Two recent cases in British Columbia have confirmed that the Real Estate Marketing Act, S.B.C. 2004, c.41 (REDMA) imposes a significant compliance burden on developers with respect to delivering amended disclosure statements.
Although the British Columbia Supreme Court’s decision in Watson v. Havaday Developments Inc. 2011 BCSC 505 (“Watson”) does not add to our substantive understanding of REDMA, it demonstrates the importance for a developer to maintain sufficient proof that an amendment has been delivered to existing purchasers.
In Watson, a purchaser alleged that he did not receive the third amendment that extended the completion date and accordingly did not have to close on the new completion date. Although the developer did not retain evidence of delivery, it claimed that it must have delivered the third amendment by email, as that was its internal ‘practice’. In finding that the contract was unenforceable, the Court held that there was insufficient evidence to establish receipt and that reliance on ‘practice’ in the circumstances was insufficient. As a material fact (the completion date) was never corrected prior to the termination of the contract by the developer, the contract was unenforceable and the deposit was ordered returned to the purchaser.
Watson confirms that a developer is well advised to ensure that how it delivers an amendment as well as the actual proof of delivery, is well documented.
The Reasons for Judgment were also released in the much anticipated Pinto v. Revelstoke Mountain Resort Limited Partnership 2011 BCCA 210 (“Pinto”) appeal.
In Pinto, the Court of Appeal was asked to consider whether the developer’s failure to deliver copies of four amendments to the initial disclosure statement rendered two contracts of purchase and sale unenforceable. The Court of Appeal was further asked to consider whether the delivery of an unfiled ‘Consolidated Disclosure Statement’ which reflected the changes contained in the four amendments would suffice to cure the failure to deliver the four amendments. The developer had lost on both these questions in the court below.
The facts in Pinto were relatively straightforward and involved two purchasers. The developer in question had properly provided the initial disclosure statement to the two purchasers at the time they entered into their respective contracts of purchase and sale. However, in the following two years the developer filed seven further amendments, of which only three were provided to the two purchasers. When the seventh amendment was provided, the developer also delivered a ‘Consolidated Disclosure Statement’ which, although it had not been filed with the Superintendent of Real Estate, accurately summarized the disclosure as of that date. Prior to the completion date, two purchasers took the position that the developer had failed to deliver four of the amendments “within a reasonable time” as is required by subsection 16(1)(b) of REDMA and that accordingly the contracts were rendered unenforceable pursuant to section 23 of REDMA.
Notwithstanding this notice, the developer took no steps to deliver the four undelivered amendments and, when the completion date passed, took the position that the purchasers had breached the contracts, entitling the developer to terminate the contracts and retain the deposits. The two purchasers sued to recover their deposits.
In upholding the decision of the court below, the Court of Appeal held that the failure to deliver the four amendments within a reasonable time rendered the two contracts unenforceable. Moreover, the Consolidated Disclosure Statement could not be relied on to cure this defect as it did not clearly identify the amendments (in that it summarized a number of prior amendments); was not filed with the Superintendent of Real Estate; and was not provided within a reasonable time (as the first undelivered amendment was filed some twelve months prior to the purchasers receiving the Consolidated Disclosure Statement).
Although Pinto does not provide any meaningful guidance on what will be considered a “reasonable time” for delivery, it does seem clear that, notwithstanding even a minor amendment, a delay of close to a year in delivery will, in most circumstances, render a contract unenforceable. It also appears clear that relying on a ‘Consolidated Disclosure Statement’ is risky and should be avoided. As such, developers must ensure that their internal sales staff (or the company they retain to oversee the process) has in place suitable procedures to ensure compliance with REDMA. Taken with Watson, it can be expected that the developer will be held to a fairly strict standard in showing compliance with REDMA for the purposes of delivering disclosure statement amendments and that relying only on “common practice”, without reference to documentary evidence, could prove problematic should a purchaser challenge the enforceability of a contract.
While the Pinto decision at the Court of Appeal level does confirm a few important practice points, a number of significant questions have remained unanswered, which will no doubt form the basis of future litigation. These include:
- Does a developer have to deliver an amendment that does not address a “material fact” as that term is defined under REDMA?
- Would the ‘Consolidated Disclosure Statement’ have been accepted if it had been filed with the Superintendent of Real Estate and then delivered within a reasonable time?
- Can a developer use a ‘Consolidated Disclosure Statement’ with a new purchaser, assuming it has otherwise been filed?
- Would the result have been different if the amendments had been delivered prior to the developer terminating the contracts – what is meant by a “reasonable time”?
Should there be any concern about whether or not these questions apply to a given development, a developer would be well advised to seek legal advice.