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Legal Updates


Articles:

  • Buying from an Estate
  • Parking and Storage Lockers (New Form B Requirements for January 1, 2014)
  • WORDS COUNT IN A WARRANTY
  • BUYERS MUST BEWARE
  • PARKING STALLS AND STRATA UNITS
  • Limited Dual Agency and Independent Advice
  • Can You Sell Your Home By Email?

Buying from an Estate

Buyers of an estate property must be assured that the title can pass to them without legal problems. Licensees acting on behalf of an estate that is selling property should have the executor confirm that a grant of probate or letters of administration has been made which will allow the property to be transferred.

Buying from an EstateIf the Buyer has received confirmation that (1) the grant of probate or letters of administration has occurred, and (2) that no claims have been made or asserted under the Wills Variation Act, then no clause is required. If either or both has not occurred, the following clause should be incorporated into the Contract of Purchase and Sale:

Buying from an Estate Clause

Subject to the Buyer receiving the following by (date):

  1. copy of a grant of probate or letters of administration allowing the property to be sold; and
  2. assurance that no person has either made a claim against the property, or communicated the intention to make a claim against the property, under the Wills Variation Act.

This condition is for the sole benefit of the Buyer.

If there is a delay in the grant of probate or letters of administration, the buyer may agree to an extension to allow the executor or administrator additional time. However, any extension clause that is inserted should specify a date by which the grant of probate or letters of administration must be obtained. Licensees should not insert a clause which automatically extends the completion date of the contract until this event occurs.

An example of the proper way for an executor (or administrator, as the case may be) to sign a contract on behalf of the estate is: ‘‘G. Seller, Executor [or: Administrator] of the Estate of (name of the deceased)’’.

Finally, licensees should be aware that the Wills Variation Act and related statutes are presently scheduled to be replaced by the provisions of the Wills, Estates and Succession Act on March 31, 2014. The Council will monitor this and will provide further guidance to licensees as necessary.

Parking and Storage Lockers (New Form B Requirements for January 1, 2014)

Further information is provided below as to the different designations that a parking stall and a storage locker may have, that may need to be identified correctly to report this information on a Form B.

Common Property

This designation for parking stalls and storage lockers may require updating far more often than the other designations. There are two variations to consider:

Non-Exclusive Use. This may be evident in a strata corporation parking lot, parkade or storage room, where an owner, resident, tenant or visitor may park anywhere or use a storage locker on a first come basis.

Short-Term Exclusive Use Common Property. Section 76 of the Strata Property Act (the “SPA”) allows a strata council to designate common property for the exclusive use of a tenant or owner. It is important to note that this permission or privilege may only be given for a period of not more than one year*, and may be renewed or cancelled subject to the provisions described in that section. Strata Corporations need to be sure to keep their records up to date and ensure that designations of shortterm exclusive use are renewed at least on an annual basis or cancelled if appropriate, to ensure accuracy of the records.

Leased or Licensed Use. The owner developer, subject to certain terms as may be set out in the Disclosure Statement, may have granted an entity (such as a parking garage operator) a lease for an area of common property (typically a parking stall or number of parking stalls) for a period of time. This entity may be under the control of the owner developer. As each individual purchases their strata lot, they may have negotiated and possibly purchased a sub-lease or licence for the exclusive use of a parking stall (or stalls) or storage locker(s). There is no requirement for these leases or licence agreements to be registered at the Land Titles Office (the “LTO”); and neither is the owner developer obligated to provide the strata corporation copies of these subagreements, as they are agreements between two parties and not a record of the strata corporation. Notwithstanding this, the owner developer is obligated (and may need to be reminded) to provide all records required to be prepared or retained by the strata corporation under section 35 of the SPA, which includes parking stall and storage locker allocations. However, without this information, there may be some difficulty for the strata corporation to identify which areas of the common property are subject to a long term usage agreement with an individual owner.

