Archive for the ‘Real Estate Law’ Category

Devin Lucas
Thursday, July 30th, 2015    Posted by Devin Lucas (posts) and Alisha Parmar (posts)
Devin Lucas
Devin Lucas maintains a general civil litigation practice with a focus on corporate and commercial litigation and landlord tenant and real property disputes. His commercial litigation experience includes contractual disputes, employment matters, and debtor-creditor law.
Alisha Parmar
Alisha joined Kornfeld LLP as an associate in 2015 after completing her articles with the firm.

The Supreme Court of British Columbia recently clarified renewal rights in the context of a commercial lease in The Zone Bowling Centre (2002) Ltd. v. 14100 Entertainment Blvd. Investments Ltd., 2015 BCSC 524.

The decision stresses the importance of parties to a lease reading and understanding their rights and obligations in the context of a lease renewal clause.  If the lease requires it, it is prudent for the tenant to exercise the option to renew in time and in writing.  If the tenant fails to do as the lease requires and instead enters into lease renewal negotiations with the landlord, the tenant does so at his own peril and with no guarantee that the landlord will allow the tenant to remain at the leased premises.  As this case demonstrates, courts are loathe to interfere with contractual certainty as bargained between two commercial parties and subsequent negotiations may not be enough to revive the right of renewal if it is not validly exercised by the tenant.

Summary of Facts

The Zone Bowling Centre (“the Zone”) operated a popular bowling alley and brew pub in the Riverport Sports & Entertainment Park in Richmond, British Columbia.  The Zone, as tenant, had entered into a lease with 14100 Entertainment Blvd. (the “Original Owner”), as landlord, for the premises (“Premises”).  The initial term of the lease was 10 years ending on April 30, 2014, with three lease renewal options, each for an additional five years.  Prior to expiry of the initial term, the Original Owner sold the Premises and assigned the lease to 0984972 BC Ltd. (the “New Owner”).

Under the lease, the landlord covenanted with the Zone to grant a renewal of the lease, if the Zone:

1)      gave notice to the landlord that the Zone “wishes to obtain a renewal of this Lease” not earlier than twelve months and not later than nine months before the expiry of the initial term;

2)      was not in breach of any covenant or condition of the lease at the time of the renewal notice to the landlord; and

3)      had duly and regularly observed and performed the covenants and conditions contained in the lease.

The lease further required that any notice provided under the lease be in writing.

As the initial term was to expire on April 30, 2014, the cut-off date for the Zone to exercise the first renewal option was July 31, 2013.  However, the Zone did not exercise its renewal option until August 2013 and even then, it failed to do so in writing.  Further, throughout the term of the lease, the Zone was late in paying rent and, in fact, rent was overdue on July 31, 2013.

Despite this, after missing the cut-off date, the Zone entered into lease renewal negotiations with the Original Owner and later, the New Owner, as landlord.  These discussions broke down in July, 2014.  At this time, the New Owner informed the Zone that it did not consider that the option to renew had been validly exercised and instead considered the Zone to be an overholding tenant on a month to month tenancy.

On October 27, 2014, the New Owner gave the Zone written notice terminating the lease effective November 30, 2014.  In spite of this, the Zone continued to occupy the Premises based on the its view that it had properly exercised the renewal option.  The Zone then brought a petition, seeking a declaration that it had properly exercised the option to renew.

The Decision

The issue before the Court was whether or not the Zone had exercised the first renewal option under the lease.  To determine whether the option had been validly exercised, the Court analyzed whether the three conditions precedent set out in the lease had been met by the Zone.

Based on the evidence before the Court, Mr. Justice Bowden found that the Zone had not exercised the renewal option by July 31, 2013.  Furthermore, Mr. Justice Bowden held that during the period from June 1, 2013 to September 25, 2013 the Zone was in arrears in paying rent and, therefore, was in breach of its duties under the lease during the time that the Zone had allegedly exercised its renewal option.  Finally, on account of the Zone being consistently in default of its obligation to pay rent, it could not be said that the Zone had “duly and regularly performed its obligations” throughout the 10 year term of the lease.

Even so, the Zone argued that the respondents had waived strict compliance with the lease and the conditions precedent to the exercise of the option by accepting rent when payments were overdue, and that the respondents were precluded from alleging a breach of the lease as a basis for denying the renewal, given the continuing lease renewal negotiations among the parties.

