post closing rescission rights under REDMA – when closing does not necessarily mean closed
A recent decision of the Supreme Court of British Columbia, released May 23, 2012, has held that under the Real Estate Development Marketing Act ("REDMA"), purchasers may have the right to rescind their contract, even after their sale has been completed and title has passed to the purchaser.
In Woo v ONNI Ioco Road Five Development Limited Partnership,1 five plaintiffs claimed rescission rights under their purchase contracts. The plaintiffs entered into contracts of purchase and sale with the developer in 2006 and 2007. Each plaintiff received a copy of the original disclosure statement before entering into the contract for purchase sale for their respective unit. While the developer filed the first amendment to the disclosure statement, none of the plaintiffs were provided with copies. The plaintiffs first became aware of the amendment several months after they had completed the purchase of their respective units. Of the five plaintiffs, four did receive copies of the second amendment to the disclosure statement prior to completing on their units.
The position of the plaintiffs was that they had a right to rescind under section 21(3) of REDMA for non-receipt of an amendment filed after they entered into their purchase agreements. The developer admitted that the plaintiffs did not receive the first amendment to the disclosure statement. The developer's position, however, was that the plaintiffs are not entitled to rescission under section 21(3) on the basis that such a statutory right to rescind could only be exercised by those plaintiffs prior to completing the purchase of their units.
The developer also counterclaimed for occupational rent of the units in the event the court granted an order of rescission, as the plaintiffs have had the use and enjoyment of the strata lots since their purchase agreements completed. The plaintiffs countered that section 21(3) makes no provision for the payment of occupational rent or other compensation by the purchaser to the developer.
The court held that if the developer's submission was accepted, purchasers would have the right to receive an amendment to a disclosure statement the day before completion but would have no remedy if they discovered the day after completion that the amendment had not been provided to them. Developers would benefit from their own failure to comply with their disclosure obligations where the failure to make disclosure only came to light after the purchase agreement had completed.
The Court further held that the content of the first amendment to the disclosure statement, that the development had received subdivision approval, that the City had approved the creation of the strata lots, and that a building permit had been issued, and that construction had commenced were facts affecting value, price, and use of the units. The wording of section 21(3) was found to be clear, the plaintiffs were purchasers entitled to a disclosure statement under the Act. This is not dependant on whether title had been transferred or not, the purchasers have a right under section 21(3) to rescind their purchase agreements at any time.
The Court reiterated that section 21(3) is to advance consumer protection by ensuring developers comply with their obligations to disclose material facts within a reasonable time, and that the language is "clear, unambiguous and mandatory." As consumer protection legislation, REDMA must be generously interpreted in favour of the customer.
The Court also denied the developer's counterclaim for occupational rent on the reasoning that if the Legislature had intended that there be an accounting, or payment of occupational rent, it would have said so in REDMA. This decision confirms the trend of the courts in enforcing REDMA as consumer protection legislation. Developers should now be aware that if they do not comply with provisions of REDMA with respect to delivery of amendments to the disclosure statement, a purchaser may be able to rescind its contract even after title has passed. Developers must strictly adhere to the delivery requirements under REDMA and ensure all amendments to disclosure statements are delivered to purchasers.
by Damon Chisholm and Dorothy Wong
1 2012 BCSC 764.
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a cautionary note
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2012