CMB MAGAZINE cmba-achc.ca summer 2018 | 39
presalecontracts
notice that the contracts might not complete
and that there were mortgages secured against
the land. e Court also noted that, in the
event of disclaimer, the purchasers would be
entitled to the return of their deposits, which
were held in trust.
e purchasers also pointed to the public
policy goals of consumer protection under
REDMA as an equitable consideration. e
Court disagreed, holding that REDMA only
provides rights of rescission and that it had
no relevance to the equities under the law
of disclaimer. e Court concluded that any
further protections to purchasers in such
circumstances must come from the provincial
legislature, not the Court.
In the result, the Court concluded
that the equities did not justify overriding
the mortgagees' rights and favouring the
purchasers. Accordingly, the Court directed
the receiver to disclaim the presale contracts
and return the purchasers' deposits. In
addition, the Court gave the purchasers a right
of first refusal in the event they still wished to
purchase the units that were the subject
of their cancelled contracts.
Although the presale purchasers appealed
the decision to the British Columbia Court of
Appeal, the appeal was dismissed on the basis
that the judge did not make any error in
her decision.
IMPLICATIOnS
While it is not clear in what circumstances
the "equities" would be sufficient to favour
purchasers, such a conclusion likely requires
compelling evidence that the mortgagees were
not innocent and misconducted themselves.
In general, this will be a very high burden
and very difficult to prove. ere was no such
evidence in this case, and, to the contrary,
the Court determined that the mortgagees
were innocent parties.
e decision demonstrates that disclaimer
is a very useful tool for maximizing
realizations in rising real estate markets.
However, the language of the presale
agreements will be key, and lenders will want
to ensure that the presale agreements expressly
limit the interests of purchasers to contractual
interests until completion of the sale.
From the perspective of purchasers, the
decision shows that a presale agreement
generally only provides purchasers with a
chance to complete a purchase of the unit.
Presale agreements are no guarantee of a
future home, and buyers should be advised of
the risks. In addition, conducting robust due
diligence on the developer is essential.
Where a purchaser's contract has been
disclaimed, their remedy will be to bring a
damages claim against the debtor. e value of
that damages claim will of course depend on
the debtor having assets to satisfy a judgment.
However, where a developer is insolvent, a
damages claim against the debtor will probably
be of limited value.
For more detail, read: Forjay Management Ltd.
v. 0981478 B.C. Ltd.
Matthew Nied is an associate with law firm
Cassels Brock.
