Posts Tagged ‘material misrepresentation’

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.


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Sharbern dealt with the provisions of the REDMA’s predecessor, the Real Estate Act, which had been repealed by the time leave to appeal to the Supreme Court of Canada was granted.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.


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.


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
Wednesday, July 27th, 2011    Posted by Shane Coblin (posts)

Editor’s note: on June 21, 2012 the decision of 299 Burrard v Essalat referred to in this blog post was overturned by theBritish Columbia Court of Appeal: see 299 Burrard Residential Limited Partnership v. Essalat, 2012 BCCA 271.

In the wake of the Supreme Court of Canada’s recent decision in Sharbern Holdings Ltd. v. Vancouver Airport Centre Ltd. [Sharbern], 2011 SCC 23, courts in BC are taking a sober second look at the onus placed on developers when purchasers claim that a disclosure statement contains a material misrepresentation.

In 299 Burrard Residential Limited Partnership v. Essalat, 2011 BCSC 996 [Essalat], Ms. Essalat was a purchaser of a luxurious pre-sale condominium unit in the Residences at the Fairmont Pacific Rim.  On the closing date, she refused to complete the transaction and, through counsel, demanded return of her deposit.

The developer commenced an action seeking forfeiture of her deposit.  Ms. Essalat raised a number of defences, primarily arguing that the contract should be unenforceable pursuant to section 23 of the Real Estate Development Marketing Act, S.B.C. c. 41 (“REDMA”) and that the action was, in any event, barred by section 6 of the Property Law Act.  On this basis she sought an order that her deposit be returned.

Her REDMA defence, focused on the estimated construction completion date set out in the disclosure statement.  Her unit was not tendered to her until 4 months after the estimated completion of construction date and the entire development was not completed until 7 months after the estimated completion date.  She alleged that this constituted a material misrepresentation and therefore the contract was unenforceable pursuant to section 23 of the REDMA.

In recent years, pre-sale purchasers have been successfully able rely on incorrect estimated completion dates in a developer’s disclosure statement to avoid liability under a contract and forfeiture of their deposits.

Up until now, the leading case on the topic was Chameleon Talent Inc. v. Sandcastle Holdings Ltd. [Chameleon], 2009 BCSC 1670, aff. 2010 BCCA 300.  In that case Mr. Justice Rice found that delays in the estimated commencement and completion of construction dates were material facts that required amendments to the disclosure statement.  However, the delay at issue in Chameleon was significant, extending to over a year.

The difficulty this decision caused is that it did not define in anyway how long of a delay was necessary before an amendment was required.  It appeared to suggest that any delay would be material regardless of the length.

This decision was upheld by the Court of Appeal without any further clarification on the length of delay issue.

Ms. Essalat presented no evidence to support why either a 4 or 7 month delay was in fact material.  Instead, she took the position that any delay past the estimated completion date, even if only a few days, constituted a material misrepresentation that required an amendment to the disclosure statement.  She characterized it as a “bright line pass/fail test” and she relied upon Chameleon to support that approach.

Several weeks before this trial, the Supreme Court of Canada released its decision in Sharbern. Though that case was decided under the old Real Estate Act, which is the predecessor to the REDMA, Mr. Justice Rothstein framed his decision as being applicable generally to all disclosure legislation.  He set out the following 5 part test to apply when determining just how significant a fact must be before it should be considered material:

i.  Materiality is a question of mixed law and fact, determined objectively, from the perspective of a reasonable investor;

ii.  An omitted fact is material if there is a substantial likelihood that it would have been considered important by a reasonable investor in making his or her decision, rather than if the fact merely might have been considered important. In other words, an omitted fact is material if there is a substantial likelihood that its disclosure would have been viewed by the reasonable investor as having significantly altered the total mix of information made available;

iii. The proof required is not that the material fact would have changed the decision, but that there was a substantial likelihood it would have assumed actual significance in a reasonable investor’s deliberations;

iv. Materiality involves the application of a legal standard to particular facts. It is a fact-specific inquiry, to be determined on a case-by-case basis in light of all of the relevant considerations and from the surrounding circumstances forming the total mix of information made available to investors; and

v.  The materiality of a fact, statement or omission must be proven through evidence by the party alleging materiality, except in those cases where common sense inferences are sufficient. A court must first look at the disclosed information and the omitted information. A court may also consider contextual evidence which helps to explain, interpret, or place the omitted information in a broader factual setting, provided it is viewed in the context of the disclosed information. As well, evidence of concurrent or subsequent conduct or events that would shed light on potential or actual behaviour of persons in the same or similar situations is relevant to the materiality assessment. However, the predominant focus must be on a contextual consideration of what information was disclosed, and what facts or information were omitted from the disclosure documents provided by the issuer.

In Essalat, the developer argued that this is the test that should be applied in British Columbia when considering a purchaser’s claim that a disclosure statement contains a material misrepresentation.  Mr. Justice Sewell accepted this position and rejected Ms. Essalat’s suggestion that the test is a simple question of pass/fail.

Having presented no evidence of materiality, His Lordship found that Ms. Essalat had not met her burden.

The alternative argument advanced by Ms. Essalat was that because the developer did not hold legal title to the property before the unit was tendered to her, it was in violation of section 6 of the Property Law Act, and therefore could not maintain an action to enforce the sale contract.

Section 6 states:

(1) A person who transfers land, or who makes an agreement, or assignment of an agreement, for the sale of land by which the purchase price is payable by installments or at a future time, must register his or her own title in order that a person to whom all or part of the land is transferred and a person claiming under the agreement or assignment can register their instrument under the Land Title Act.

(2) An action must not be brought on the agreement or assignment referred to in subsection (1) by a person who fails to comply with this section.

In British Columbia, Limited Partnerships (or any partnership at all) cannot be the registered owner of real property.  As is typical in the pre-sale development industry, the developer was a limited partnership and a nominee and bare trustee was set up to hold legal title to the development lands in trust and for the exclusive benefit of the developer and was required to transfer title to the land to whomever the developer directed it to.

This ownership arrangement was disclosed in the disclosure statement and the contract of purchase and sale included the following express term:

The Buyer acknowledges that the Unit is or will be registered in the name of 299 Burrard Management Ltd. (“299 Burrard”), as discussed in the Disclosure Statement, who will hold such title as agent and nominee for the Seller.  The Buyer agrees to accept the Transfer executed by 299 Burrard as transferor, but acknowledges and agrees that 299 Burrard shall have no liability or obligation to the Buyer hereunder, other than to convey legal title to the Unit to the Buyer.

Ms. Essalat argued that the Property Law Act was consumer protection legislation, and thus the protections afforded by it could not be waived even by express agreement.

The developer relied upon the decision of Mr. Justice Edwards in 410263 B.C. v. Poke (1995), 11 B.C.L.R. (3d) 368, which stood for the proposition that a purchaser cannot rely on the protections of section 6, if it has knowledge that the vendor does not hold title to the land in question and has agreed to accept title through an alternative method.  Mr. Justice Sewell agreed with this position and found that the express terms of the contract precluded Ms. Essalat from demanding compliance with section 6 of the Property Law Act.

The developer was successful in the action and Ms. Essalat was ordered to forfeit her deposit as required by the contract.

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