Disclosure Statements and Amendments Primer
For many developers of property in BC, filing a disclosure statement with the BC Financial Services Authority (“BCFSA”) is an essential step to being able to sell development units to the public. In fact, under the Real Estate Development Marketing Act (“REDMA”) which provides rules for developers of property in BC, developers are prohibited from even marketing development units until a disclosure statement is filed with the BCFSA.
Compliance with REDMA, including the disclosure statement requirement, is crucial for developers and their lenders because a failure to comply can lead to unenforceable purchase contracts.
What are Disclosure Statements?
REDMA is enforced by the BCFSA, and ensures that developers provide full information and deposit protection for all consumers when marketing new developments.
A mechanism by which developers provide information to consumers is through a disclosure statement. A disclosure statement must disclose all “material facts” in relation to the development, which are facts that could reasonably be expected to affect the price, value, or use of the development property. Therefore, a disclosure statement typically discloses the following information:
- the background and experience of the developer;
- the purchaser’s rights of rescission;
- permitted uses of the development;
- phasing of the development;
- strata information and budgets;
- parking entitlements;
- utilities and services;
- description of the land title;
- construction and warranties;
- local government approvals and finances; and
- handling of purchaser’s deposits.
It is important to note that under REDMA, a specific form of disclosure statement is required based on the type of development property. Therefore, developers must review the requirements under REDMA to ensure that the disclosure statement is compliant.
When are Disclosure Statements Required?
REDMA sets out that a developer must file a disclosure statement with the BCFSA prior to the developer marketing the development property.
So long as the filed disclosure statement is in the proper form required by the BCFSA, discloses all “material facts”, sets out the purchaser’s rights to rescission, and is signed as required, the developer may then market the development property.
However, even upon marketing the development property, additional requirements relating to the disclosure statement remain. Including, that the developer must provide a copy of the disclosure statement to all purchasers, who must then review the disclosure statement, and return a written statement confirming that they have done so, prior to entering into an agreement to purchase.
Purchasers are then provided a mandatory seven-day rescission period under REDMA by which they may rescind the purchase agreement. The purchaser(s) may rescind the purchase agreement within seven days after the later of the date the purchase agreement was made, and the date the developer obtained the written statement confirming the purchaser’s review of the disclosure statement.
There are also instances in which a developer must file a new disclosure statement, even though a disclosure statement had previously been filed for the development property. A new disclosure statement is typically required under two circumstances:
- where the identity of the developer changes; or
- where a receiver, liquidator or trustee-in-bankruptcy is appointed in respect of the developer.
Additionally, if a developer fails to meet the requirements of the Superintendent of Real Estate’s Policy Statement 5 (building permit) and Policy Statement 6 (satisfactory financing commitment), the developer may be required to file a new disclosure statement, or disclosure statement amendment (for more information on Policy Statements 5 and 6, please read our upcoming blog post “Early Marketing for Development Projects”).
Therefore, it is essential that developers consult a legal professional to ensure that the disclosure statement is not only filed on time, and in the correct form, but also to ensure their obligations to file a new disclosure statement, or file a disclosure statement amendment are completed when required.
Failing to do so may result in a variety of consequences under REDMA for the developer, including the issuance of cease marketing orders, purchasers rescinding their contracts and returning any deposits made, administrative penalties, and under certain circumstances, purchasers suing the developer for damages.
What is a Disclosure Statement Amendment?
A disclosure statement amendment is a mechanism by which developers can clearly identify and correct the previously filed disclosure statement, that either no longer complies with REDMA, or if any “material facts” were omitted, changed, or misrepresented. Examples of “material facts” that if omitted, changed, or misrepresented generally require a disclosure statement amendment are changes to the estimated construction completion dates of the development, the developer obtaining a building permit for the property, or changes to the title of the property. However, there are a number of “material facts” that may require the filing of a disclosure statement amendment, if omitted, changed, or misrepresented, because a “material fact” is any fact that could reasonably be expected to affect the price, value, or use of the development property.
When is a Disclosure Statement Amendment Required?
REDMA requires developers to amend their disclosure statement as soon as they are aware that it no longer complies with REDMA, or if any “material facts” were omitted, changed, or misrepresented. Therefore, it is a continuing disclosure obligation on the developer, such that multiple disclosure statement amendments may be necessary throughout the duration of a development project.
Within a reasonable time after the filing of the disclosure statement amendment, a copy of the amendment must then be provided to each purchaser and prospective purchaser of the development property.
Why File a Disclosure Statement Amendment?
Generally, unlike the filing of a disclosure statement, the filing of a disclosure statement amendment does not trigger the mandatory seven-day purchaser rescission rights period. Therefore, developers are generally not penalized under REDMA for informing purchasers of changes.
However, just like with the disclosure statement, a failure to file and provide a disclosure statement amendment when required can result in a number of consequences under REDMA, including purchase contracts being unenforceable, purchasers having a right to rescind their contract and obtain a return of their deposits, or cease marketing orders.
Therefore, it is essential that developers consult a legal professional to ensure that disclosure statement amendments are filed in a timely manner and in the correct form.
How We Can Help
The information in this post is general in nature and does not necessarily apply to the specific circumstances of your development property. If you require any legal advice regarding your development property, such as the filing of a disclosure statement or amendment, please contact Bell Alliance LLP at 604-873-8723 or email us at email@example.com.