Parking and Storage Lockers (New Form B Requirements for January 1, 2014) – Further InformationLimited Common Property (shown on strata plan)

If the parking stall or storage locker has been designated as Limited Common Property, it is likely to be identified as such on the strata plan registered at the LTO. Note that the proposed strata plan provided in the Disclosure Statement or the originally filed strata plan may not necessarily suffice; as under section 258 of the SPA, an owner developer may, at any time prior to the first Annual General Meeting amend the strata plan to designate parking stalls as limited common property. There are two other variations to consider:

Limited Common Property designated to specific strata lots (Non-Exclusive Use). The strata plan may identify an area of the common property (such as a parkade or parking area) as Limited Common Property for a limited number of strata lots. In this situation, only those owners, residents, tenants or visitors of the strata lots as shown on the strata plan may park in this area.

Limited Common Property designated to specific strata lots (Short-Term Exclusive Use).  Where Limited Common Property is designated for a limited number of strata lots, the strata corporation (or possibly a section) may allocate short term exclusive use of the Limited Common Property to specific strata lots. The same caveats that apply to Short-Term Exclusive Use Common Property, apply in this situation.

Limited Common Property (not shown on strata plan)

There may be instances where the limited common property has been designated by way of a ¾ Vote (section 74 of the SPA), where the strata plan has not been amended. In this instance, the ¾ Vote resolution(s) along with a sketch plan or diagram will be registered at the LTO.

Part of a Strata Lot. In some instances, the parking stall and/or the storage locker has been designated as part of a strata lot. This can be identified by reviewing the registered strata plan, and obtaining the General Index or the Common Property Folio to identify the ¾ Vote resolution.

Separate Strata Lot. In some strata corporations, parking stalls may have been registered as a separate strata lot, and thus may be purchased or sold separately. These strata lots might be owned privately, or by the strata corporation. The owners of these strata lots may choose to provide a lease or licence to another party.

Section 35(1)(c)(i) of the SPA requires that strata corporations prepare and retain a list of owners. This list must also include the owner’s parking stall number(s). Due to the new requirements of the Form B, it would be wise for a strata corporation to ensure that not only the ownership and parking stall lists are updated, but also that the storage locker lists are recorded correctly and updated whenever there is a change of ownership, or parking stall/ storage locker allocation.

While typically the allocation of parking and storage lockers tends to be associated with apartment/high rise strata corporations, the legislation also relates to townhouse and bare-land strata corporations. Examples where this may be pertinent include;

  • a parking pad/parking area that may be in front of, or near a townhouse, or a bare land strata lot, and
  • a separate storage locker that the strata corporation may own (either as a free standing building, or maybe within an amenity building).

Where the brokerage has been designated the responsibility for the record keeping of the strata corporation and/or the completion of a Form B, licensees should bring this requirement to their client’s attention. Where the records are not complete and the Form B cannot be completed accurately or with surety, the licensee may wish to recommend that their client seek legal advice.

WORDS COUNT IN A WARRANTY

Mike ManganA warranty is a minor term in a contract and does not go to the root of the agreement between parties. It expresses some lesser obligation. Breach of warranty permits the innocent party to sue for damages, but not to repudiate or rescind the contract.1

When negotiating a real estate purchase, a buyer may ask the seller to warrant in the contract that all the seller’s earlier representations are true. This device converts earlier pre-agreement statements into promises in the contract and the selected wording determines the extent of these promises.

The 0759594 B.C. Ltd.Case2
In 2007, the parties entered a Contract of Purchase and Sale (CPS) to sell 60 acres of land in Salmon Arm to the buyer for $16,700,000. The seller knew that the buyer planned to create a mixed residential and retail development, including a Walmart. Some of the land was in a floodplain and the city had to rezone the property before the buyer could proceed.

Before the parties entered their CPS, the seller provided a document with basic information about the property. The document stated that environmental studies had confirmed that there were no areas of environmental concern and, in principle, that city hall staff supported the necessary re-zoning. As it later turned out, the provincial Riparian Areas Regulation imposed setbacks that significantly limited the site’s development.

