Government’s First Actions on Strata Insurance

After hearing from strata corporations, owners and other stakeholders – including REALTORS® – for several months, on June 23 the BC Government introduced legislative changes to help address the high costs of strata insurance.

Strong advocacy work by BCREA and the real estate boards has resulted in BCREA being named as a contributor in the government’s news release and three of our recommendations being included:

  1. Add insurance information to the Form B Information Certificate, with liability for accuracy resting with the insurer or insurance agent instead of the strata corporation. We hope this can happen quickly after the legislation is passed.
  2. Require strata corporations to inform owners about insurance coverage, provide notice of any policy changes, including increasing deductibles. This will be in effect as soon as the legislation is passed and will give all owners a better understanding of their situation.
  3. Strengthen notification requirements by insurers to strata corporations of changes to insurance coverage and costs, or an intent not to renew. The government hasn’t specified how much notice will be given, but BCREA asked that strata corporations receive 60 days’ notice.

Other measures include ending referral fees between insurers and property managers, identifying when stratas are not required to get full insurance coverage and strengthening depreciation reporting requirements. All proposed changes have to be debated in the legislature, and most of them will require more work and consultation by the government and others (ideally) to work out the details.

The government knows these changes won’t fix the problem, but this is a start. This fall, the BC Financial Services Authority, which regulates provincial financial services including insurance, will publish research findings that will help the government create effective policies to help BC strata owners and corporations now and into the future.

 

Suing for Unpaid Deposits

Generally speaking, if a buyer breaches a contract for the purchase of real estate and the seller accepts the buyer’s refusal to perform the contract (as known as “repudiation”), an innocent seller is entitled to retain the deposit paid by the buyer under a contract of purchase and sale. But what happens when a buyer breaches a contract before the deposit is due and payable? Is the seller still entitled to the deposit if the transaction collapses due to the buyer’s breach?

In a recent decision, the British Columbia Court of Appeal confirmed that a seller is entitled to an unpaid deposit owing under a contract of purchase and sale for real estate, even if the repudiation of the contract is accepted by the innocent party. In its decision in Argo Ventures v. Choi 1, the Court confirmed that a seller can sue for the unpaid deposit even after it has accepted the repudiation of the contract due to the buyer’s breach or default.

The facts of the case are as follows: In the summer of 2016, the buyers entered into a contract to purchase a property in Port Coquitlam, British Columbia for approximately $6,500,000, with an initial non-refundable deposit of $300,000 due within ten business days. The buyers decided not to complete the purchase, despite there being a binding contract, and failed to provide the deposit within ten business days of acceptance (as set out in the contract). The buyers breached the contract (by stating that they would not complete the purchase) before the date the deposit was due. The seller accepted the buyers’ repudiation of the contract for failure to pay the deposit on time, thereby terminating the contract, and the seller commenced an action for the amount of the unpaid deposit.

On January 25, 2019 the Supreme Court of British Columbia awarded a judgment against the buyers in the amount of $300,000, plus pre-judgment interest and costs. The buyers did not dispute that the deposit was owing on a certain date and that it was unpaid, rather at trial they put forward a defence of non est factum, stating they were unaware of the changes that were made in the counteroffer which were initialed by them. The defence of non est factum was unsuccessful with the Supreme Court as the judge found that the buyers’ mistaken belief regarding the revisions in the counteroffer, as initialed by them, was due to their own carelessness.

On appeal, the buyers stated that the trial judge erred in its decision and they put forward a new argument that the unpaid deposit was not owing and due, as it was forfeited on the repudiation of the contract. The buyers’ argument had two main aspects:

  1. The deposit was not owing on the date they repudiated the contract (i.e., the repudiation of the contract occurred before the deposit was due); and
  2. The deposit could not be forfeited to the seller because it was never paid.

On the first point, the court refused the buyers’ argument and relied on the principles set out in Vanvic Enterprises Ltd. v. Mack 2,  which state that “where the seller’s right to a non-refundable deposit has accrued before it accepts the buyer’s repudiation, the seller can sue for an amount equal to the unpaid deposit”3.

On the second point, the court refused the buyers’ argument noting that the trial judge did not order the forfeiting of the deposit, but rather an award in damages or debt in an amount equal to the deposit.

