There has been considerable media attention and controversy surrounding the cancellation of “pre-sale� contracts in the Riverside development in Coquitlam, BC. It is common in major cities in BC to pre-sell residential properties before construction has been completed or even started. In Victoria we have many projects where they pre-sell suites. Developers face a number of uncertainties and risks because of matters largely beyond their control (e.g., financing, changes in market conditions, labour and materials availability and costs, permits, inspections, etc.).
In the case of larger developments, developers typically use a “pre-sale� contract (i.e., a contract for any residence purchased prior to completion of construction) drafted by their lawyer. These types of contracts are often quite complex and present buyers with associated uncertainties and risks. The following discusses some of the basic features and issues connected to “pre-sale� contracts. This discussion will be continued in a future issue of our blog.
Disclosure Statement: The disclosure statement explains what the developer is selling. The developer must provide the prospective buyer with a copy of it and give the buyer a reasonable opportunity to read it before entering into a contract.
Right of Rescission/Cooling of Period: The Real Estate Act enables the buyer to rescind the contract by serving notice on the developer within seven days after the date the contract has been entered into.
Completion/Possession Date: Depending on the stage of construction, pre-sale contracts will usually have an “anticipated� completion/possession date, perhaps two to three years in the future and terms regarding delays, extensions and cancellation.
Construction Delays, Extensions and Cancellation:  Clauses relating to delays, extensions and cancellation can be complicated. Pre-sale contracts often enable the developer to arbitrarily extend the anticipated completion date, if the delay is a consequence of some act beyond the developers control (e.g., acts of God, an act of government, unavailability of labour, materials, etc.). In the case of such delays, the developer may be able to extend the completion date for a period equivalent to the period of the delay. (Buyer s may want to ensure the contract provides for a “drop-deadâ€? date, that is a date whereby the buyer may exercise the option to cancel the contract, if construction is not complete).Â
If construction is delayed beyond the anticipated completion date, the contract may provide that it be cancelled unless the parties agree to an extension. It may also provide for a Seller’s cancellation option by a certain date. If market prices have increased, the developer may have the option to ask the buyer to pay a higher price or enter into a new contract. A proposed development may not proceed at all because of inadequate sales, problems obtaining financing, availability and cost of labour and materials. ( To be continued…)Â
Buyers should get professional advice, indeed early involvement of their lawyer, to ensure they fully under stand the terms and conditions of a “pre-sale� contract and to identify any risks and uncertainties that might be involved.
We would love to hear your comments. Just leave a comment below. If you have any questions about Victoria Real Estate in General, you can contact us anytime.Â
Cheers, Anders
Anders Treiberg, Associate Broker, REALTOR®
Properties in Victoria Professionals-Royal LePage Coast Capital.
Anders Treiberg has been a REALTOR® in Victoria since 1990. He has extensive Real Estate Expertise and can be reached on his website or via email at anders@PropertiesInVictoria.com