In the CPS, the seller gave this Disclosure Warranty, promising that they had disclosed all material facts about the project to the buyer:

3.1 Representations of the Vendor. The Vendor covenants, represents and warrants to and in favour of the Purchaser that ...:

(t) Full Disclosure.
... All material information pertaining to the Purchased Lands is set out in this Agreement or contained in [all of the seller’s documents].

At completion, the buyer held back the last $2,000,000 of the purchase price which would only be payable if the buyer’s rezoning application was denied. After purchasing the property, the rezoning application failed, apparently because of lack of support at city hall and strong public opposition to the proposed Walmart store.

When the buyer failed to pay the remainder of the purchase price, the seller sued the buyer. The buyer counter-claimed, arguing the seller breached their Disclosure Warranty, causing a loss of $3,300,000.

At trial, the court interpreted the Disclosure Warranty to mean that the seller was only required to disclose material facts of which they were aware. The buyer failed to prove that the seller knew about and withheld the information about riparian setbacks and opposition to the proposed Walmart. The court also found that the seller’s remarks about city hall support were not material, given the early stage of matters at the time. The trial court ordered the buyer to pay the unpaid balance of the purchase price and dismissed its claims.

However, the Court of Appeal took a broader view, finding that the Disclosure Warranty promised that all material facts were contained in the seller’s present and future disclosures, even those the seller did not know about. The Disclosure Warranty was not qualified by the phrase, “so far as the Vendor is aware.”

While this may seem harsh, the court said that warranties allocate risk and the parties are free to allocate risk as they see it. The Disclosure Warranty promised that all information to date and any disclosed afterwards would include all material facts, whether the seller knew about them or not.

The Court of Appeal found that the seller breached its Disclosure Warranty. The court set aside the trial judgment in favour of the seller and sent the matter back to trial.

In land deals, the parties are free to distribute risk as they might agree. If a party is willing, as the seller was here, to broadly promise disclosure of everything material, whether the seller knows about it or not, then the courts will enforce that promise even if it might seem unfair to some. REALTORS® can limit such broad assurances with qualifying words, such as, “As far as the party is aware” or “To the best of the party’s knowledge.”

 

 

Mike Mangan
B.A., LL.B.

 

BUYERS MUST BEWARE

A recent Provincial Court decision1 was an excellent example of how BC higher court judgments are applied to the factual problems that arise between buyers and sellers.

In February 2005, the defendant, Montpetit, purchased a fire-damaged house. He undertook extensive renovations and in February 2006, listed the renovated property for sale with Coast Realty. Montpetit signed a Property Disclosure Statement (PDS) which, by way of a line drawn through all of the various sections, made no disclosure about the property. Coast Realty and the listing REALTOR® acted as limited dual agents for the seller, as well as the claimants who bought the property.

The buyers’ offer to purchase was made subject to inspection. The inspection report listed deficiencies, most of which were dealt with by the seller prior to closing, but also recommended that a crawlspace be further inspected; this was not done prior to closing. After the purchase, the buyers experienced flooding in the basement from the uninspected crawlspace and a second inspection uncovered additional problems.

The buyers sued the seller for failing to disclose the deficiencies, as well as the brokerage and REALTOR®, alleging that they knew or ought to have known about the deficiencies and the seller’s misrepresentations.

The court analyzed the property deficiencies within the context of the caveat emptor (“buyer beware”) doctrine, which necessitates that the buyer must “fend for himself, seeking protection by express warranty or by independent examination” and if the buyer fails to do so, then “he is without remedy either at law or in equity.”2

An exception to this doctrine is a seller's requirement to disclose a property's latent defects which could not be discovered upon reasonable inspection by a qualified person. The court followed the BC Court of Appeal decision in Cardwell v. Perthen3 and concluded that as the deficiencies could have been discovered upon inspection, they were NOT latent defects and the buyers’ failure to discover them left no recourse against the seller.

As against the brokerage and REALTOR®, the court found that they had a principal/agent relationship with, and a duty of care to, the buyers which was modified by the Limited Dual Agency Agreement which required them to disclose to the buyer “defects about the physical condition of the property” known to them.

