Pre-Sales: Know What You’re Getting Into
These days pre-sale homes are very common in British Columbia, especially in Greater Vancouver. The idea is simple: you can buy the rights to a property before it’s been built.
Pre-sale homes are attractive, especially for first-time homebuyers. Once your residential transaction is complete, you get a brand new home in a brand new neighbourhood, usually with the latest appliances pre-installed. Pre-sales also give you a couple of years to get your finances in order because aside from the deposit, you won’t have to pay until it’s completed and ready to be occupied. Not to mention by purchasing a pre-sale unit, you benefit from rising real estate prices during the period its being built. The property could be worth more at the time of completion than when you signed the pre-sale contract.
While on the face of it, pre-sales seem like the most convenient way to buy a new home, it’s important to understand what you’re getting into when you sign a pre-sale contract. The BC government has tried to protect both purchasers and developers through the creation of the Real Estate Development Marketing Act, SBC 2004, but it doesn’t protect you from everything. Keep reading below to learn about some common contract clauses that are worth reading in to before you sign on the dotted line.
Contact the real estate lawyers at Winright Law if you have any questions about the legalities of pre-sale transactions
One of the most common issues that clients come to us with is that the developers are taking way too long to complete construction. A delay of a few months, and in some cases a year or two, is understandably frustrating. It can make life planning difficult when there is so much uncertainty about when you’ll be moving in.
Unfortunately, in most cases, there is not much that the buyer can do if construction is delayed. There are normally two types of clauses in pre-sale contracts that protect the developer from liability if construction is behind schedule. The first clause typically grants the developer the ability to extend the completion date at its discretion. The second clause protects the developer from delays caused by events outside of their control. Below is a more in-depth breakdown of what these clauses might look like and how to understand them.
Completion Date Extensions
Sometimes hidden in a thick block of text within the contract, developers give themselves as much power to delay the completion date as they can. The contract will provide a “Completion Date,” by which they expect construction to be completed, but often they will also mention an “Outside Date,” which is often several months after the Completion Date. The Outside Date is meant to be a back-up to the Completion Date – it’s like saying “if we miss the Completion Date, we’ll definitely finish by the Outside Date.”
Intuitively, you might think that if a developer misses the Completion Date, then the contract has been violated. In reality, it’s only after they’ve missed the Outside Date that the contract will be terminated.
But that’s not all – the developer will also give themselves the ability to extend the outside date to a limited extent. For example, the contract might say, “We can extend the Outside Date up to three times, for up to 100 days each time, so long as we provide written notice before the Outside Date.”
In practice, this means that if the Completion Date was in the contract as “January 1, 2020,” but the Outside Date was “September 1, 2020,” if the developer exercises their extensions you might not gain possession of the home until June 28, 2021!
Delays Outside the Control of the Developer
It is important to note that the above only really applies to delays that are the fault of the developer. If delays happen that can be argued were out of the developer’s control, they can delay the Outside Date for as long as necessary depending on the delay.
These kinds of delays could be caused by anything from the weather, to new government legislation, to labour or supply shortages, or anything else you can imagine.
Material Changes to the Unit
Another very common complaint from pre-sale buyers is that the property they purchased ends up looking significantly different than the one they saw in the brochure, website, or showroom. Once again, since the developer’s lawyer wrote the contract, they’ve more or less protected themselves. However, there is some consumer protection built-in that you should be aware of.
The Unit Doesn’t Look Like the One I Was Promised in the Showroom
This is a very common complaint from pre-sale buyers. Virtually every contract will include a clause that says that you’re not entitled to anything that was promised to you outside of what’s written in the contract. This means the developer cannot be held responsible if the final product looks different from the brochures, website, models, and so on.
It doesn’t stop there either – the dimensions, materials, and other details of the unit are usually subject to change without notice if the developer is required to change something due to building codes or other regulations.
In the real world, this might mean when the unit’s all done, there’s a small chance you’ll find that the fireplace you wanted is missing or moved. The ceilings might be lower than you expected. The floor-to-ceiling windows might not be quite floor-to-ceiling anymore.
Now, you might be thinking, “well I’ll just make them put these details in the contract,” and that’s not a bad idea. Unfortunately, there are so many people interested in pre-sale units that the developer really doesn’t need to negotiate with you, it’s usually easier for them to sell the unit to someone else who won’t try to edit the contract.
Not All is Lost – There Are Some Protections for Buyers
Disclosure statements, which are common across all real estate transactions, are required in pre-sales as well. Anything put into a disclosure statement that turns out to be false is something that you can make the developer fix. It’s crucial that you read and understand the disclosure statement in order to effectively protect yourself.
While a lot of details about a unit can effectively be altered without notice by the developer, square footage is something so important the most contracts include a clause to account for changes. Usually referred to as a “lot area,” if the square footage changes by more than +/- X% of the amount listed in the disclosure statement, then the contract changes.
If the square footage changes by X% or less, there’s nothing you can do. If the square footage changes by more than X%, then the final price of the unit will change by the same percentage. This means the price could go up or down and you wouldn’t know until the unit is actually built. Some contracts give the purchaser the option to terminate the contract if the price changes by too much, but other contracts force the purchaser to pay the final amount no matter how much it changes.
What’s the Best Way to Protect Yourself?
It might sound obvious, but the best way to protect yourself is to seek the advice of a licensed Real Estate Agent or a lawyer who practice real estate law in BC. While hiring someone is an additional expense, their expertise could save you thousands of dollars down the road. At Winright Law, our real estate lawyers offer free initial appointments to find out your needs, so feel free to book your assessment through the link below or contact us by phone or email.
Awesome post! Keep up the great work! 🙂
Awesome post! Keep up the great work! 🙂