Canada: BCCA Clarifies ‘Materiality’ Threshold For Purchaser’s Right To Rescind Under REDMA

Last Updated: March 7 2014
Article by Jennifer Chan and Greg Umbach

A recent decision of the British Columbia Court of Appeal (BCCA) reaffirms the need to balance the interests of developers and purchasers under the B.C. Real Estate Development Marketing Act (REDMA) by clarifying the "materiality" threshold underlying a developer's obligation to disclose facts and the concomitant right of a purchaser to rescind a purchase agreement for inadequate disclosure. In finding for the developer, the BCCA held that a developer's failure to provide purchasers with an amendment to a disclosure statement did not give rise to a purchaser's right of rescission under REDMA where such amendment did not contain objectively material facts or relate to adverse effects on the purchaser.

In Woo v. Onni Ioco Road Five Development Limited Partnership, the developer prepared a disclosure statement in compliance with REDMA for the sale of units in a residential development relying on policy statements from the Superintendent of Real Estate for pre-construction marketing prior to securing a building permit. Shortly after, in 2006, the respondent purchasers received the disclosure statement and entered into purchase agreements with the developer. In 2008, construction was completed and the purchasers took title to their properties. In 2009, the purchasers learned that they had not received a 2007 amendment to the disclosure statement and in 2010 they served notices to rescind their purchase agreements.

The amendment to the disclosure statement that the purchasers did not receive included updates on a revenue agreement entered into by the developer; receipt of subdivision approval; receipt of the building permit; and satisfaction of municipal conditions for strata lot creation. The purchasers argued that they were entitled to receive the amendment pursuant to section 16(1)(b)(i) of REDMA and that the developer's inadvertent failure to provide them with it gave rise to a right of rescission pursuant to section 21(3) of REDMA.

Section 21(3) of REDMA provides:

"Regardless of whether title, or other interest for which a purchaser has contracted, to a development unit has been transferred, if a purchaser is entitled to a disclosure statement in respect of a development property under this Act and does not receive the disclosure statement, the purchaser may rescind, at any time, a purchase agreement of a development unit in that development property by serving a written notice of rescission to the developer."

At trial, the Supreme Court of British Columbia judge "accepted that the facts disclosed in the amendment confirmed that events predicted in the disclosure statement had occurred as and when predicted." Nevertheless, he found the facts contained in the amendment were material because they "reduced the risk that the developer might not complete the project as contemplated". The trial judge held that the purchasers were entitled to rescind their purchase agreements and awarded them the return of the purchase price plus interest. The developer's counterclaim for occupational rent from the purchasers, who continued to live in the disputed properties, was denied.

On appeal, the BCCA applied general principles of statutory interpretation to reaffirm the twin goals of REDMA as not only protecting consumers by ensuring developers disclose material facts, but also "enabling the efficient and productive operation of this sector of real estate development." It then reviewed the materiality threshold underlying the disclosure obligations in REDMA.

MATERIALITY THRESHOLD

REDMA prohibits a developer from marketing a development property prior to its construction unless it has first prepared a disclosure statement which must, among other things, "without misrepresentation, plainly disclose all material facts." An amendment is required if such disclosure statement no longer complies with the requirements for a disclosure statement, or if it contains a misrepresentation in respect of a material fact, defined in this context as follows:

"material fact" means, in relation to a development unit or development property, any of the following...a fact, or a proposal to do something, that affects or could reasonably be expected to affect, the value, price or use of the development unit or development property.

In order for a fact to be material, the BCCA reasoned, it must be considered in context. Absent evidence of such context, a "reasonable person" could not conclude that the disclosure in the amendment was material. In this case, there was no evidence that the amendment had any impact on value, price or use of the properties.

Secondly, even if the amendment disclosed facts that could affect property prices, the purchasers had not presented any evidence as to how significant such an effect might be. According to the BCCA, a "minimum threshold consequence on price, value or use is built into the purpose of consumer protection" and it was up to the purchasers to provide the court with objective evidence as to the degree to which their interests had been affected.

Thirdly, the BCCA read into the definition of "material fact" a requirement that the effect on value, price and use be "adverse to the interests of the purchasers and not to their benefit." This adverse effect requirement is rooted in the purpose of REDMA as consumer protection legislation, while at the same time promoting the real estate development industry. Therefore, even if the amendment disclosed facts that could affect the price or value of the properties, that effect was positive and not negative and so the purchasers had not suffered any prejudice.

IMPACT OF DECISION AND BEST PRACTICES

In moderation of recent cases in B.C. involving purchaser rescission rights under REDMA, this decision moves towards a more balanced approach to implementing REDMA. The importance of both consumer protection and efficient promotion and development of real estate is recognized as a consideration in interpreting the provisions of REDMA. The decision removes the potential windfall situation created by the trial decision in Woo, whereby a purchaser was entitled to rescind a purchase agreement at any time, receive interest on the purchase price and live rent-free upon discovering the inadvertent failure by a developer to disclose facts that had no material or adverse impact on that purchaser.

However, this judgment also creates new uncertainties. It leaves to future cases the determination of what types of evidence will be sufficient for a purchaser to demonstrate a material and adverse effect on value, price or use of a property and whether such effect has reached an objective threshold necessary to support a right of rescission. Further, it is unclear how in practice the inherently subjective decision to purchase a particular home will be reconciled with the objective materiality threshold and adverse effect requirement articulated by the court.

This decision should not be read as weakening the ongoing and continual disclosure obligations of developers under REDMA. The statement given previously in the Court of Appeal still applies in that, "...the strictness of the [REDMA disclosure] filing regime must be maintained in order for protection to be meaningful to the consumer..." As a result, developers should continue to monitor their systems for updating disclosure filings and delivering such updates to their purchasers in a timely manner.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
30 Oct 2019, Other, Toronto, Canada

The materials on the Blakes Business Class website are provided for informational purposes only. Accessing this information does not create a lawyer-client relationship.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions