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Developers disclosure obligations_redma


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Developer's Disclosure Obligations under REDMA

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Developers disclosure obligations_redma

  1. 1. Real Estate Development Marketing Act:Developer’s Disclosure Obligations Jordanna Cytrynbaum, Virginia Wigmore July, 2012McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  2. 2. 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) McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  3. 3. 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)) McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  4. 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 McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  5. 5. 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. McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  6. 6. 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)) McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  7. 7. 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. McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  8. 8. 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)) McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  9. 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) McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  10. 10. Material Changes? 101. Construction delays completion date2. Accelerated completion date3. Changes to the identity of a developer McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  11. 11. Construction Delays 11Chameleon 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. McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  12. 12. Construction Delays continued 12Maguire 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. McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  13. 13. Sharbern Holdings – Distinguished 13Sharbern 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. McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  14. 14. BCCA confirms Chameleon approach 14Essalat BCCA - continued¬The trial judge also erred in ignoring the BCCA’s decision in ChameleonTalent, in which the court held it was irrelevant if the purchaser knew of aconstruction delay if it was not disclosed in a disclosure statement.¬An incorrect completion date, as long as not a true de minimis non curat lexsituation, 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 protectionto be meaningful to the consumer.”¬The Court declined to give further guidance on the appropriate margin for errorin estimating the completing date of a development and leaves it for theSuperintendent to comment. McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  15. 15. Accelerated Completion Date 15McEachern 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. McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  16. 16. Accelerated Completion Date continued 16Bosa 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”. McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  17. 17. 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 McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  18. 18. 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. McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  19. 19. 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. McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  20. 20. 20 QUESTIONS ??McCarthy Tétrault LLP / / July 2012 / Docs #11369978
  21. 21. VANCOUVER MONTRÉALSuite 1300, 777 Dunsmuir Street Suite 2500P.O. Box 10424, Pacific Centre 1000 De La Gauchetière Street WestVancouver BC V7Y 1K2 Montréal QC H3B 0A2Tel: 604-643-7100 Tel: 514-397-4100Fax: 604-643-7900 Fax: 514-875-6246Toll-Free: 1-877-244-7711 Toll-Free: 1-877-244-7711CALGARY QUÉBECSuite 3300, 421 7th Avenue SW Le Complexe St-AmableCalgary AB T2P 4K9 1150, rue de Claire-Fontaine, 7e étageTel: 403-260-3500 Québec QC G1R 5G4Fax: 403-260-3501 Tel: 418-521-3000Toll-Free: 1-877-244-7711 Fax: 418-521-3099 Toll-Free: 1-877-244-7711TORONTOBox 48, Suite 5300 UNITED KINGDOM & EUROPEToronto Dominion Bank Tower 125 Old Broad Street, 26th FloorToronto ON M5K 1E6 London EC2N 1ARTel: 416-362-1812 UNITED KINGDOMFax: 416-868-0673 Tel: +44 (0)20 7786 5700Toll-Free: 1-877-244-7711 Fax: +44 (0)20 7786 5702McCarthy Tétrault LLP / / July 2012 / Docs #11369978