Through its decision in Argo Ventures v. Choi, the Court reviewed some important aspects of the law regarding deposits as summarized below:

  • Deposits cannot be excessive or unconscionable, and that deposits are an exception to the usual rule against penalties.4
  • Even where the seller does not suffer any damages, the deposit is still forfeitable if the buyer is in default or breaches the contract.5
  • A seller can still sue for an unpaid deposit owing, even after it has accepted the buyer’s repudiation of the contract.6

A seller can claim an award for either damages or debt for an unpaid deposit owing.7 The Court, through its decision in Argo Ventures v. Choi, has confirmed that regardless of when a deposit is due and payable, an innocent seller will be entitled to the deposit (or a sum equal to the deposit) under a contract for real estate if the buyer breaches the contract (and such repudiation is accepted by the seller), even if the breach by the buyer occurs before the deposit was due and payable. In addition to retaining, or claiming an award for, the deposit, a seller may also sue for any damages suffered that exceed the amount of the deposit. Licensees should always advise their clients to seek independent legal advice for any matters related to breach of contract.

1. Argo Ventures v. Choi, 2020 BCCA 17
2 Vanvic Enterprises Ltd. v. Mack, 1985 CanLII 588 (BC CA)
3 See para 36 of Argo Ventures v. Choi, 2020 BCCA 17
4 See para 36 of Argo Ventures v. Choi, 2020 BCCA 17; and Tang v. Zhang, 2013 BCCA 54
5 See para 47 of Argo Ventures v. Choi, 2020 BCCA 17; and Tang v. Zhang, 2013 BCCA 54
6 See para 47 of Argo Ventures v. Choi, 2020 BCCA 17
7 See para 45 of Argo Ventures v. Choi, 2020 BCCA 17

Blanket Ban on Residential Evictions Ends

Landlords with existing orders for eviction can take them to the courts beginning July 2, 2020, for enforcement and can enforce a writ order effective immediately. Landlords can enter a rental suite with 24-hour notice and don’t need the tenant’s consent. And documents can now be served in person.

REALTORS® and landlords are expected to follow health guidelines like physical distancing, cleaning and wearing masks when appropriate. Please continue with your diligence in showing property and meeting with clients. Check out the protocols from WorkSafeBC for more information.

The government commits to giving advance notice before lifting the moratorium on evictions for non-payment of rent at a future date. A framework will be put in place that will require landlords to work with tenants to repay rent that’s owing over a reasonable period of time.

For now, the freeze on rent increases remains in place, as does a landlord’s ability to restrict access to common spaces.

Read the government news release here and information about COVID-19 and tenancies here. And these are the timelines required for serving notices during tenancies.

Housing Market Activity Shows Signs of Recovery in May

Vancouver, BC – June 15, 2020. The British Columbia Real Estate Association (BCREA) reports that a total of 4,518 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in May 2020, a decline of 45.2 per cent from May 2019. The average MLS® residential price in BC was $728,898, a 3.2 per cent increase from $706,394 recorded the previous year. Total sales dollar volume in May was $3.3 billion, a 43.5 per cent decrease over 2019.

chart

“There were encouraging signs of recovery in May,” said BCREA Chief Economist Brendon Ogmundson. “While activity is still far below normal, both sales and listings are up significantly from April’s lows.”

New listings activity started to normalize around the first week of May, reversing a slide in total active listings. However, active listings are still down close to 24 per cent year-over-year and are more than 10,000 listings below where they would normally be in the spring months.

Year-to-date, BC residential sales dollar volume was down 6 per cent to $18.6 billion, compared with the same period in 2019. Residential unit sales were down 14.2 per cent to 24,695 units, while the average MLS® residential price was up 9.6 per cent to $753,155.

Necessity is the Mother of Invention

The COVID-19 pandemic has deeply affected many parts of our society and economy – including the real estate industry. Terms many of us hadn’t heard of just three months ago – social distancing, self-isolation, lockdown, and Zoom conferencing – are now as common as, “What’s for lunch?”

Buying real estate, particularly in a caveat emptor jurisdiction such as British Columbia, usually requires physical inspection. Like Brad Pitt, most real estate has to be seen to be appreciated.

