Legal Issues for Buyers and Developers of Pre-Sale Condos

Greg Harney
Originally published in - August 2009
by Greg Harney

When will a contract to purchase a condo be enforced?  Given the popularity of pre-sale condos these days and the current rapid fluctuations in the real estate market, buyers and developers of strata lots alike want to know where they stand.

There are many reasons why buyers may want to be relieved from their contract of purchase and sale. The economy may have affected their finances for the worse. They may have bought beyond what they can afford. They may have inspected the suite when construction was finished and realized that it was not what they thought they were buying. Construction may have been delayed well past what was promised.

The Real Estate Development Marketing Act was introduced in 2004 partially to enhance consumer protection for buyers of strata lots. The Act is still new and the dust has not settled, but a basic premise is that the buyer is entitled to know what he or she is buying. This means that developers are required to provide disclosure statements describing all material facts about the development. A material fact is a fact about the development or the identity of the developer that could reasonably be expected to affect the value, price or use of the strata unit or the development as a whole. Examples of material facts could include significant delays in construction, significant architectural or design changes, or environmental issues such as the presence of contaminated soil.

Similarly, if the developer makes a material change during the construction phase, it has to inform the buyer.
If a developer does not comply with the Act, the buyer may be able to rescind the contract, and obtain a refund of the deposit.

In a BC Supreme Court case decided earlier this year, the purchasers of a $3.5M condo at UBC took the developer to court because it had not provided them with all of the required disclosure statements. The judge said that it was common ground that the Act “is a piece of consumer protection legislation and that one of its central objectives is to ensure that material facts are provided to purchasers when developments are being marketed to them.” The purchasers obtained an order for rescission of the contract, and for the return of their $350,000 deposit.

This does not mean that it is open season for any buyer to get out of their condo contracts. There are protections in the Act for developers as well. However, if you are a buyer who believes that you are not getting what you contracted to get, or that you have not been provided with all material facts, you may want to consult a lawyer. Similarly, a developer that is changing the design of the property, has encountered financing problems, or comes across any other significant changes may want to consult legal counsel to determine if it’s necessary to make further disclosure to the purchasers.

In order to attempt to avoid these problems before they arise, prospective buyers should ask the developer for all disclosure statements and should make sure they carefully read these statements, as well the contract, before they sign anything. Developers should also review the disclosure statements to ensure they have addressed all material facts.