Stay Cool – New Home Buyer Rescission Period for Residential Real Properties Coming January 3, 2023 #555
CATEGORY: Legally Speaking
TAGS: Consumer Protection Contract of Purchase and Sale Disclosure Disclosure of Representation in Trading Services Home Buyer Rescission Period (HBRP) Legal Advice Property Law Act Property Law Amendment Act Real Estate Development Marketing Act Real Estate Services Act
All licensees should be aware of a new buyer protection initiative set to come into force January 3, 2023. The Property Law Amendment Act, 2022 (the “Act”) and its related regulations will give British Columbia buyers of most residential properties a rescission period, informally known as a "cooling-off" period, where buyers can change their minds within a prescribed period and cancel a contract of purchase and sale for residential property with few consequences. While this period will apply whether or not the parties to a transaction are represented by a licensee, licensees working in residential real estate should be aware of this right so they can properly advise their clients. Licensees must also disclose to consumers general information about the rescission period in the Disclosure of Representation in Trading Services Form. In addition, licensees are required to disclose more detailed information to their clients at the time the agent prepares or presents an offer.
The Act and its regulations establish a buyer’s right to rescind or cancel a contract of purchase and sale for residential real property within a three-business day period after final acceptance (sections 42 and 43 of the Act). If a buyer chooses to invoke their right of rescission within the rescission period, the buyer must pay to the seller 0.25% of the purchase price in compensation, meaning the right to rescind exists but comes with a fee. There is also a requirement that the buyer serve a written notice to the seller if they seek to rescind the contract. The notice must include the property address or legal description, the name and signature of the person exercising the rescission right, the name of all sellers in the contract of purchase and sale, and the date the right of rescission is being exercised. The right of rescission cannot be waived by the parties. In other words, if the Act applies, the parties cannot agree between themselves that the right to rescind will not apply to a given contract. It is imposed by legislation.
In establishing its approach, the provincial government consulted with the British Columbia Financial Services Authority, which it had specifically tasked with looking into recommended parameters for the rescission period and its related details. The government adopted the BCFSA’s recommendations on the length and nature of the rescission period, which BCFSA set out in its May 2022 report titled Enhancing Consumer Protection in B.C.’s Real Estate Market. The three-business day period is intended to strike a balance that minimizes potential delays in the marketing process for sellers while still being a mechanism to assist buyers, particularly in hot and high-pressure markets.
The idea appears to be that buyers may use this cooling-off period to complete due diligence activities that will assist them in making an informed decision about a purchase. The state of the real estate market at various times in certain regions is such that those activities may be difficult or at times not possible to effectively perform prior to submitting an offer or to include as subjects, which can lead to conflicts, expense, and regret. Due diligence activities can include confirming financing, reviewing relevant documents regarding the property, and undertaking inspections. It should be noted, however, that there is no requirement that a buyer show unsatisfactory results of due diligence efforts or even that they performed any such efforts before they can exercise their cancellation right under the Act. A buyer can simply change their mind, pay the fee, and cancel the contract; no explanation is required.
It should also be noted that conditions should still be included in the contract of purchase and sale to provide access to the property in question and to obtain other information required to perform the due diligence a buyer chooses to undertake. The fact that a cooling-off period now exists does not render due diligence conditions in a contract redundant.
This proposed cooling-off period is not an entirely new concept and is consistent with the current regime under the Real Estate Development Marketing Act, SBC 2004, c.41 (“REDMA”). The existing REDMA regime provides a mandatory seven-day cooling-off period for presale developments in which a buyer can cancel a presale real estate purchase without consequence.
Critical for licensees to be aware of are consequential amendments that have been made to the Real Estate Services Act, specifically to section 35(1)(a). As of January 3, 2023, it will qualify as professional misconduct for a licensee to contravene section 43 of the Property Law Act or the regulations. As noted above, licensees will be subject to new disclosure obligations about the rescission period, as well. As such, real estate licensees will need to familiarize themselves with the effects of the Act and regulations to protect themselves on the regulatory front, as well as to be prepared to properly advise their clients. The following links contain some helpful resources to help licensees get prepared:
It bears watching to see whether the protection period and compensation amounts get amended once their real-world impact has been tested. The regulations, which is where all these details are specified, can change quickly and easily so this is something that the industry will be monitoring closely to keep up with any changes.
To subscribe to receive BCREA publications such as this one, or to update your email address or current subscriptions, click here.
What we do
Popular tags within Legally Speaking
Popular posts from BCREA
Housing Market Update – February 2024Feb 16, 2024
Mortgage Rate ForecastDec 13, 2023