The BC Financial Services Authority ("BCFSA") has issued a notice to its stakeholders, including developers, advising that the Superintendent of Real Estate's Policy Statements 5 and 6 have been amended, effective March 8, 2023.
Together, Policy Statements 5 and 6 allow developers to engage in the early marketing of development projects before obtaining a building permit (Policy Statement 5) and a satisfactory financing commitment (Policy Statement 6), provided certain requirements are met. The amendments to Policy Statements 5 and 6 are intended to create clear and consistent guidelines governing early marketing requirements in British Columbia.
Policy Statement 5
Policy Statement 5 provides that a developer may engage in the early marketing of a development project even though it has not yet obtained certain approvals for its project, including a building permit, so long as the developer has obtained "approval in principle" to construct the development project from the relevant municipal or government authority.
Amended Policy Statement 5 clarifies that "approval in principle" is obtained when the relevant municipal or government authority has granted third reading to a bylaw to zone or rezone the site on which the development project will be located to a zoning that permits the development project. In certain areas of British Columbia, where "third reading" is not specifically required, an "equivalent step" must be achieved by the developer to obtain its approval in principle for the development.
If a developer commences marketing under Policy Statement 5, and even though it may now commence marketing as of third reading (as opposed to waiting for final enactment of rezoning), the developer will still only have 12 months from the date it commences marketing to obtain a building permit and file an amendment to its disclosure statement disclosing the particulars of the building permit. Developers should therefore carefully consider this timeline when they opt to file disclosure statements and proceed with marketing.
Amended Policy Statement 5 additionally clarifies that the definition of "building permit" includes multiple or staged building permits that authorize excavation or construction of the development project.
Policy Statement 6
Policy Statement 6 allows a developer to engage in the early marketing of a development project so long as it obtains a "satisfactory financing commitment" to construct the development project (including costs of utilities and other services required for the development) within 12 months. Amended Policy Statement 6 updates the definition of a "satisfactory financing commitment" to clarify that the developer must obtain a commitment of funds from a lender that is not conditional on either:
1.) the developer entering into a certain number of purchase agreements;
2.) the developer achieving a certain value of sales.
If the commitment of funds is subject to either of these conditions, the developer will only meet the requirements of Policy Statement 6 once the conditions have been – and remain – satisfied. As previously was the case, the developer may also "combine" its own funds together with a commitment of funds from a lender, or alternatively entirely utilize its own funds, to meet the requirements of a "satisfactory financing commitment."
Amended Policy Statements 5 and 6 additionally clarify that both policy statements apply to phased developments. Specifically, the requirements of the policy statements apply to each individual phase of development properties that are proposed to be created by a "phased strata plan" (as defined in the Strata Property Act).
Note that developers are not required to file an amendment to their disclosure statement to comply with the updated Policy Statements unless the amendments to Policy Statements 5 or 6 result in a misrepresentation in a developer's disclosure statement. For further information about amended Policy Statements 5 and 6, please see: BCFSA News Release, and links to the Policy Statements or contact one of our commercial real estate lawyers.
Note: the BCFSA's advisory notice additionally includes amendments to the Superintendent of Real Estate's Policy Statement 13, a summary of which amendments are outside the scope of this article. If you have any questions about the changes to Policy Statement 13, please get in touch with one of our commercial real estate lawyers.
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.