The Court found the respondents’ late acceptance of rent payments did not amount to a waiver of their right to require the Zone to strictly comply with the preconditions to exercise the option to renew – at most, it could amount to a waiver of the landlord’s  right to terminate the lease on the basis of the Zone’s breach of its obligation to pay rent.  Further, as the Court found that there was no evidence that the respondents had promised the Zone it could exercise the renewal option without providing notice in writing, nor by providing notice after the cut-off date specified in the lease, the landlord was not precluded from insisting on enforcing its strict legal rights in connection with the renewal option

Finally, although the Court noted the potentially significant adverse impact on the Zone’s business, the Court found that the alternative remedy of “relief from forfeiture” – which often allows tenants who have been in breach one opportunity to reinstate it – was not available to the Zone in this case. By failing to exercise the option properly the Zone had not forfeited an existing tenancy, but instead had simply lost the right of renewal, so relief from forfeiture could not apply.

Thus, despite its efforts, the Zone was not able to salvage its option to renew.  (It was later reported that the parties had reached an agreement after this decision was handed down and the Zone was able to continue operating at the Premises.  We do not know the terms of that agreement.)

This case is a reminder to all contracting parties that if they intend to engage in negotiations during the currency of a contract, they should never do so without securing a legally enforceable agreement by the other side that it will not require strict compliance with the contract terms while the negotiations are underway.

 

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Posted by Devin Lucas (posts) and Alisha Parmar (posts) | Filed under Litigation and ADR, Real Estate Law | ....
Lana Li
Thursday, May 21st, 2015    Posted by Lana Li (posts)

Under the Family Law Act, S.B.C. 2011, c. 25 (the “FLA”) unless property is “excluded property”, property owned by at least one spouse upon separation is family property and presumptively to be equally divided.  “Excluded property” includes property which is owned by one of the spouses before the relationship began, inheritances to a spouse and gifts to a spouse from a third party (s. 85(1) of the FLA).

In VJR v SKW, 2015 BCSC 593, a husband successfully argued that a $2 million payment to him was a gift, by way of inheritance, from his former employer, with whom he had developed a father-son relationship.  However, upon receiving the $2 million payment, the husband then used the funds to purchase property registered in his wife’s name only and to pay off family debts.  The husband argued that he had just placed the property in the wife’s name to protect him and his family from his creditors and that the wife held the entire property in trust for him.  The wife argued that the husband had gifted the money to her based upon how the property was registered and his use of the money to pay family debt.  The Court held that the husband could not argue that the registration of the property to the wife was to shield him from his creditors and then argue the property was held in trust for him.  The Court would not assist a sham arrangement and help the husband to establish a trust arrangement for his benefit.  It determined that the husband had gifted the property to the wife, such that it was found to be family property, and the net sale proceeds were divided equally between them.  Even if the $2 million payment was “excluded property”, it was significantly unfair not to divide it with the wife as she had contributed to the property, the household, and she had supported the husband for over 10 years, which helped him to develop his relationship with his former employer.

Therefore, if property is “excluded property”, it is best to keep it separate, such as putting the money in a separate bank account, and not use it to purchase family property or pay down family debt.

Dan Hepburn
Friday, February 6th, 2015    Posted by Dan Hepburn (posts) and Alisha Parmar (posts)
Dan Hepburn
Dan maintains a general civil litigation practice with a particular focus on business disputes, lease disputes (both commercial tenancy and the lease of goods and machinery), employment law, debt collection, disputed estates and insurance law.
Alisha Parmar
Alisha joined Kornfeld LLP as an associate in 2015 after completing her articles with the firm.

It is rare that a reasonably straightforward statutory provision receives consideration by the Court of Appeal three times within little more than a decade. Section 73 of the Land Title Act RSBC 1996 c.250 (“LTA”) is such a provision. Those inclined to technical arguments may protest this hat-trick was actually a joint effort between section 73 and section 73.1, since the decision of International Paper Industries Ltd. v. Top Line Industries Inc., 1995 BCCA 2305 (“Top Line”) resulted in the enactment of section 73.1, which modified the effect of section 73. Nevertheless, this article provides an overview of the decisions in this saga and concludes with some practical comments.