The court found that they did not have any direct knowledge of the deficiencies and misrepresentations and nothing in a REALTOR®’s standard of care to a client set out in the BC Supreme Court decision of Brown v. Douglas4 suggested they should have known. They did not have a duty to warn a client of obvious risks (patent defects) and were not held to possess the skills of building inspectors.

The court also rejected the argument that the REALTOR® failed to verify the completeness of the PDS, concluding that it is only a “starting point” and that once a buyer obtained a home inspection then, “absent fraud or concealment, reliance shifts [from the PDS] to the home inspector.”

The Court dismissed all claims against the brokerage and REALTOR® and concluded that the buyers had “misconceived the nature of the duty of the brokerage and the REALTOR® as agents in the matter ... by viewing the brokerage and the REALTOR®’s duty as providing them a source of compensation for any breaches committed by the seller.”

This case highlights a common dispute: the post-closing discovery by buyers of property defects. It once again emphasizes the strength of the caveat emptordoctrine and the limitations of the PDS. A buyer is responsible to discover all property defects which could be discovered upon a reasonable inspection by a qualified person. A buyer who chooses to purchase a used property without first having it inspected by a qualified person takes a significant risk and may have no recourse against the seller or REALTORS® involved.

Brian Taylor
Bull Housser LLP

PARKING STALLS AND STRATA UNITS

Jennifer CleeLicensees often mistakenly misrepresent the parking included with a strata unit sale, as a result of relying upon the seller for that information. As many sellers are mistaken as to their parking rights, licensees cannot rely upon sellers to provide accurate parking information.

Parking stalls are designated either as part of a strata lot or as common property. Parking stalls designated as common property generally fall under the control of the strata corporation.1 As a result, an owner's apparent right to use a parking stall designated as common property may not be transferable to future buyers.2 A parking stall designated as part of a strata lot, or as limited common property, will entitle a buyer of that strata lot to exclusive use of the stall. Where a parking stall is not so designated, a buyer may not have the right to use the stall, despite the seller's use.

The recent decision of Blackall v. Jarrold et al.3 concerned a dispute over parking. In Blackall, the buyers of a strata unit sued the sellers for negligently misrepresenting the number of parking stalls included in the sale. The Property Disclosure Statement stated that "parking stalls 598 and 601 are included in the purchase price along with storage locker 291, all of which will be assigned by the buyer on completion date." Both the buyers and the sellers believed that the parking stalls were designated as limited common property (LCP), and thus for the sellers' exclusive use.

In fact, only one of the stalls was designated LCP. While the original purchasers of the strata lot had paid the developer $5,350 for the use of the second parking stall at the time of their purchase, neither they nor the developer took steps to amend the strata plan. Thus the second parking stall, as common property, remained under the control of the strata corporation.

The buyers' claim against the sellers was dismissed. The court found the buyers had a clear opportunity to discover the parking stalls' status before removing subject conditions. The contract was subject to the buyers receiving and approving the usual strata documentation and verifying the status of the parking stalls associated with the property. The court held that the buyers' failure to carefully review the registered strata plan prior to removing subject conditions (a review of which would have shown only one parking stall designated as LCP) constituted a failure to exercise reasonable care and due diligence.

The buyers and sellers in Blackall were each represented by licensees in the transaction, but neither added the licensees as parties to the action. The licensees' absence from the litigation did not stop the court from expressing its opinion that the licensees' failure (and that of the licensees involved in theearlier sale of the property) to verify the status of the parking was negligent. The court stated, "Both the Grewals and the Defendants used real estate agents. Both real estate agents erred and failed to exercise a reasonable standard of care placed upon them in representing their respective clients' interests."

