal has said nothing directly to invalidate the practice. In addition, the REDMA provides that disclosure statements must be in the form and include the content required by the Superintendent, and the Superintendent has expressed to us (and in the Guide issued under the REDMA's predecessor) support for the clearer disclosure provided to new purchasers by a consolidated disclosure statement. On the other hand, we still have the B.C. Supreme Court's comment in Pinto that the REDMA does not contemplate consolidated disclosure statements, and the B.C. Court of Appeal's subsequent observation in that case that the consolidated disclosure statement was not officially filed with the Superintendent's office: these comments are unsettling because they do leave the impression that the Court of Appeal might not view delivery of an unfiled consolidated disclosure statement as meeting a developers obligations under the REDMA. It is indeed a conundrum.

On balance, whether or not consolidated disclosure statements are valid (and we believe there are strong arguments supporting their use for new purchasers), in the current environment where it continues to be standard operating procedure for lawyers to explore ways to extricate their clients from contractual obligations on purely technical grounds, it is advisable for developers to steer clear of giving consolidated disclosure statements to any purchasers, at least until the issue is squarely addressed by the courts, the Legislature or the Superintendent. They do remain useful for internal reference purposes, and possibly for posting on a website with appropriate disclaimers (as long as purchasers receive the original documents, of course), but a "better safe than sorry" approach is the prudent course of action in these times.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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