Finding of Breach of REDMA in Chameleon Case Upheld by Court of Appeal 

publication 

July 2010 - (Lang Michener Real Estate Alert)

Lang Michener Real Estate Alert

A recent decision of the British Columbia Supreme Court in Chameleon Talent Inc. v. Sandcastle Holdings Ltd., (2009 BCSC 1670) ("Chameleon") held that a failure by a developer to amend its disclosure statement to advise of a delay in the anticipated date of construction and completion of a development constitutes a breach of the Real Estate Development Marketing Act (British Columbia) ("REDMA"). The court held that such a breach rendered any purchase contracts entered into by the developer with purchasers unenforceable.

Briefly, the facts of Chameleon was that the filed disclosure statement provided for "estimated" dates for the issuance of a building permit, commencement of construction and completion of construction.  Due to delays encountered by the developer, which were not delays of force majeure in nature, these "estimated" dates were missed. The developer did file an amendment to its disclosure statement which stated that a building permit had now been issued. However, this amendment did not provide any updated dates for the commencement or completion of construction.

The project did not complete within the "estimated" timeframe and certain purchasers sought a declaration that their purchase contract was unenforceable and an order for the return of their deposit. The trial decision was in favour of the purchasers on the basis that construction and occupancy dates are material facts and that the failure to amend the disclosure statement to provide for updated dates is a breach of REDMA which in turn renders the purchase contracts unenforceable.

In rendering this decision the trial court made a few comments that are troubling for developers with respect to the structure of their pre-sale contracts, and specifically the use of "outside completion dates". Generally developers include an outside completion date in their purchase contracts, normally 6 months to 1 year beyond the anticipated completion date, to provide certainty to the contract. The trial decision questioned this practice stating that even though the parties agreed to such a date, they could not have intended such "elasticity" which would allow the developer to delay the completion date by such a length of time; and that a reasonably prudent buyer would not have expected the actual completion date to occur a full year after the estimated completion date. While an "outside completion date" would not save a developer from its obligations under REDMA to amend the disclosure statements, the use of such dates is indeed intended to provide such elasticity to purchase contracts, negating the need to amend each agreement in the event dates are missed.

The decision in Chameleon was appealed and it was hoped the Court of Appeal would provide some commentary on the trial decision comments on outside completion dates. The Court of Appeal rendered its decision on June 9, 2010 (2010 BCCA 300) which upheld the trial decision finding in favour of the purchasers.

In rendering its decision the Court of Appeal did note that the use of the outside completion date in the pre-sale contract does not "obviate the statutory requirement that the developer file and deliver an amendment" under REDMA, but unfortunately it did not address the more general comments made by the trial decision that such dates may not be enforceable in any event.

While the Court of Appeal has possibly left open the argument that "outside completion dates" may not be enforceable, it is clear that developers must take steps to file and deliver amendments to their disclosure statements when previously disclosed construction dates change.