For many years, traditional methods of “showing a property” have included open houses, REALTOR® tours, private showings, and, with the advent of the lockbox, buyer tours with their agent in the absence of the listing agent. But with many sellers reluctant to have strangers in their home, and many buyers reluctant to enter a stranger’s home, these traditional methods are less than optimal under the circumstances. The Canadian Real Estate Association, the British Columbia Real Estate Association and the Real Estate Council of British Columbia have all expressly recommended against the holding of open houses during the COVID-19 pandemic.

Given these circumstances, many Realtors, with the assistance of their real estate board, are turning to technology to assist their clients in showing properties. These technological approaches have not required any regulatory changes and create little additional legal risk – they are simply replicating current practices through the use of common digital technology like Zoom, Facebook Live, Skype, and others. As the real estate profession has always been an early adopter of new technologies, this has not proved difficult for most Realtors.

For example, the Victoria Real Estate Board (VREB) is promoting the “live stream open house.” To conduct a live stream open house, the listing agent schedules the open house using a live stream platform of their choice and buyers can attend digitally to tour the house. Buyers can ask – and the listing agent can answer – questions that would have been asked at an in-person open house.

As a Disclosure of Representation in Trading Services (DORT) form is not required to be provided to an unrepresented buyer at an in-person open house (unless the listing agent is soliciting or receiving information from the unrepresented buyer about their motivations, financial qualifications and needs in respect of real estate), it is also not required to be provided to an unrepresented buyer who attends a live stream open house. Listing agents do not have to change their behaviour when conducting a live stream open house – they simply act as they would if the buyer was physically present.

The Kamloops & District Real Estate Association (KADREA) and the Kootenay Association of REALTORS® (KAR) have also introduced the “Live Tour,” designed to replace a lock-box tour by a buyer and their agent. During a Live Tour, the buyer and their agent connect with the seller and the listing agent for a digital tour of the property, with the seller acting as the cameraperson (learn more here).

Again, there is no need for a change in behaviour with a Live Tour. The listing and buyer’s agents are careful to maintain the confidentiality of their clients and all questions and interactions between the buyer and seller are conducted through their agents. As the buyer is virtually accompanied by their agent, the listing agent is not required to provide the buyer with either the DORT form or the Disclosure of Risks to Unrepresented Parties (DRUP) form. You can find helpful tips on the KADREA website for both Realtors and consumers to consider when conducting Live Tours.

There is a third virtual option: a digital tour of a property by the listing agent for an unrepresented buyer. One issue that immediately jumps to mind is whether the DORT exemption would apply to such a tour. I am concerned it might not. Unless the listing agent is holding an advertised open house (which a private tour is likely not) or providing only factual responses to general questions while not soliciting or receiving information from the unrepresented buyer about their motivations, financial qualifications or needs (which is a factual test subject to interpretation), the DORT exemption does not apply and the provision of the DORT and DRUP is required. While each licensee will have to make their own decision, a prudent listing agent may wish to eliminate the risk of any future misunderstanding by providing the DORT and the DRUP to the unrepresented buyer before commencing the tour. In my view, it’s always better to be safe than sorry.

Ultimately, each seller and buyer will have their unique needs, and, as always, it will fall to Realtors to come up with the strategies and processes, including the use of technology, to satisfy those needs and get the deal done.

UPDATE: Extension of BC’s State of Emergency – What it means for REALTORS®

 

This post, originally titled “Government Announcement on Renters and Landlords – What it Means for Realtors”, was updated on May 28, 2020 following the two-week extension of BC’s State of Emergency.

On May 27, 2020, Premier John Horgan extended BC’s state of emergency until June 9, 2020. This means that the Residential Tenancy Order (RTO), which expires only when the state of emergency is lifted, has also been extended.

The Residential Tenancy Order bans evictions and provides other protections for renters – see below for more information. To avoid a situation where there are a lot of evictions, the provincial government intends to have a transition plan in place before the state of emergency ends. They are well aware of the need for real estate transactions to complete and for buyers to be able to occupy their new homes. BCREA will provide more information as the transition plan develops.

Here is an overview of the order:

Eviction moratorium – Landlords can no longer give a tenant a notice to end the tenancy except in situations where people or the rental unit are at significant risk. However, if a landlord gave a tenant a notice to end the tenancy before March 30, then the notice remains in effect, subject to the dispute resolution process, and an order of possession can still be granted.

