Condo buyers breaking contracts as prices fall

Condo lawsuits in B.C. have spiked as the housing market weakens and pre-sale buyers turn consumer protection legislation.

Construction cranes as seen in Vancouver’s Yaletown district. (Photo: The Canadian Press Images/Bayne Stanley)

As the country’s housing market weakens, one consequence could be a spike in condo lawsuits. When prices fall, pre-sale buyers are tempted to look for ways to get out of their deals—and that’s exactly what’s happening in British Columbia.

The province’s home prices have slid from their lofty peaks, and the courts have been sympathetic to pre-sale buyers, in part due to a strong piece of consumer-protection legislation known as the Real Estate Development Marketing Act (REDMA). The law, passed in 2004, sets out extensive disclosure requirements for developers and allows buyers to reclaim their deposits if the builder hasn’t met all of the terms. In one case decided this year, five buyers were allowed to rescind contracts even after taking ownership of their units.

Bryan Baynham, a partner with Harper Grey LLP in Vancouver, says he has represented more than 300 buyers in pre-sale cases in the past three years. He bristles at the notion that purchasers are using REDMA to weasel out of contracts just because prices have softened. “That has a connotation that they’re doing something wrong,” he says. “They’re just making a sensible decision when an asset is worth less than what they thought.” Baynham is currently representing seven buyers who purchased units in a luxury project called the Private Residences at Hotel Georgia in Vancouver. Construction wrapped up this fall, nearly a year behind schedule. Baynham alleges the developer never properly informed his clients as soon as it knew the estimated completion date would be missed, as required under REDMA.

Bruce Langereis, president of developer Delta Land, declined to comment on the lawsuits. (Delta itself isn’t named, though subsidiaries are.) He does have concerns about REDMA, however. “Consumer protection is a shield,” he says. “REDMA is now being used by consumers as a sword.” That means potentially using it to opt out of contracts on technicalities, even when the real issue is that their unit has lost value, which is outside the developer’s control. Should the company lose the Hotel Georgia cases, lenders might be reluctant to provide financing in the future, he argues. “They won’t want to get involved in projects that have no stability in terms of commitment from purchasers.”

Damon Chisholm, a partner at McMillan LLP in Vancouver, says that many aspects of REDMA provide necessary protection for consumers. But he worries that developers could end up providing so much information in disclosure statements for fear of running afoul of the law that buyers don’t bother to read them, ultimately weakening consumer protection. Still, his message for developers is to abide by the act. “Then it wouldn’t matter if prices are falling or not,” he says. “A purchaser will not have any angle to get out.”