Section 73 and Top Line

Our discussion begins with section 73 of the LTA, a section which, prior to 1996, received scant consideration from the Courts. Section 73 is reproduced in full below:

73

(1) Except on compliance with this Part, a person must not subdivide land into smaller parcels than those of which the person is the owner for the purpose of

(a) transferring it, or

(b) leasing it, or agreeing to lease it, for life or for a term exceeding 3 years.

(2) Except on compliance with this Part, a person must not subdivide land for the purpose of a mortgage or other dealing that may be registered under this Act as a charge if the estate, right or interest conferred on the transferee, mortgagee or other party would entitle the person in law or equity under any circumstances to demand or exercise the right to acquire or transfer the fee simple.

(3) Subsection (1) does not apply to a subdivision for the purpose of leasing a building or part of a building.

(4) A person must not grant an undivided fractional interest in a freehold estate in land or a right to purchase an undivided fractional interest in a freehold estate in land if the estate that is granted to or that may be purchased by the grantee is

(a) a fee simple estate on condition subsequent, or

(b) a determinable fee simple estate

that is or may be defeated, determined or otherwise cut short on the failure of the grantee to observe a condition or to perform an obligation relating to a right to occupy an area less than the entire parcel of the land.

(5) Subsection (4) does not apply to land if an indefeasible title to or a right to purchase an undivided fractional interest in

(a) a fee simple estate on condition subsequent in the land of the kind described in subsection (4), or

(b) a determinable fee simple estate in the land of the kind described in subsection (4)

was registered before May 30, 1994.

(6) An instrument executed by a person in contravention of this section does not confer on the party claiming under it a right to registration of the instrument or a part of it.

Top Line was the innocuous case that started it all. Prior to this case, it was generally accepted (or, as it turns out, assumed) that section 73 of the LTA meant leases longer than three years of unsubdivided parcels of land were unenforceable except as against the parties to the lease. That is, although the tenant was unable to register her interest under the lease at the Land Title Office, she would still have personal rights and obligations as against the landlord and vice versa.

In Top Line, the landlord and tenant executed a lease of unsubdivided land for a term of nearly five years, with a further option to renew. Like so many others, this lease was prepared without legal advice and neither party was aware of section 73. The matter was brought before the courts when the tenant decided to exercise its option to renew the lease and the landlord refused to allow the renewal.

The tenant argued that the lease and option to renew should be declared valid and enforceable between the parties, while the landlord contended that section 73 applied to nullify the lease. Interestingly, the lease had been the subject of earlier litigation and this was the first time the landlord was raising illegality under section 73 as an issue. The BC Supreme Court agreed with the tenant and found that section 73 allowed the lease to be enforceable as between the parties, including the renewal option.

However, the landlord successfully appealed the decision. The Court of Appeal held that the public policy behind section 73 was undermined by permitting in personam rights to be created via illegal leases. The public policy identified by the Court included protecting the Torrens land registration system and ensuring that municipal authorities retained control over subdivision.[1] As a result, Newbury JA held that the lease in Top Line was unregistrable, unenforceable (even between the parties to the lease), and invalid from the outset.

Section 73.1 and Idle-O No.1

The Court of Appeal’s ruling in Top Line came as a great surprise to real estate lawyers and industry and likely affected thousands of British Columbia leases in existence at the time. While abject panic may not have been the correct word to describe the reaction, it is safe to say that the decision in Top Line created great uncertainty and left many longstanding commercial relationships suddenly without any legal protection. This form of unregistered leases of unsubdivided land was particularly common in the agricultural sector, where plots of land and orchards had been leased out by farmers for decades if not generations in this manner.

The concern within the legal profession over the Court of Appeal’s decision in Top Line was such that the British Columbia Law Institute (“BCLI”), a non-profit society dedicated to law reform projects composed of notable lawyers and legal scholars, released a consultation paper titled “Leases of Unsubdivided Land and the Top Line Case”[2] calling for submissions from the profession. Common criticism of Top Line was summarized on page 4 of the consultation paper as follows:

The most commonly-heard complaint about the reasoning in Top Line was, as one commentator put it, that “[t]he court overstated the evils which s. 73 seeks to restrain. [citation omitted] Another critic remarked, “[t]here has been no demonstrable harm”[citation omitted] caused by leases in contravention of section 73. The damage has been contained because restrictions on subdivision are not the only tool that local governments have to control real estate development. The forerunner of section 73 was enacted in 1919. Since that time, local governments have imposed numerous licence and permit requirements—such as building permits and business licences—in order to regulate land use and development. In addition, zoning requirements have progressed since 1919. As a result, restrictions on subdivision are no longer the only or even the primary means that local governments have at their disposal to control real estate development.

