Legislative Changes to REDMA: Bringing Certainty to Real Estate Development
Since the introduction of the Real Estate Development Marketing Act (REDMA), developers have had concerns that any minor or insignificant variance from the strict compliance of REDMA will permit a purchaser to avoid its obligations under a Purchase Agreement.
First reading has been granted to legislation that will amend the Real Estate Development Marketing Act (REDMA) and will bring greater certainty to the real estate development sector.
The proposed changes are as follows:
Consolidated Disclosure Statement
Although not specifically set out in REDMA, it has been common practice that when a developer files an Amendment to Disclosure Statement, the developer also prepares a Consolidated Disclosure Statement which includes all changes included in the Amendment to Disclosure Statement (or statements if more than one) and files it with the Superintendent of Real Estate. Rather than deliver the original Disclosure Statement and Amendment to Disclosure Statement(s), the developer provides a copy of the Consolidated Disclosure Statement to any new purchaser, being a purchaser who has not signed a Purchase Agreement and has not received a Disclosure Statement at the time the Amendment to Disclosure Statement was filed. For any purchaser who has already signed a Purchase Agreement and received a Disclosure Statement, the Amendment to Disclosure Statement is delivered to the purchaser. Draft changes to REDMA now include provisions that specifically permit what has been the common practice.
Phase Disclosure Statement
The concept of a Phase Disclosure Statement has been introduced in the draft legislation. Presently, REDMA requires a developer to file an Amendment to Disclosure Statement when a successive phase of a phased strata development is filed. The draft legislation permits a developer to avoid the requirement of filing an Amendment to Disclosure Statement if the developer files a Phase Disclosure Statement in relation to the new phase and does not market any development units from a previous phase.
The draft legislation permits delivery of a Disclosure Statement (which is defined to include an Amendment to Disclosure Statement) by electronic means if the purchaser has provided written consent.
Release of Deposits
In the 2008 market collapse, many purchasers would not, or could not, complete on binding Purchase Agreements. An issue arose as to what the party holding the deposit was entitled, or obligated, to do with the deposit. Developers wanted the deposit delivered to them upon the purchaser failing to complete on the purchase of the development unit, but REDMA was unclear on whether the deposits could be paid out to the developers. The draft legislation clears up that ambiguity by confirming that the trustee holding the deposit is required to deliver the deposit to the developer upon the developer certifying, among other things, that the purchaser has failed to pay the balance of the purchase price under a Purchase Agreement.
Developers had a great deal of concern when REDMA was interpreted by the courts to permit a purchaser to rescind a Purchase Agreement and have the full purchase price returned, even if the purchase had closed and title had transferred, if the developer failed to deliver a Disclosure Statement including an Amendment to Disclosure Statement. The draft legislation has clarified the post-closing rescission rights of a purchaser.
The general entitlement of a purchaser to rescind a purchase continues if the purchaser does not receive a Disclosure Statement, but there are exceptions that apply to the failure to deliver an Amendment to Disclosure Statement.
With respect to Amendments to Disclosure Statements, the purchaser has rights to rescind the Purchase Agreement after closing only if the Amendment to Disclosure Statement relates to a material fact on the date the notice of rescission is delivered by the purchaser to the developer (or on the closing date in the Purchase Agreement if that date earlier), the material fact is relevant to the purchaser (introducing a subjective element of “material”), and no more than one year has passed since title was transferred to the purchaser.
Occupation Rent in Post-Closing Rescission
In addition to clarifying the post- closing rescission rights of purchasers, the draft legislation also grants discretion to the courts to order a purchaser to pay market rent to a developer for the time a purchaser was occupying the development unit if the purchaser rescinds the Purchase Agreement after closing.
Void Purchase Agreements
REDMA presently contains a very broad a section that renders a Purchase Agreement unenforceable against a purchaser if a developer fails to comply with the marketing provisions of REDMA. The general wording of the section does not change, but the Purchase Agreement remains enforceable against a purchaser if either : a) the breach is in relation to a Disclosure Statement that does not comply with REDMA, but there is no misrepresentation of a material fact reasonably relevant to the purchaser (again, a subjective test), or b) the breach is in relation to a Disclosure Statement that does not comply with REDMA, but the developer is not aware of the misrepresentation at the time the purchaser entered into the Purchase Agreement, the misrepresentation is corrected by filing an Amendment to Disclosure Statement within 30 days of the developer becoming aware of the misrepresentation (and delivering it to the purchaser within a reasonable time), and the Amendment to Disclosure Statement is filed and provided to the purchaser no later than 14 days before the closing date in the Purchase Agreement.
The draft changes to REDMA will help bring certainty to the world of real estate development. However, it is not clear when the draft legislation will be brought into force, and what other changes may be made through regulations and policy statements to also assist in bringing certainty.
Contact Brad Cronquist at firstname.lastname@example.org or (250)869-1150