Early Marketing for Development Projects
The Superintendent of Real Estate (now operated under the BC Financial Services Authority) issued Policy Statements 5 and 6 under the Real Estate Development Marketing Act (“REDMA”) to allow developers to engage in early marketing of their development projects. With both policy statements in place, developers can market their development projects before receiving certain permits and construction loans from lenders.
POLICY STATEMENT 5
Time Savings for Developers
Policy Statement 5 allows a developer to start marketing their development project at the time of receiving an “approval in principle,” which is commonly recognized as the issuance of a development permit by a municipality or local government. Policy Statement 5 also considers approval in principle to be satisfied when a municipality or local government has given third reading to zone or rezone a proposed development site.
Once a developer receives approval in principle, the developer files a disclosure statement setting out important time frames of the development project. From the date of filing the disclosure statement, a developer has 12 months to obtain a “building permit” in order to continue marketing their development project. A building permit may be issued for excavation or certain stages of construction.
Once the building permit is issued, the developer must file an amendment to the disclosure statement setting out the particulars of the building permit. If the 12-month time frame lapses and an amendment to the disclosure statement is not yet filed, then the developer needs to cease marketing the development project until such time as it files an amendment setting out the particulars of the building permit.
How Policy Statement 5 Effects Buyers
Any pre-sale purchase agreements governed by REDMA, must include the below terms and timelines if policy statement 5 is applicable and an amendment setting out the particulars of the building permit has not been filed yet:
- The buyer has the option to cancel the purchase agreement if they do not receive an amendment to the disclosure statement within 12 months of the date the developer originally filed the disclosure statement. If the buyer exercises the option to cancel the purchase agreement, then the buyer has to provide notice to the developer, who in return is required to promptly pay back any deposit amount and available interest (if applicable). Note, this option is extinguished as soon as the developer files an amendment setting out the particulars of the building permit.
- Under REDMA, the pre-sale contract cannot require deposits from the buyer in an amount greater than 10% of the purchase price until the buyer receives an amendment to the disclosure statement that sets out particulars of the issued building permit.
POLICY STATEMENT 6
Marketing Without a Satisfactory Financing Commitment
Section 12 of REDMA restricts a developer from marketing a development unit until they have made “adequate arrangements” to pay installation costs for utilities and other services. In order to make adequate arrangements, a developer is required to obtain a “satisfactory financing commitment.”
So, what is a satisfactory financing commitment? Policy Statement 6 outlines a satisfactory financing commitment as the ability to obtain a loan from a lender that is not conditional on the developer:
- entering into a particular number of purchase agreements with buyers; and
- achieving a certain value of sales.
It is important to note, a developer may rely on their own funds in combination with funds from the lender to satisfy the requirements of adequate arrangements.
How Policy Statement 6 Effects Buyers
Even if a developer has not received a satisfactory financing commitment, Policy Statement 6 allows a developer to engage in early marketing of their development project, on certain conditions:
- The developer, within 12 months from when the original disclosure statement was filed, files an amendment setting out the particulars of the satisfactory financing commitment. If the required amendment is not filed by the end of the 12 months, then the developer must cease marketing the development project.
- The buyer may cancel a purchase agreement if the buyer has not received the required amendment to the disclosure statement within 12 months from the date the disclosure statement was filed. If the buyer does not exercise the option to cancel the purchase agreement and the developer delivers the required amendment at any time after the 12 months,thenthe buyer loses their right to cancel the purchase agreement. If the buyer exercises the option to cancel the purchase agreement,thenthe buyer needs to provide a notice of cancellation to the developer. In return, all deposits and any available interest will be promptly returned to the buyer.
- In accordance with REDMA, a pre-sale contract cannot require deposits from the buyer in an amount greater than 10% of the purchase price until the buyer receives an amendment to the disclosure statement that sets out particulars of a satisfactory financing commitment.
Please note, the foregoing is provided for general informational purposes only and does not, and is not intended to, constitute as any legal or professional advice to be used or relied upon as such. Please contact the commercial real estate team at Bell Alliance LLP for seeking specific advice regarding particular questions or issues.