 

Ultimately, as a result of its consultations and analysis, the BCLI released a report titled: “Report on Leases of Unsubdivided Land and the Top Line Case”[3] (the “BCLI Report”). The BCLI Report recommended an amendment to the LTA and attached a model legislative amendment as a schedule to the report. Importantly, the model amending legislation specifically called for the amendments to the LTA modifying the effects of section 73 to have retroactive effect, protecting existing leases of unsubdivided parcels.

As a result of the BCLI Report and the wide concern voiced by industry and real estate lawyers over Top Line, the Legislature responded by enacting section 73.1. In the second reading of the enacting bill, the Honourable Wally Oppal, then Attorney General of the Province, described section 73.1 and referred to the Top Line decision as follows:

The amendment addresses the side effects of a 1996 decision, a court case that interpreted the act’s requirements on leases on unsubdivided land. The decision has resulted in confusion, extra costs for farmers and an unintended burden on local governments.[4]

Section 73.1 was, as such, specifically in response to the Top Line decision and provided that a lease for a parcel of land is not unenforceable between the parties to it, if the only reason for the unenforceability is noncompliance with section 73 or that the lease is unregistrable. In many respects, section 73.1 went further than the draft legislation recommended by the BCLI, which called for such leases to be deemed licences in land. Importantly, however, section 73.1 did not specifically follow the model form of the legislative amendment recommended by the BCLI and did not clearly set out that the amendment was to have retroactive effect. Whether this was through inadvertence or by design is up for debate. As it turns out, this drafting choice or omission was significant.

Idle-O Apartments v. Charlyn Investments, 2008 BCSC 840 [“Idle-O No. 1”] became the first decision to test whether section 73.1 reversed the effects of Top Line entirely. In Idle-O No.1, the lessor relied on Top Line to seek a declaration that a lease of 998-years was unenforceable for noncompliance with section 73. The lease had been entered into prior to section 73.1 coming into force and, again, the parties had entered into the lease without appreciating the significance of section 73. The key issue in Idle-O No.1 was whether section 73.1 applied retrospectively to cure an illegal lease entered into prior to its enactment.

The BC Supreme Court decided in favour of the lessee, holding that section 73.1 applied retrospectively. The Court, after reviewing the fallout from Top Line, including various criticism of the decision from practitioners and legal scholars, the BCLI Report and the legislative history and debate surrounding the amendment, held that as benefits-conferring legislation the provision intended to “abolish the hardship effects of the Top Line decision”.[5]

The BC Court of Appeal unanimously disagreed with the trial court’s interpretation of section 73.1. In allowing the appeal, the Court held that there “is no basis in law for concluding that the Legislature intended s. 73.1 to have retrospective effect”.[6] The Court stated that the established statutory interpretation principles did not support the lower court’s conclusion, and therefore, the lease was invalid and unenforceable. Since section 73.1 did not clearly indicate retrospective application, it could only protect those leases entered into after May 31, 2007; the day the section came into force.

Idle-O No. 2

While disposing of the issue of retrospective application, the Court of Appeal allowed various alternative claims of the lessee back to the BC Supreme Court for determination.[7] Despite the Court of Appeal’s unfavourable ruling, there seemed to be a glimmer of hope for the lessee. This hope turned out to be well-placed, as in Idle-O Apartments v. Charlyn Investments, 2013 BCSC 2158 (“Idle-O No. 2”), the BC Supreme Court found that proprietary estoppel applied and that a replacement “lease” should be granted.

In a long and carefully crafted decision, Watchuk J explained that it was unconscionable for the lessor to benefit from the lessee’s mistaken belief that it held a valid leasehold interest. The lessee (and lessor) had acted in accordance with the belief that there was a valid lease agreement for over 20 years. In doing so, the lessee had acted to its detriment by making substantial expenditures on the leased property and had missed an opportunity for subdivision, which would have made the validity of the lease a non-issue. Consequently, Watchuk J held that the four main elements for the modern test of proprietary estoppel had been met.

Watchuk J determined that the appropriate remedy under the doctrine of proprietary estoppel was to order the parties to enter into a replacement lease on terms identical to the original lease. Since the new lease was entered into after the enactment of section 73.1, the provision would work to give the lessee in personam rights under the new lease.