Effective January 1, 2014 strata corporations will be required to identify how parking (and storage lockers) are allocated to strata lots on the new Form B.4However, to avoid claims, licensees are well advised to:

  • review the strata plan and filed amendments, the common property record and any other related strata documents to verify parking stall designation,
  • review the Real Estate Council of British Columbia's Professional Standards Manual (PSM) for advice as to how to accurately describe parking stalls when listing a strata property, and
  • include, in any offers, those subject conditions referred to in Blackall, and found in the PSM.

Jennifer Clee
B.A., LL.B.

 

1.

Except where the strata corporation has leased the common property parking to a developer or related entity. See the Professional Standards Manual, II. Trading Services, Strata Sales, (xiv) Parking Stalls and Storage Lockers: www.recbc.ca/psm_section/strata-saleswww.recbc.ca/psm_section/strata-sales.

 

2.

See the Professional Standards Manual for a description of the usual arrangements that apply to parking stalls designated as common property: www.recbc.ca/licensee/psm.htmwww.recbc.ca/licensee/psm.htm.

 

3.

Blackall and Homan v. Jarrold and Foster, 2013 BCPC 4 (CanLII).

 

4.

Order in Council 623, December 13, 2011, Strata Property Amendment Act, 2009, S.B.C. 2009, c. 17.

Limited Dual Agency and Independent Advice

Judicial consideration of the practice of limited dual agency continues to evolve. A recent court decision1 considered whether a REALTOR® had a duty to refer their client for independent legal advice before the client entered into a Limited Dual Agency Agreement.

The plaintiff was a retired labourer with an elementary school education who, together with his wife, sought to relocate to the Okanagan. He became interested in a property and viewed it with the listing REALTOR®. He decided upon the amount he was prepared to offer for the property and the REALTOR® assisted him in the preparation of a formal offer.

The REALTOR® also had the plaintiff enter into a Limited Dual Agency Agreement. The offer and the Limited Dual Agency Agreement were then delivered to the seller. The offer was accepted and the transaction was completed. Sometime after completion the plaintiff became dissatisfied with a number of things about the property and sued the seller for misrepresentation and the REALTOR® for both misrepresentation and breach of fiduciary duty. The plaintiff was partially successful against the seller with respect to the claims of misrepresentation but unsuccessful against the REALTOR®.

The plaintiff first claimed that the REALTOR® was negligent in not confirming certain representations made by the seller. The court concluded that the duty of the REALTOR® was to check the completeness and accuracy of information which is usual and customary for REALTORS® to verify and all other information of which the REALTOR® is in doubt. The plaintiff did not adduce any expert evidence as to what information was usual or customary for a REALTOR® to verify. Absent any expert evidence the court was not prepared to conclude that it was customary or usual for a REALTOR® to inquire into or check the electrical system in a house or outbuilding nor was it customary or usual to examine the surrounding property.

With respect to the claim that the REALTOR® breached the fiduciary duties owed to the buyer the plaintiff claimed that, because the buyer may not have understood the nature of the Limited Dual Agency Agreement, the REALTOR® was obliged to afford the plaintiff the opportunity of getting independent legal advice before entering into it, that the REALTOR® failed to meet the obligations under the CREA REALTOR® Code and finally that the REALTOR® preferred the interests of the seller over the buyer. The court dismissed each claim.

The plaintiff argued that the requirement in the REALTOR® Code for a REALTOR® to "encourage parties to seek the advice of outside professionals where such advice is beyond the expertise of the [REALTOR®]" obligated the REALTOR® to refer the plaintiff for independent legal advice before the plaintiff entered into the Limited Dual Agency Agreement. The court did not agree. While concluding that there may be circumstances where such a referral was warranted, this was not one of them.

Having found that the REALTOR® had explained the document to the plaintiff, that the plaintiff had bought other houses before and had sold their previous property through limited dual agency and that there was no evidence to suggest that the plaintiff was incapable of understanding the document, the court concluded that the REALTOR® did not have an obligation to refer his client for independent legal advice. The plaintiff also tried to argue, with no success, that the fiduciary duties of the REALTOR® were not affected by the terms of the Limited Dual Agency Agreement.

