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 |

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