Watchuk J asserted that ordering an identical replacement lease did not circumvent the Court of Appeal’s decision nor was it contrary to the public policy behind section 73. The replacement lease was an equitable remedy flowing from the conduct of the parties and not from the original, illegal lease agreement.[8] Watchuk J further held that section 73.1 had clarified the public policy behind section 73 since the Top Line decision, and stated that the public policy applied in determining a remedy should not be restricted to that at the time of the breach, but should instead reflect its state at the time the remedy is issued.[9]

Idle-O No. 2, BC Court of Appeal

The lessor again appealed the decision on a number of grounds. Perhaps surprisingly, the BC Court of Appeal for the most part upheld the decision of the lower court in Idle-O Apartments v. Charlyn Investments, 2014 BCCA 451.

The Court of Appeal held the trial judge was correct in finding that the elements of proprietary estoppel had been met, and proceeded to consider whether ordering a replacement lease was appropriate. Interestingly enough, the Court of Appeal accepted the trial judge’s reasoning that, despite the obvious effect of the order, re-entering the lease was not a retrospective application of section 73.1. The Court held that it was open for the trial judge to fashion such a remedy through proprietary estoppel and commented that:

Indeed even if s.73.1 had never come into existence, it would have been open to the trial judge to fashion an equitable remedy in the form of a “lease” (in reality a court order) that is enforceable only between the parties and which thus poses little danger to third parties relying on the Torrens system of registration.[10]

As a result, the Court approved of the remedy of a replacement lease despite the public policy concerns expressed in Top Line and in the appeal of Idle-O No.1.

However, the Court did find that the remedy fashioned by the trial judge was too broad and was not the “minimum equity necessary to do justice” between the parties.[11] Based on factors external to the parties’ expectations, including, for example, the consideration that the sewage system of the leased property was at capacity, the Court found it appropriate to reduce the duration of the new lease the parties were to enter. Thus, instead of being for 998 years, the replacement lease would only be for the duration of the lives of the current directors of the lessee and those directors’ children.[12]

 

Comments

In conclusion, the above cases provide a broad survey of legal principles which will likely have repercussions outside of the realm of property law. Focussing on the implications for long-term leases of unsubdivided property alone, the decisions have provided some clarity on sections 73 and 73.1 and bring some practical points to the forefront. At an immediate level, the relevance of Top Line will eventually fade with the passage of time and the expiry of all but the most lengthy leases of unsubdivided parcels of land.

Lessors and lessees who entered into long-term lease agreements of unsubdivided land after May 31, 2007 can rest assured knowing that their lease agreements will be upheld as between the parties to the agreement. However, the parties should still be alive to the fact that long-term unregistrable leases do present a host of other issues including enforcing their interests against third parties.

For lease agreements entered into prior to May 31, 2007, those seeking to uphold the lease may be able to rely on equitable grounds, like proprietary estoppel or unjust enrichment, to give effect to the terms of the agreement. As demonstrated in the Court of Appeal’s recent decision in Idle-O No. 2, this does not entail the lease will be upheld on identical terms, and section 73 still renders such leases prima facie unenforceable. Bottom line is that it is still somewhat of an expensive ‘crapshoot’ to rely on the Courts to uphold the original bargain and parties to such leases would be well advised to seek legal advice to protect their interests and investment. In fact, parties would be well served to seek out such advice on a pre-emptive basis before there is any discord in the landlord tenant relationship.

There are also lessons of general interest and application to take from the still ongoing saga of Top Line. While both Top Line and the Idle-O cases impress the importance of being aware of the law prior to entering lease agreements, it is important in this case to acknowledge that at the respective times those leases were entered into it is highly unlikely that even the most thoughtful of real estate lawyers could have predicted the Court of Appeal’s ruling in Top Line.

What is also somewhat surprising to the authors about the Court of Appeal decisions in Idle-O No 1. and No. 2 is that the Court did not choose to revisit Top Line, but rather approved of a remedy in equity to work around its harsh results. The Court of Appeal’s original decision in Top Line struck a very odd balance between holding parties to their contractual dealings and the purported policy consideration that were relied upon by the Court to justify the harsh effects of the ruling. These purported policy considerations were widely criticized by legal scholars and practitioners and largely debunked by the BCLI Report. Ultimately, the Legislature did not appear to share the Court’s policy concerns.

