Developer's Disclosure Obligations under REDMA

Real Estate Development Marketing Act:
Developer’s Disclosure Obligations

Jordanna Cytrynbaum, Virginia Wigmore
July, 2012

McCarthy Tétrault LLP / mccarthy.ca / July 2012 / Docs #11369978

Disclosure Statements 2

¬ Cannot market a development unit unless you have filed a DS for the
development property (subs. 14(1))
¬ Cannot enter into a purchase agreement unless (a) purchaser
receives copy of DS, (b) purchaser has reasonable opportunity to
read DS and (c) written acknowledgement obtained from purchaser
acknowledging receipt of and opportunity to read DS (subs. 15(1))
¬ Must retain receipt for three years (subs. 15(2))
¬ Policy Statements 1, 2, 3, 8, 9 , 10 and 11 set out DS form and
content requirements for each of the seven different types of
development units
¬ Under the REDMA Regulations, there are exemptions from the
requirements to file a DS which are largely the same as before
(e.g. industrial/commercial stratas; lots in a municipality where there
is a servicing agreement and security has been posted; marketing of
a development property in a single transaction – new one for
industrial/commercial in a comprehensive zone)


Amendments 3

¬ Developer must file new DS or amendment if it becomes aware that the DS
does not comply with the Act or the Regulations, or contains a
“misrepresentation” (i.e. a “false or misleading statement” of a “material
fact” or an omission to state a material fact”) (para. 16(1)(a))
¬ New DS or amendment must be provided “within a reasonable time after
filing” to new purchasers and purchasers who have not yet closed purchase
(para. 16(1)(b))
¬ Note the importance of a particular amendment to a purchaser may be
relevant to defining a reasonable time for delivery of the amendment
(Pinto v. Revelstoke Mountain Resort Limited Partnership, 2010 BCSC
422)
¬ “Material fact” means (a) something that affects or could reasonably be
expected to affect value, price or use, (b) identity of developer or
(c) bankruptcy, etc. of developer
¬ New DS required for (b) or (c) (includes a change of a partner in a general
partnership), or if the Superintendent determines it is of a “substantial
nature” (subs. 16(2))
¬ Otherwise, must file an amendment (subs. 16(3))
¬ Amendment required for new phase in a phased development (subs. 14(4))


Delivery of DS and Amendments 4

¬ REDMA does not specify how DS (which includes amendments) is to
be delivered.
¬ Delivery by email is adequate.
¬ Consider whether there is sufficient proof of the transmission.
¬ Query whether delivery to one of two joint purchasers is sufficient
in the absence of a contractual provision permitting delivery to
only one of the purchasers.
Travelers Guarantee Company of Canada v. Ryan, 2011 BCSC
1825


Delivery of DS and Amendments 2 5

¬ Consolidated DS
¬ Watson v. Havaday, 2011 BCSC 505 suggested that a
consolidated DS issued to new purchasers is sufficient to satisfy
REDMA.
¬ Pinto v. RMR, 2011 BCCA 210 held that a consolidated DS was
not sufficient to discharge the developer’s obligation to deliver
Amendments after the purchase contract.
¬ 0741340 BC Ltd. v. Johnson, 2012 BCSC 363 questioned
whether Watson is still good law in light of Pinto. The cases are
reconcilable: a consolidation will not overcome a failure to deliver
earlier amendments.


Purchaser Remedies – Rescission 6

¬ Rescission
¬ Rescission period is now seven days (in all cases) after the later
of execution of the purchase agreement and the developer
obtaining the required receipt for the DS (subs. 21(2))
¬ Applies “regardless of whether title… to a development unit was
transferred”
¬ No statutory rescission right arises from filing an amendment
unless purchaser did not previously get a DS (subs. 21(1)) or if
amendment relating to building permit materially affects size or
layout of development unit, construction of a major common
facility or general layout of development (PS 5)
¬ Deposit holder required to release deposit to purchaser upon
receipt of notice of rescission (subs. 21(4)-(6))


Purchaser Remedies – Rescission 2 7

¬ Rescission - continued
¬ If purchaser was entitled to receive a DS but never gets one, they
can rescind at any time (subs. 21(3)).
¬ This includes after completion and conveyance of the property.
See Woo v. ONNI Ioco Road Five Development Limited
Partnership, 2012 BCSC 264 where the notices of rescission
were delivered roughly 1.5 years after completing the contract of
purchase and sale, and 6 months after knowledge of the non-
delivered amendment.


Purchaser Remedies – Civil Remedies 8

¬ Civil Remedies
¬ Liability is for misrepresentation in a DS whether the purchaser
received the DS or not (subs. 22(3))
¬ Note the potential risk for class actions for misrepresentation. In
Bosworth v. Jurock, 2011 BCSC 1583 the court certified a proposed
class proceeding concerning alleged misrepresentations in a DS.
¬ Right of action for damages against the developer, a director, a
person who consented to be named and was named in the DS as
a developer or director, a person who authorized the filing of the
DS (NB: employees?) and a person who signed the DS (NB:
officers/employees?) (subs. 22(5))
¬ Cannot avoid liability by amending the DS to correct the
misrepresentation (onus shifted to the developer) (subs. 22(4))
¬ Numerous defenses available to companies and individuals
(primarily “due diligence” type defenses) (subs. 22(5) to (8))
¬ Limitation period is two (2) years after the misrepresentation first
came to the purchaser’s knowledge (subs. 22(9))

Purchaser Remedies – Unenforceability 9

¬ Unenforceability
¬ Purchase agreement is unenforceable if the developer breached
Part 2 of REDMA (e.g., marketed before having necessary
approvals, deficient or no disclosure statement given (rescission
right also may arise) (s. 23)


Material Changes? 10

1. Construction delays completion
date
2. Accelerated completion date
3. Changes to the identity of a
developer


Construction Delays 11

Chameleon Talent Inc. v. Sandcastle Holdings Ltd., 2010
BCCA 300
¬ Completion of construction was delayed by about one
year. Updates were circulated to purchasers indicating
that completion of construction was expected to occur in
the fall of 2009. An amendment to the DS that changed
the estimated construction completion date to October
2009 was not filed and delivered until after the
purchaser’s action was commenced.
¬ Substantial delays of many months will generally be
material to purchasers in respect of the “price to be paid
for, the value there may be in, and the use of a
condominium unit that is being purchased”
¬ The developer’s circulation of construction delays did not
constitute effective disclosure.