This may be complicated in cases where a tenant is under mandatory quarantine, self-isolation or a medical facility. In those cases, it’s advisable to seek legal advice.

Landlord’s right to enter rental unit – A landlord can enter a rental unit for repairs or showings, as long as the tenant consents. Follow the standard procedure of requesting access at least 24 hours in advance, noting the proposed date and time – and be sure to wait for the tenant’s consent. Landlords can enter rental units without tenant consent if there is an emergency in relation to the COVID-19 pandemic and the entry is necessary to protect health, safety or welfare of the landlord, the tenant or other occupants.

Rent freeze – Rent increases set to occur while this order is in effect, including previously announced rent increases set to take effect from March 30 onwards, do not take effect until after the state of emergency has ended. Exceptions for rent increases include if there one or more occupants are added and the tenancy agreement specifies how the rent varies with the number of occupants.

Restricting access to common areas – Landlords can reasonably restrict access to common areas to prevent the spread of COVID-19

More information is available on the Residential Tenancy Branch website.

Rental supplement on the way

Another significant government program to support renters and landlords is the BC-Temporary Rental Supplement Program (BC-TRS). Tenants who have lost or reduced income because of COVID-19 will be eligible to apply for the program through the BC Housing website.

The Canada Commercial Rent Assistance Program Can Help You And Your Clients

When the Canada Emergency Commercial Rent Assistance (CECRA) program launched on May 25, it included updated eligibility criteria to make it available to property owners who do not hold a mortgage, addressing an oversight identified by the Canadian Real Estate Association (CREA) earlier in May. Here’s an overview of what REALTORS® – and their commercial clients – should know about the program.

How it works

CECRA provides forgivable loans to qualifying commercial property owners to cover 50% of three monthly rent payments to compensate for small business tenants experiencing financial hardship during April and May (retroactive), and June.

The CECRA loans will be forgiven if the qualifying property owner agrees to reduce the small business tenants’ rent by at least 75% and not to evict the tenant during the term of the written agreement. The small business tenant would pay the remaining 25% of rent.

However, the qualifying small businesses tenants must:

  • pay no more than $50,000 in monthly gross rent per location
  • generate no more than $20 million in gross annual revenues
  • have experienced at least a 70% decline in pre-COVID-19 revenues, compared to revenues in the same period in 2019, or average of revenues earned in January and February of 2020

The upside and downside of CECRA

The upside is that both sides of the deal get something from this program. The tenant pays only one quarter of their normal monthly rent and the landlord gets 50 per cent of the total rent covered, which may be enough to keep both the landlord and the tenant afloat.

On the downside, the landlord is still short 25% of the rent. However, keeping a good tenant solvent over the longer term is likely preferable to trying to get 100% of the rent and losing the tenant altogether. Also, it’s up to the landlord to apply for the CECRA program. But the tenant can make a convincing case to their landlord that the program would benefit both parties.

There’s also a risk if the small business cannot demonstrate that they’ve actually lost the required 70 percent of revenue, because if not, they won’t qualify for CECRA.

How will it work for you and your tenant clients?

Commercial tenants, including Realtors, who can leverage the boost that this rent relief scheme provides, will benefit if they meet the thresholds stipulated by the program, and if they can gain some competitive ground in one of several ways such as:

  • recover their business income fairly soon following the pandemic slowdown
  • restructure their business to lower overhead costs while increasing efficiency
  • establish new market share
  • devise ways to attract new clients through marketing and value added benefits
  • ably adopt new modes of operating arising from the pandemic, such as social distancing, sanitizing, and whatever remains necessary for public health and safety

What landlord clients need to know about CECRA

Landlords of commercial space may evict tenants who are struggling to pay rent and on the brink of bankruptcy. But, in so doing may face a new set of problems if the landlord:

  • receives zero rental income to cover their mortgage and other costs
  • continues to pay mortgage payments, property tax, maintenance and other costs
  • incurs debt waiting to install new tenants which can typically take 6 months up to 18 months and possibly longer if the economy remains in recovery mode
  • rents out a space, for far lower rental income due to the significant competition from other commercial landlords, desperate for tenants in the post-pandemic economy

What is known about CECRA, and all the many other government financial aid programs on tap, is that they were designed over the course of weeks, not months and years as is usually the case. Policy created out of urgent need is bound to have gaps and flaws. That is why it makes sense for commercial business to consult their Realtor to help them come to a decision about the various financial aid programs, such as CECRA.

