Canada: Case Law Update Under British Columbia’s Real Estate Development Marketing Act ("REDMA")

Last Updated: July 5 2012
Article by Andrew P. Prior

Two recent decisions of the British Columbia Supreme Court underline the importance of complying with REDMA when marketing and selling new development properties. The decision in Woo v. ONNI Ioco Road Five Development Limited Partnership, 2012 BCSC 764 ("Woo") is the first decision addressing post closing rescission rights pursuant to section 21(3) of REDMA. The decision in Mazarei et al. v. Icon Omega Developments Ltd. 2012 BCSC 673 ("Icon"), meanwhile, is the first decision to clearly apply REDMA to contracts of purchase and sale for projects located outside of British Columbia.

In Woo, the purchasers had signed their contracts of purchase and sale and obtained the original disclosure statement filed with the Superintendent of Real Estate for the project. Subsequently, the developer made various amendments to the disclosure statement and filed those amendments with the Superintendent of Real Estate. However, in apparent violation of section 16(1)(b) of REDMA, the developer neglected to deliver the amendments to the plaintiff purchasers. The purchasers ultimately closed on their units in December 2008, only learning of the amendments in 2010, at which time they delivered notices of rescission. In arguing they were entitled to rescind, the purchasers relied on the language in section 21(3) of REDMA, which states that regardless of whether or not title to the development unit has transferred, a purchaser is entitled to rescission where they were entitled to, and did not receive, a disclosure statement (in this case, the amendment). The developer argued that once the executory contracts were no longer executory (in other words, when title passed), the purchasers were no longer entitled to rescind. This defence was principally based on limitations to the remedy of rescission within the common law.

In finding in favour of the purchasers, the Court held that the statutory remedy of rescission is not subject to the same limitations as equitable rescission. The Court held that the language in section 21(3) was clear and entitled the purchasers to rescind the contracts. Of significant concern, the Court refused to apply any set‐offs for occupational rent or wear and tear to the unit. Accordingly, the developer was ordered to return the full purchase price, including tax, to the purchaser. The purchasers, in turn, got nearly four years of rent free occupation of the development unit and were entitled to take the purchase price and buy a new unit. The Court was not concerned about the potential inequity of this outcome given that REDMA is consumer protection legislation.

In Icon, the Court had to consider in what circumstances REDMA would apply to contracts of purchase and sale for land outside of British Columbia. Section 2 of REDMA confirms that the Act applies to developers who "market", within British Columbia, development property, whether or not the actual property is located in British Columbia. "Market" is defined quite broadly, and includes engaging in "any transaction or other activity that will or is likely to lead to a sale or lease". If a developer is found to be marketing in British Columbia, the developer must comply with REDMA and, among other matters, must file a disclosure statement with the Superintendent of Real Estate. If a developer fails to file and deliver a REDMA compliant disclosure statement, section 23 of REDMA operates to deem any contract unenforceable at the election of the purchaser.

In Icon the developer was an Alberta company, with an Alberta property. No disclosure statement was filed with the Superintendent of Real Estate in British Columbia. The plaintiffs, however, were based in British Columbia and apparently did not travel to Alberta to sign their contracts. Instead, the project was brought to their attention by a British Columbia based realtor (who was also one of the plaintiffs) who obtained marketing material directly from the developer. Most of the 'marketing' in question consisted of discussions in a social setting between a director of the developer and the realtor. Information was forwarded by the developer to the Vancouver based agent with the knowledge it was being provided to potential purchasers. There was otherwise no traditional marketing or advertising regime undertaken in British Columbia. The purchaser plaintiffs were themselves friends and family of the Vancouver realtor and were for the most part sophisticated investors. The purchasers ultimately refused to complete on the agreements of purchase and sale and brought lawsuits seeking a declaration that the contracts were unenforceable as they had not been provided with a REDMA compliant disclosure statement. They also sought a return of their deposit monies.

The question for the Court was whether the conduct reached the level of "marketing" which would require the developer to meet REDMA's requirements. In finding that the conduct did constitute marketing, the Court went to great length to confirm that REDMA is consumer protection legislation and that it places a burden on a developer to comply if they enter the British Columbia marketplace. As REDMA placed no meaningful limits on "marketing" the Court held that the term focused on a causal relationship (even indirectly leading to a sale) rather than any specific, and traditional, step in the marketing process (such as an actual British Columbia based office or marketing employee). This broad concept of marketing makes it very easy for an out of British Columbia developer to facilitate marketing in British Columbia, at which point if they fail to file and provide REDMA compliant disclosure statements, any contracts entered into as a result of the British Columbia marketing will be unenforceable at the election of the purchaser.

In summary, both Woo and Icon are of significant concern to the development industry. Woo confirms that even if title has passed, certain failures to comply with REDMA will entitle purchasers to a return of their purchase price. Other than limitation deadlines, the risk of noncompliance with REDMA is not temporally limited and it does not appear that the error would be curable once the transaction has closed. Icon, meanwhile, should be of specific concern to non‐ British Columbia developers who may draw purchasers from a larger geographical pool. Care should be taken to ensure that they are not facilitating realtors or independent agents who seek out British Columbia based buyers.

About Fraser Milner Casgrain LLP (FMC)

FMC is one of Canada's leading business and litigation law firms with more than 500 lawyers in six full-service offices located in the country's key business centres. We focus on providing outstanding service and value to our clients, and we strive to excel as a workplace of choice for our people. Regardless of where you choose to do business in Canada, our strong team of professionals possess knowledge and expertise on regional, national and cross-border matters. FMC's well-earned reputation for consistently delivering the highest quality legal services and counsel to our clients is complemented by an ongoing commitment to diversity and inclusion to broaden our insight and perspective on our clients' needs. Visit: www.fmc-law.com

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