Protecting pre-sale strata buyers and developers

By Wesley McMillan, Harper Grey LLP

As the market soared during most of the 2000s, condo pre-sales were a popular and profitable way to buy a new home. Today, while there may not be long lines of buyers outside sales centres, pre-sales continue to be a popular choice for both investors and home buyers.

Regardless of the purpose of a pre-sale purchase, there is an inherently speculative aspect to it. This is because a pre-sales contract locks in the price. After the buyer signs the contract, the market may go up or down, mortgage rules and interest rates may change, and in extreme cases, a buyer may no longer qualify for a mortgage.

Before the market decline began in 2008, buyers paid little attention to the Real Estate Development Marketing Act (REDMA). Then, when the decline occurred, many buyers found themselves stuck with contracts to buy properties above market value. The result was litigation.

There have been a number of cases testing the consumer protections enshrined in REDMA. For the most part, the results have been very good for purchasers. Breaches of REDMA – some seemingly unimportant – have resulted in purchasers being able to rescind their contracts and get their deposits back.

While REDMA provides robust protection for consumers, it also cuts both ways. While breaches by a developer will lead to a seemingly harsh result, if the developer complies with REDMA, it has a free hand to do almost whatever it wants without the risk of purchasers lawfully rescinding.

A developer may change anything that affects the price, value or use of the property. The only caveat is that the developer must immediately file and deliver an amendment to the disclosure statement clearly identifying those changes. Critically, so long as this is done, the purchasers have no right of rescission. They must still complete the purchase, regardless of what they think about the changes set out in the amendment.

REDMA is clear that receiving a disclosure statement does not provide a right of rescission.

Pre-sales purchasers should understand that the developer can change the price, value or use of the property and purchasers may not have a right to back out of the contract as a result. This is the quid pro quo of REDMA. While it provides purchasers robust consumer protection, it also provides developers the right to change important aspects of the development while keeping purchasers tied to their contracts.

McMillan is a lawyer at Harper Grey LLP and focuses on real estate litigation, including pre-sales disputes. He teaches real estate courses and regularly contributes to real estate publications.

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