Realtors’ expertise fills the knowledge gap

Given the complex nature of the CECRA program, business clients should consult with their banks, their lenders, and their accountants to get a complete picture of the risks and benefits of proceeding with the CECRA program. Realtors with commercial expertise can assist by:

  • assessing how well CECRA can form part of a strong business plan, or not
  • breaking down the numbers for potential scenarios
  • helping negotiate the terms of the rental agreements that will be financially viable
  • making market projections about the feasibility of their current properties
  • supporting any downsizing or restructuring plan for their commercial properties
  • looking for prime opportunities to swap out or acquire new properties that may be available during a time when businesses are closing out and owners are looking to make a change

Find out more specific details on the program requirements and how to benefit from it by going to the Canada Mortgage and Housing Corporation website.

Housing Market Update – May 2020

 

Watch BCREA Chief Economist Brendon Ogmundson discuss the April 2020 statistics.

Click here to visit our YouTube channel. Read the news release here.

For more information, please contact:
Brendon Ogmundson
Chief Economist
Direct: 604.742.2796
Mobile: 604.505.6793
Email: bogmundson@bcrea.bc.ca

Communicating During Stressful Times

By Gerald G. Clerx (Success Partner, Engage BRILLIANTLY Training Group)

The current pandemic has created a lot of anxiety within the real estate community – it’s a stressful time for everyone. Buyers are uneasy about the future of their investment as well as their ability to qualify and make mortgage payments and sellers are concerned about how the market uncertainty will impact the sale of their property. REALTORS® are justifiably concerned about how this pandemic and associated economic fallout will impact their livelihood.

In times of stress, how we communicate with one another becomes extremely important. Our words and actions will serve to either de-escalate stress by alleviating fears and calming emotions or escalate it, causing irreparable harm to client relationships.

During the next few months, you will engage in difficult conversations with your clients and colleagues. Here are some communication tips to support you in handling these situations with poise and grace.

When addressing a difficult topic

Keep in mind that when you communicate you do so through three channels of expression: verbal, vocal and visual. Each channel will impact how your message is received at a conscious and unconscious level.

Verbal tips

Be aware of the words you use when addressing a difficult topic with your colleagues or clients.  Eliminate phrases such as ‘you always’ or ‘you should have’ or ‘if I were you’. The first is blaming, the second is judging and the third is preaching, and none are effective at neutralizing an emotionally charged environment.

Vocal tips

Vocal refers to the pace, tone and volume of your voice. You can lower the defensiveness of the person you are engaging with by using a steady pace, a softer tone and a lower volume.

Visual tips

Visual communication includes hand gestures, facial expressions and body posture. Since body language accounts for the majority of how your message is perceived, be particularly aware of what yours is expressing. Open palms, calm facial features and relaxed body posture will help prevent your client from reacting to your message defensively.

When responding to an emotionally charged client

When you are on the receiving end of an emotionally charged client, it’s helpful to practice the art of ‘non-defensive listening’.

When you find yourself in this situation, your instincts may compel you to defend yourself. A traditional way of handling emotionally charged language is to respond with the JAWS of defense by Justifying, Accusing, Withdrawing or becoming Sarcastic.

Rest assured that while these response options might feel gratifying as they leave your lips, they can cause irreparable harm to your professional relationships. As a wise sage once said, ‘A moment of patience in a moment of anger will prevent a thousand moments of regret.’

A far more productive response option, when confronted by a stressed client, is to remain calm and respond with an appropriate alignment phrase. An alignment phrase can be either an agreement, acknowledgment or empathy response:

  • Agreement: I agree you should have been told sooner.
  • Acknowledge: Clearly, you feel very strongly about this.
  • Empathize: I understand how frustrating this must be for you.

An alignment response that’s sincere places you next to the emotionally charged individual instead of pitting you against them.

When dealing with situations in a calm manner you are better positioned to ask the clarifying questions necessary to isolate the source of concern or frustration and respond with the appropriate information or steps to resolve it. While we ultimately can’t control stressful situations, we can control how we respond to them, and this will be particularly important to remember while you deal with potentially stressful situations over the coming months.