Prospectus, Disclosure Statement and Other Changes #83

By Gerry Neely
B.A. LL.B.

More than you ever wanted to know about this subject, but were afraid to ask. The changes to Part 2 of the Real Estate Act that have been made over the past three years, ending with the most recent policy statements Numbered 7 and 9 issued by the Superintendent in December, 1985, justify this double column to provide a summary of the recent changes and the current requirements.

A. The major change is the substitution of a disclosure statement for a prospectus in all circumstances where a prospectus is required except the following:

1. Where the subdivided land is outside the Province;
2. Where the offering is of time-shared interests; and
3. Where the Superintendent considers it to be in the public interest to require a prospectus to be filed. This requirement will arise if the Superintendent, either on a review of a disclosure statement filed at his office or after a client complaint, decides that the developer filing the prospectus is failing to meet the disclosure requirements of the Real Estate Act. Failure could result in a cease selling order or a prosecution under the Act.

The principal advantage of a disclosure statement is that the developer may begin selling as soon as the disclosure statement has been received at the office of the Superintendent. A secondary advantage is that less information is required for a disclosure statement than for a prospectus.

Policy Statement Number 9 makes it very clear that the substitution of filing of the disclosure statement for the prospectus is the only shortcut to the sale of lots - all of the other requirements of Part 2 must still be met.

B. The other principal change made in December, 1985, was to eliminate the requirement that a developer file with the Superintendent a satisfactory affidavit where the following exempt transactions are involved:

1. A sale or lease exclusively to the shareholders of a reporting company.
2. A sale or lease from one developer to another developer.
3. A sale of land for industrial or commercial purposes.
4. A lease of subdivided lands for a term not exceeding three years.
5. Subdivided land within a municipality, either owned by the developer or held under a right to purchase registered in the developer's name, where the work and services required by the municipality have either been done or, pursuant to Section 729(9) of the Municipal Act, the developer has deposited with the municipality a bond sufficient to ensure that the work and services will be done.

Transactions falling within B (1-5) do not require a prospectus, disclosure statement or affidavit.

C. As a result of these changes, a prospectus or disclosure statement is now required for the following transactions:

1. Interestingly enough (as a result of the repeal of Section 2 B.C. Reg. 41/82) by the Provincial Government, municipalities and regional districts unless they would otherwise meet the exemptions applicable to any other developer.
2. A strata lot subdivision.
3. Cooperative units.
4. A reporting company, a developer or a lessor not falling within the exemptions referred to in Paragraphs B(1-5), inclusive.
5. Subdivided land Iying outside the Province (prospectus only).
6. Subdivided land in an improvement district or a regional district which is outside the boundaries of a municipality.
7. Time-share interests sold or leased after September 30, 1982 (prospectus only).
8. A purchaser who bought either directly or indirectly by one or more purchases, either all of, or five or more strata lots in a subdivision.
9. A purchaser who bought either directly or indirectly by one or more purchases, either all of, or two or more cooperative units in a subdivision. (The regulations defining B(1-4) follow.)

Sale or lease exclusively to shareholders of a reporting company:

A reporting company, as defined in the Company Act, or a person on its behalf, that sells or leases or offers to sell or lease subdivided land only to the company's shareholders is exempt from complying with Part 2 of the Act in respect of that offer for sale or lease and the sale or lease.

Sale or lease from developer to developer:

A developer, or a person on behalf of a developer, who sells, leases or offers for sale or lease or assists in the sale or lease of five or more lots, parcels or strata lots or two or more cooperative units in a subdivision situated in the Province in a single transaction is exempt from Part 2 of the Act in respect of the lots offered for sale or lease or sold or leased in the single transaction.

Sale of land for industrial or commercial purposes:

A developer, or a person on behalf of a developer, who sells, leases, offers for sale or lease or assists in the sale or lease of subdivided land in the Province that is

(a) zoned to allow use only for industrial, commercial or both industrial and commercial purposes, and

(b) used in a way that conforms with the zoning bylaw referred to in Paragraph (a)

is exempt from complying with Part 2 of the Act in respect of that offer for sale or lease and the sale or lease.

Leases not exceeding three years:

A lessor or an offeror or a person on behalf of the lessor or offeror who leases or offers to lease subdivided land by way of a lease or agreement for lease for a term not exceeding three years is exempt from complying with Part 2 of the Act in respect of that offer for lease or lease. For the purposes of this section, the term of a lease shall include any period by which the lease may be extended under any option or covenant for renewal.

I would suggest that you check the definitions of "subdivision" and "developer" found in Sections 1 and 49 of the Real Estate Act. The Superintendent's Office has checked the above information for accuracy.

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