Once again a BC court has recognized that "limited dual agency agreements are not uncommon in this province." In this case the court confirmed that, except in extraordinary circumstances, a REALTOR® is not obligated to refer his client (even a client with limited education) for independent legal advice before entering into a Limited Dual Agency Agreement where the document has been explained to the client and there is no evidence to suggest that the client was incapable of understanding it.

 

Brian Taylor
Bull Housser LLP

 

1.

Paniccia v. Eckert 2012 BCSC 1428.

Can You Sell Your Home By Email?

The New Brunswick Court of Appeal recently considered whether an exchange of emails between a prospective buyer and seller of residential property constituted a binding contract.1

 

The property was listed for sale on Kijiji. After an initial phone call, the buyer and seller negotiated a sale by email. The seller emailed the buyer offering to sell the property for $160,000, providing the buyer assumed the mortgage and paid her legal fees. The buyer emailed agreeing to assume the mortgage, pay the seller's legal fees and offer $155,000. The buyer also emailed asking if his wife could view the property. The seller emailed back advising the buyer that she would accept his offer. The buyer's next email suggested he have a purchase and sales agreement drafted and proposed a closing date. Three hours later the seller emailed the buyer advising that after speaking with her partner, she was not prepared to sell the property. The seller was the sole owner of the property.

 

The buyer sought a judicial determination that the email exchange resulted in a binding agreement. The buyer argued that the email exchange constituted a written agreement, contained all the essential contract terms, satisfied the definition of electronic signature under New Brunswick's Electronic Transactions Act2 (NB ETA), and therefore satisfied that provisions under that province's Statute of Frauds3 which, like BC's Law & Equity Act4, provide that no contract for the sale of land is enforceable unless the agreement is in writing and signed by the party charged.

 

While the case concerned New Brunswick legislation, BC's legislation is substantially the same.5 The BC Electronic Transactions Act6, like the NB ETA, provides that contracts for the sale of land may be entered into electronically providing the parties agree, and providing the other common law requirements for contract formation are satisfied. Both Acts provide that the legal requirement for a signature is satisfied with an electronic signature and define electronic signature similarly, as information in electronic form that a person has created or adopted in order to sign a document and that is in, attached to or associated with the document.

 

While the lower court found a binding agreement, the Court of Appeal held otherwise. The higher Court acknowledged that the emails satisfied the written requirement of the Statute of Frauds and commented, without making any conclusion in this case, that it was possible that the method of the seller identifying herself in the emails could satisfy the definition of electronic signature under the NB ETA, and thus the requirements of the Statute of Frauds.

 

The Court also acknowledged that the email exchange contained the essential elements for a contract: parties, price, property. However, applying the objective standard of the "reasonable bystander", the Court concluded that the parties lacked the requisite intention to contract, a criterion for contract formation. In reaching its conclusion, the Court considered the fact that neither the buyer nor his wife had viewed the property, the buyer's reference to a future draft agreement, and the fact that the buyer was unaware of the terms of assuming the mortgage.

 

The following passage illustrates the Court's concern with finding enforceable contracts by informal electronic communications, particularly in transactions involving the sale of residential property:

 

"The notion that a person can sift through a series of emails, identify the 3 P's, find a signature that satisfies the Electronic Transactions Act and, correlatively, the Statute of Frauds, and then have the court fill in any necessary contractual terms is simply out of step with reasonable expectations of today's typical consumer. There are still instances where formalities count. The purchase of a home is one of them."7

 

The decision is encouraging as the Court recognized that the sale of real property is a sophisticated process, where formality is required and consequently, the expertise of licensees.

 

Jennifer A. Clee
B.A., LL.B.

 

 

1.

Druit v. Girouard 2012 NBCA 40.

 

2.

R.S.N.B. 2011, c. 145.

 

3.

R.S.N.B. 1973, c. S-14.

 

4.

R.S.B.C. 1996, c. 253, s. 59.

 

5.

See also Legally Speaking 450

 

6.

S.B.C. 2001, c. 10.

 

7.

Supra, footnote 1, page 3.