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Sharbern dealt with the provisions of the REDMA’s predecessor, the Real Estate Act, which had been repealed by the time leave to appeal to the Supreme Court of Canada was granted.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