Ideally, the correctness of Top Line would have been weighed upon by the Supreme Court of Canada as a final arbitrar of the debate. Leave to appeal to the Supreme Court of Canada has not been sought on Idle-O No. 2, however, and the practical relevance of the debate will ultimately be rendered all but moot as time passes.

Lastly, the choice of the legislature to not include clear language giving the amendment retroactive effect only adds to the intrigue of the Top Line saga. The authors are inclined to view the failure of the legislature to give section 73.1 retroactive effect as inadvertent and in error, particularly in light of above comments of then Attorney General Oppal to the Legislature. It is unclear what, exactly, would be served by limiting the remedial effect of the amendment on this basis.




[1] Top Line, at para. 17 and 18

[3] BCLI report no. 39; July 2005

[4] Hansard, 2007: Third Session, 38th Parliament, Volume 20, Number 9 at page 7917

[5] Idle-O No.1, at para. 101

[6] Idle-O Apartments v. Charlyn Investments, 2010 BCCA 460 at para. 4

[7] Ibid at para. 38

[8] Idle-O No.2 at para. 184

[9] Idle-O No.2 at para. 186

[10] Idle-O Apartments v. Charlyn Investments, 2014 BCCA 451 at para. 68

[11] Ibid, at paras. 83 to 86

[12]Ibid, at para. 85

Posted by Dan Hepburn (posts) and Alisha Parmar (posts) | Filed under Real Estate Law | ....
Christopher Ellett
Thursday, July 26th, 2012    Posted by Christopher Ellett (posts)

On June 21, 2012, the Court of Appeal released its reasons in 299 Burrard Residential Limited Partnership v. Essalat, 2012 BCCA 271. In July 2011, we wrote that the trial decision provided much needed clarification for the pre-sale development industry [link]. The Court of Appeal has now overturned the trial decision leaving an uncertain future for the development industry.

Background

In the midst of the economic downturn, the purchaser did not complete on a pre-sale purchase of a $5,000,000 unit at the Residences, Fairmont Pacific Rim. Among other things, she argued that the contract was not enforceable pursuant to the Real Estate Development Act (‘REDMA”).

The contract of purchase and sale was agreed in August 2007. The estimated completion date in the disclosure statement was September 2009, which was never amended. At the time of entering into the contract the purchaser was advised that the expected completion would be around the end of 2009 and at least before the Olympics.

Construction delays led to a three-month delay in the closing date. Difficulty in getting the City to issue occupancy permits and the Olympic security zone led to a further one-month delay resulting in the occupancy permit being issued in late January 2010.

The purchaser’s primary argument was that under s. 23 of the REDMA and following the decision in Chameleon Talent Inc. v. Sandcastle Holdings Ltd., 2009 BCSC 1670 aff’d 2010 BCCA 300 (“Chameleon Talent”), any delay beyond the disclosed estimated completion date would lead to an unenforceable contract.

The trial judge found that the only delay the developer was aware of was three months and that delays of that nature in a 38 month development project were to be expected. Further, following a recent decision of the Supreme Court of Canada in Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23 (“Sharbern”), the trial judge considered the total mix of facts available to the purchaser at the time of purchase to determine if a misrepresentation had been made.

Sharbern dealt with the provisions of the REDMA’s predecessor, the Real Estate Act, which had been repealed by the time leave to appeal to the Supreme Court of Canada was granted.  Ultimately, the trial judge found that the purchaser had not met her onus in proving there had been a misrepresentation as defined in the REDMA.

Appeal

In allowing the appeal, the Court found that Sharbern was not binding authority in relation to whether there had been a misrepresentation under the REDMA, because the REDMA contained a statutory definition of misrepresentation and the Real Estate Act did not.

Misrepresentation in the REDMA is defined as (a) a false or misleading statement of a material fact, or (b) an omission to state a material fact.

The Court of Appeal found that there was no room for argument that an incorrect completion date is not material because of a short time span between the estimated and actual completion dates. The Court concluded that any delay beyond a “true de minimis non curat lex situation (the law does not concern itself about trifles),” will be deemed a misrepresentation, relying on the following comment from the BCCA in Chameleon Talent:

… Some delays in the construction of condominium projects may be expected, but it seems to me substantial delays of many months, here extending to a year, will generally be material to purchasers and prospective 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.

