REDMA came into force on January 1, 2005 and we have now had almost a decade in working under REDMA and the Policy Statements issued by the Superintendent of Real Estate ("SoRE"). In the spring the BC Government introduced Bill 17 to the Legislature, the Miscellaneous Statutes Amendment Act, 2014, which provided a number of refinements to REDMA that will assist developers in marketing their projects.
The changes to REDMA were complemented by amendments to (i) the Real Estate Development Marketing Regulation, B.C. Reg. 505/2004(the "Regulations"); and (ii) certain Policy Statements issued by the SoRE.
1. CHANGES TO REDMA AND REGULATIONS
a) Delivery of Disclosure Statements
REDMA has been amended to allow developers to deliver Disclosure Statements and Amendments to Disclosure Statements to purchasers by electronic means (e.g. fax or email), as long as the purchaser has provided their written consent to such delivery method. Developers should consider revising their standard purchase agreements to provide for electronic delivery of Disclosure Statements and Amendments to Disclosure. Developers will still be required to obtain acknowledgment of receipt of Disclosure Statements and Amendments to Disclosure from purchasers and care must be taken to ensure receipts are obtained and retained in every case. The lack of an email "bounce back" may not be sufficient evidence of receipt.
b) Consolidated Disclosure Statements
With more and more Amendments to Disclosure Statements being required as projects become more complex and to ensure compliance with the recent REDMA court decisions, it can be daunting for a new purchaser to be provided with a Disclosure Statement and several Amendments to Disclosure Statement running to hundreds of pages in length.
In order to address confusion amongst presale purchasers, certain developers adopted the practice of issuing Consolidated Disclosure Statements ("CDS") which consolidated all of the amendments to a Disclosure Statement into a single document. Although this practice has been used for a number of years, there was previously no statutory authority to do so.
More recently, with the increased litigation in the presales market, developers and their lawyers were reluctant to use CDS even if they were easier for purchasers to understand. REDMA has now been amended to specifically authorize the use of CDS for new purchasers.
Developers wishing to use a CDS must still file a traditional Amendment to Disclosure Statement with the SoRE, amending the original Disclosure Statement and deliver the Amendment to Disclosure Statement to existing purchasers. They would also file the CDS with the SoRE with the CDS being delivered to new purchasers. The original Disclosure Statement and all its Amendments must be provided at no cost to a purchaser within 30 days of written request.
Care must be taken to ensure that the CDS correctly reflects the cumulative effect of all of the amendments to the Disclosure Statement up to the date of the CDS.
Pursuant to amended Policy Statements, the following statement must be placed on the cover page of any CDS in conspicuous type:
"This is a Consolidated Disclosure Statement filed pursuant to the Real Estate Development Marketing Act."
c) Phase Disclosure Statement
Just as the CDS are useful in many situations, the amendments to REDMA allow for the provision of a "phase disclosure statement". A phase disclosure statement ("PDS") consolidates all of the amendments to the original Disclosure Statement including those related to the new phase, into a single Disclosure Statement.
It allows developers of phased strata developments to market strata lots in phases subsequent to the first phase by filing a PDS. Thus the developer can provide new purchasers in a new phase with a single document that is easier to understand than a Disclosure Statement with a thick set of amendments.
If the developer intents to marker units in a previous phase, including the completion of existing sales, while marketing units in the new phase pursuant to a PDS, then the traditional amendment to the disclosure statement must be filed with the SoRE which must include a statement that the developer is marketing the subsequent phase pursuant to a PDS. The amendment does not need to duplicate information in the PDS.
Pursuant to amended Policy Statements, the following statement must be placed on the cover page of the PDS in conspicuous type:
"This is a Phase Disclosure Statement filed pursuant to the Real Estate Development Marketing Act."
d) Post-Closing Rescission
REDMA currently provides that even if the sale of a strata lot has closed and title has transferred to a purchaser, a purchaser who was entitled to receive a Disclosure Statement (including an Amendment to Disclosure Statement) but does not receive one, may rescind the purchase agreement at any time. The Bill 17 amendments limit post-closing rescissions to situations in which the Disclosure Statement or Amendment to Disclosure Statement that should have been provided to the purchaser (but was not) discloses or would have disclosed facts that were material at the time of rescission or closing and were reasonably relevant to the purchaser. The amendments to REDMA prevent a purchaser from rescinding their agreement for technical reasons that are not actually relevant to the purchaser.
