Where there has been a misrepresentation by a developer in a real estate transaction, who is responsible for the losses suffered solely as a result of a change in market conditions? On September 15, 2016, in The Owners, Strata Plan LMS 3851 v. Homer Street Development Limited Partnership, 2016 BCCA 371, the BC Court of Appeal held that for a statutory misrepresentation under the Real Estate Act, a developer is not liable to compensate an investor for losses suffered as a result of external causes, such as changes in the market, which do not result from the inaccuracy of the representation.
The case arose out of the marketing and sale of strata units in the Westin Grand Hotel located in downtown Vancouver, British Columbia. The individual plaintiff investors purchased their strata units in the Westin Grand in November 1996. Before entering into the sales agreements, the investors received a disclosure statement issued under the (now repealed) Real Estate Act, R.S.B.C. 1979, c. 356.
The trial judge held that the disclosure statement contained a material false statement in a note to the financial statements which formed part of the disclosure statement. The note concerned a projection of the anticipated occupancy rates of the Westin Grand relative to other major hotels in downtown Vancouver.
The trial of the proceeding was conducted in several stages and there were several appeals concerning trial judgments and procedural rulings.
What the Court of Appeal Held
This appeal concerned the manner in which the trial judge assessed damages. The trial judge assessed damages of $8,000,000, which represented the decrease in value from the date that the investors paid for their strata units to the closing date. The loss of value was driven by market forces. The misrepresentation in the disclosure statement did not impact the value of the strata units.
This case did not concern the common law tort of misrepresentation. The issue was the measure of damages recoverable under the statutory cause of action found in s. 75 of the Real Estate Act.
The investors submitted that s. 75 was a complete code and the statutory measure of compensation had been construed to provide for recovery of the full extent of the loss sustained on the transaction, just as is available at common law for deceit. The Court of Appeal disagreed.
The Court held:
 The purpose of the Real Estate Act is to protect the investing public. However, the legislation also balances the needs of the investor community against the burden imposed on issuers…Section 75 promotes this purpose by protecting investors from material false representations. It provides the statutory mechanism pursuant to which an investor can hold a developer liable with respect to the representations found in a disclosure statement. Through its deeming provisions it relieves the investor from the sometimes onerous task of proving reliance.
 I see no special reason why the liability of developers to pay compensation under s. 75(2)(b) of the Real Estate Act for a material misrepresentation should extend to losses arising, not from the inaccuracy of the representation, but from market forces. First, a deceit measure of damages is not appropriate as the statute imposes liability in situations far removed from where a developer engaged in fraudulent conduct. Imposing such an obligation would place developers in the role of insurers to investors for losses arising from market forces. This is not the function of the disclosure obligations of developers under the statute, nor is such a result required to serve the statutory purposes underlying disclosure obligations…
 Second, in my view, a developer’s requirement to pay compensation for a material misrepresentation under s. 75(2)(b) must be interpreted in light of the nature of its statutory disclosure obligations. The principal statutory obligation placed on developers under Part 2 of the Real Estate Act is to provide full and accurate information in the disclosure statement. A developer is not required to advise potential investors generally.
The Court concluded that a developer is not liable to compensate an investor for losses suffered as a result of external causes, such as changes in the market, which do not result from the inaccuracy of the representation.
What does this mean going forward? If the speculators are right and the Vancouver housing bubble is about to burst, there is likely to be an increase in real estate litigation. Although the Real Estate Act and its successor the Real Estate Development Marketing Act have been interpreted as “buyer-friendly”, this case confirms that buyers will not be able to hold developers liable for losses attributable solely to market conditions even where developers made misrepresentations in violation of the Act. But, if the misrepresentation by a developer or vendor rises to the level of fraud or deceit, the buyer may be entitled to recover all damage arising from the fraud, however caused.