From the Court’s comments, a de minimus delay appears to be a matter of days or weeks but not months. The finding that the undisclosed delay was a misrepresentation was based on a common sense inference rather than any evidence led by the Defendant to show that it was significant. Therefore, future purchasers will have a very slight burden of proof and need only show that 1. the developer was aware of a delay of weeks and 2. that the delay was not formally disclosed.

Implications

The implication for developers is that if at any time during construction, they become aware that they may miss the completion date by more than a few weeks, they will have to issue an amendment to the disclosure statement revising the completion date. If the developer does not issue an immediate amendment, the purchase contracts will be unenforceable.

In this development, the occupancy permits were issued by the City over a four month span. Therefore, besides more closely monitoring and disclosing potential delays, developers will likely have to be more precise about when a particular floor or common area will be complete.

From a policy point of view, the court appears to have preferred protecting consumer rights as opposed to commercial certainty or practicality. A successful challenge by one purchaser may allow all purchasers to escape their contracts even after closing. The impact on development financing is yet unknown, but this decision leaves developers and financiers in a vulnerable position as they will not know if the purchase contacts will be binding until well after the completion dates.

It may be that developers use more conservative completion estimates and then give the option to purchasers to complete early. However, even then, the carrying costs of development in addition to compliance will be increased. These costs will eventually be passed along to purchasers.

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Posted by Christopher Ellett (posts) | Filed under Real Estate Law | ....
Shane Coblin
Monday, June 4th, 2012    Posted by Shane Coblin (posts)

Developers’ rights, if you can call them that, were eroded even further in the latest decision by the BC Supreme Court under the Real Estate Development and Marketing Act (REDMA).   In Woo v. ONNI Ioco Road Five Development, 2012 BCSC 764, the Court found that a group of ten Plaintiff purchasers were entitled to rescind their contracts of purchase and sale.

What made this situation unique is that it is one of the first times that the purchasers were relying upon section 21(3), which allows rescission after the transaction has closed and title to the unit has been transferred to the purchaser. In Woo, the purchasers had taken title to the units and lived in them for almost 3 years prior to rescinding.

The fact that these purchasers were entitled to rescind is not surprising.  The statute is relatively clear on this point.  The surprising part of this decision is that the purchasers were granted an order entitling them to a 100% refund of all the monies paid to the developer, plus interest, for the entire 3 year period, and the developer got nothing in return.  These purchasers lived in these units, free of charge and essentially on the developer’s dime, for nearly 3 years, without any consequence.  The developer made the argument that, at a minimum, it should be entitled to occupation rent for the period of time that the purchasers lived in the units, but that request was denied.  The Court said :

In my view, where the plaintiffs have invoked the statutory remedy of rescission under s. 21(3) of REDMA, rather than equitable rescission, the defendants are not entitled to relief by counterclaim based on the equitable principle of restitutio in integrum when the statute makes no provision for an accounting or the payment of occupational rent.

I would suggest that most objective non-lawyers would consider this result unfair, perhaps even oppressive, to the developer.   From a legal perspective, while it is true that there is no provision in the statute  allowing occupation rent,  the statute also doesn’t expressly provide for purchasers relying on section 21(3) to live rent free until they rescind their contracts.  What about renovations, wear and tear, outright damage that the purchasers have caused?  The statute also doesn’t address how to deal with these; likely because no one actually contemplated a situation like this arising.  The fact is, there are always voids in statutes.  That is when the courts are called upon to step in and fill the voids on terms that are just for all the parties.

For a statute that the Legislature expressly touted as creating a balance between the flexibility that developers need, and an appropriate level of consumer protection, I have previously argued that it  has been interpreted by courts disproportionately in favour of purchasers; and Woo was no exception.  At paragraph 98, the court expressly states “As consumer protection legislation, the {REDMA} must be generously interpreted in favour of the consumer.”  It doesn’t seem possible to create a reasonable “balance” between the needs of the parties, which is what the Legislature said it wanted to do with this act, when it is being interpreted generously in favour of one side or the other.

In the end, the ultimate losers will be pre-sale purchasers.  Yes, these ten got a free ride, but the price will be paid by future purchasers in future developments.  Decisions like this one, and the continued uncertainty surrounding how courts will interpret and apply the REDMA, will increase development costs across the industry, which will simply be passed along to purchasers by way of higher prices.

Posted by Shane Coblin (posts) | Filed under Real Estate Law | ....