Regardless of materiality the REDMA amendment also prohibit post-closing rescissions when a purchaser has owned a unit for a year or more. This one-year limitation period for post-closing rescissions applies however only to situations where an Amendment to Disclosure Statement was not delivered. If a developer has failed to deliver a Disclosure Statement to a purchaser, then there is no one year limitation period.
Finally, the amendments to REDMA allow the developer to seek a court order that would allow the developer to collect market rent from purchasers that have rescinded their units after closing.
Notwithstanding the amendments to REDMA, it remains vital that developers ensure Disclosure Statements and Amendments to Disclosure Statement are provided to purchasers and receipts obtained.
Since its adoption, REDMA has provided that trustees (such as the developer's law firm) holding deposits could release the deposit to the developer if the purchaser fails to pay the next deposit.
The amendment makes it easier for developers to receive deposits from trustees (such as the developer's law firm) in the event that a purchaser defaults in paying a "subsequent deposit" (e.g. a second or third deposit), by expressly permitting the trustee to release the deposit to the developer, upon receipt of a certificate from the developer certifying that the purchaser has failed to pay a "subsequent deposit". The amendments further clarify that the failure to pay the balance of the purchase price is considered to be a non-payment of a subsequent deposit.
The Regulations also now permit trustees to release deposits in circumstances where a developer and a purchaser have reached a settlement. In order for a trustee to release all or a portion of a deposit in these circumstances, the trustee must first receive a certification from the developer and the purchaser that:
i) the applicable purchase agreement to which the deposit relates has been terminated; and
ii) the purchaser and the developer have agreed on how to distribute all or a portion of the deposit between them.
f) Effect of Non-Complaint Disclosure Statements
Section 23 of REDMA was always troubling in that it provided that when Part 2 of REDMA (the marketing and holding of deposits part of REDMA including the Disclosure Statement obligations) was breached, any purchase agreement was not enforceable against a purchaser.
Section 23 has now been amended such that purchase agreements remain enforceable where Part 2 of REDMA has been breached by the developer and one of the following conditions applies:
i) the breach involves a Disclosure Statement that does not comply with Part 2 of REDMA but contained no misrepresentation of a material fact that was or would have been reasonably relevant to the purchaser; or
ii) the breach involves a Disclosure Statement that includes a misrepresentation concerning a material fact, The developer was unaware of the misrepresentation at the time they entered into the purchase agreement and the misrepresentation is corrected in an Amendment to Disclosure Statement that is:
A. filed with the SoRE no later than 30 days after the developer becomes aware of the misrepresentation and the Amendment to Disclosure Statement is provided to the purchaser within a reasonable time after filing; and
B. filed with the SoRE and provided to the purchaser no later than 14 days before the date on which the purchase agreement requires the developer to transfer title to the purchaser.
g) Clarification on Who is Not a Developer
There has been occasionally been some confusion as to who constitutes a "developer" under REDMA. The way certain developers or development groups are structured often complicates the analysis. The Regulations now provide that certain classes of persons are exempted from Part 2 of the Act (Marketing and Holding Deposits) if their involvement in the development is limited to circumstances in which they are:
i) only leasing all of a development property to the developer;
ii) only contracting for the sale of all the development property to the developer; and
iii) only holding a financing charge on the development property.
2. CHANGES TO POLICY STATEMENTS
The SoRE has as result of the Bill 17 Amendments introduced amendments to 8 of Policy Statements under the REDMA. The amended Policy Statements 1, 2, 3, 5, 8, 9, 10 and 11 will become effective on October 1, 2014 (and which must be incorporated into any Amendments or Disclosure Statements filed on or after that date). Some of the important changes to the Policy Statements include the following:
i) changes to the required scope of disclosure for the permitted uses / zoning of a development property;
ii) clarification on the dates to be provided in Disclosure Statements in respect of commencement and completion of construction; and
iii) an expanded definition of what constitutes a valid "building permit" for the purposes of the preliminary approvals required under REDMA and the early marketing restrictions imposed by Policy Statement 5
Further information on the amended policy statements is provided in the SoRE's Information Bulletin RE-14-001 and all of the amended Policy Statements are available on the Financial Institutions Commission's website at: http://www.fic.gov.bc.ca/index.aspx?p=real_estate/bulletins .
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.