Construction Delays continued 12

Maguire v. Revelstoke Mountain Resort Limited Partnership,
2010 BCSC 1618
¬ Completion of construction was delayed by at least 10 to
16 months. No amendment was filed in respect of a
delayed completion date.
¬ Purchasers must be told in a timely manner if completion
dates are going to vary significantly.
¬ Failure to file an amendment in these circumstances is a
breach of Part 2 of REDMA.


Sharbern Holdings – Distinguished 13

Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23
¬ The Supreme Court of Canada considered the common law test for
“materiality” in the context of the disclosure obligations of real estate
developers under the (now repealed) Real Estate Act (British Columbia)
¬ The Court held that the determination of materiality involves a fact-specific
inquiry into all relevant considerations and circumstances forming the “total
mix” of information made available to investors.

299 Burrard Residential Limited Partnership v. Essalat, 2011 BCSC 996
¬ The BCSC found the analysis in Sharbern relevant when determining
whether a statement concerning a material fact is false or misleading.

299 Burrard Residential Limited Partnership v. Essalat, 2012 BCCA 271
¬ The BCCA found that the trial judge in Essalat BCSC erred in using
Sharbern, decided under the predecessor Real Estate Act, to interpret
the phrase “false or misleading” when “material fact” and
“misrepresentation” are clearly defined in REDMA.


BCCA confirms Chameleon approach 14

Essalat BCCA - continued
¬The trial judge also erred in ignoring the BCCA’s decision in Chameleon
Talent, in which the court held it was irrelevant if the purchaser knew of a
construction delay if it was not disclosed in a disclosure statement.
¬An incorrect completion date, as long as not a true de minimis non curat lex
situation, will always be a material fact and must be amended “immediately”
when the developer becomes aware that the material fact is incorrect.
¬“… the strictness of the filing regime must be maintained in order for protection
to be meaningful to the consumer.”
¬The Court declined to give further guidance on the appropriate margin for error
in estimating the completing date of a development and leaves it for the
Superintendent to comment.


Accelerated Completion Date 15

McEachern v. 752265 BC Ltd.
¬ Developer delivered notice of an 8 month acceleration
to the estimated construction completion date along with
an Amendment to that effect.
¬ A change in the estimated completion date will be
considered material if the contract does not contemplate
or refer to the possibility of the particular change.
¬ Consider whether the contract and DS expressly
provide for the possibility of acceleration as well as
extension of the completion date.


Accelerated Completion Date continued 16

Bosa Properties (Edgemont) Inc. v. Ban, 2012 BCSC 94
¬ Completion of construction was accelerated by approximately 3 ½
months. No amendment was filed in respect of an accelerated
completion date.
¬ Materiality in the context of REDMA is a function of the value, price
and use of a unit.
¬ The issue is “whether in context” the estimated completion date is
sufficiently at odds with the actual completion date so as to be
“generally material” in respect of the price to be paid for, the value
there may be in and the use of the unit that is to be purchased.
(Chameleon Talent BCCA)
¬ There is an essential distinction between an accelerated
completion date and a delayed one – an accelerated completion
date does not have an “inevitable or irremediable effect” on price,
value and use.
¬ Acceleration is qualitatively different than delay and would not
“similarly influence the mind of the reasonable person”.

Changes to the Identity of a Developer 17

¬ The “identity” of a corporation refers to its existence as a
separate legal entity.
¬ A change in the ownership or control of a corporate
developer is not a material change.
¬ A change in the directors and officers of a developer
does not constitute a change in the identity of the
developer.
Re: Jameson House Properties Ltd., 2009 BCCA
339; Maguire v. Revelstoke Mountain Resort
Limited Partnership, 2010 BCSC 1618


Recent trends 18

¬ Recent cases indicate a trend away from relieving
purchasers of their contractual obligations if the basis for
relief is highly technical in nature
¬ Drake v. North Ellis Development Ltd., 2011 BCSC 1182:
the 10% deposit restriction prescribed by s. 10(4) is limited
to “money paid” and does not include a bond to secure a
future payment that is only security.
¬ Mode Properties Ltd. v. Esposito, 2011 BCSC 733: the fact
that a developer did not initial the space beside
amendments was not a breach that could relieve the
purchasers of their obligations. To find otherwise would
have been to allow form to trump substance. Nor is
disclosure tied to any specific offer.


Recent trends - continued 19

¬ In Bosa Properties (Esprit 2) Inc. v. Kim, 2012 BCSC 1013,
the Court distinguished Sharbern and affirmed the Chameleon
Talent and Essalat BCCA approach in its analysis of whether a
change in a hot water delivery system was a material fact and,
therefore, required disclosure.
¬ The test for what constitutes a “material fact” is objective
and in some cases a matter of common sense.
¬ A party’s subjective view of what is material is not
admissible.
¬ Actual reliance on the misstatement is not at issue.
¬ Independent evidence as to whether a change has
significantly affected the use, value or price of a unit is
relevant to the assessment of its materiality.


20

QUESTIONS
??


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