Bare Land Strata

In a recent ruling of the Real Estate Council a Realtor in Vancouver was suspend for failing to adequately describe to his client that his property was bare land strata. In this issue of the BC Real Estate Law Blog we discuss the nature of Bare Land Strata and what Realtors should be explaining to clients when they market this type of property.

Bare Land Strata often looks to an uninformed client as if it is free hold property and is defined by the Strata Property Act as a strata plan is shown as horizontal measurements to survey markers (similar to a subdivision plan) and not by reference to walls or floors. Developers have recently favored this style of development as it may allow for variance of  lot sizes (and thereby increased density).

Unlike a stratified apartment style condominium, the common property elements may not me immediately apparent to the Buyer. Even though a Bare Land Strata subdivision may look like any other normal subdivision, it strata fees, rules, regulations, and strata council like other types of strata property. Note, the fees and the services provided by a bare land strata council will vary greatly between developments.

Realtors should ensure they obtain all the required information so their clients can make informed decisions to  purchase. By obtaining the Land Title from BC Online to any property, the Realtor will be able to quickly tell whether they are dealing with strata property. The legal description of property will state the the property is a STRATA LOT. The Realtor can then contact the Strata Council to obtain the bylaws, the minutes, the Form B and Form F, which will disclose to the client those services which are provide by the strata council and the strata fees charged to the property. Some examples of bare land strata communities in the Okanagan include Horizon Drive and Canyon Ridge.

Allowing the Buyer to Move In - Terminating an Existing Tenancy

Where there is an existing tenancy and your client wishes to move into the property, the existing tenancy will have to be terminated in accordance with the provisions of the Residential Tenancy Act.

For the new Buyer to move into the property the Seller must file a "Two Month Notice to End Tenancy", Form RTB-32. The sequence of events is:
1. All Subjects must be removed first.
2. Buyer must request the Seller to serve notice in writing.
3. Seller then serves 60 day notice and must immediately pay 1 month rent as compensation.
4. Tenant may then give a 10 notice to move out without penalty.
5. Tenant may dispute note.

Time lines are important here and often get Realtors into trouble. Take into account all the notice period time lines when drafting dates. The 60 days applies only after after the “effective date of notice” [which means the day before rent is payable],

For Example
Notice on Oct 5th
Rent Payable on 1st
Effective Date Oct 31st
Move out Date Dec 31st!


Realtors should add the following language to the standard contract  of purchase and sale when terminating a rental agreement:

A. Upon Subject Removal, the Buyer hereby irrevocably instructs the Seller to terminate the tenancy on the Property.

B. Upon Subject Removal, the Seller shall serve the RTB-32 Form upon the Tenant and pay the Tenant compensation according the Residential Tenancy Act and regulations.

C. Within 48 hours of service of the RTB-32 Form, the Seller shall provide the Buyer with a copy.

Investors - Assuming a Tenancy

Investors are often looking to buy property which generates rental income. Many investment advisors see property as a key component of the financial portfolios for high net worth individuals.

Realtors should ensure that their investor clients have all the information they need to make a decision on a rental property. In addition to the considerations of resident buyers, investors need to know:
1. The Current Monthly Rent
2. Date Tenancy Commenced.
3. Due Date for Rent.
4. Date of Last Rental Increase.
5. Prepaid Amounts on Deposit.
6. Payment History with the Tenant.
7. Damage/ Complaint History with the Tenant.
8. Obtain a copy of the written tenancy agreement between the parties

When working with investors, the Realtor should add the following clauses to the standard contract of purchase and sale:

A. The Seller represents and warrants to the Buyer that the Residential Tenancy Agreement with ____[Tenant]_________ attached to this Contract is in good standing, and has not been modified or amended by the parties.

B.  The Seller represents and warrants to the Buyer that the rent roll for this property is as follows:
Current Monthly Rent:
Date Tenancy Commenced:
Due Date for Rent:
Date of Last Rental Increase:
Prepaid Amounts on Deposit:

Strata Property Rentals

The applicability of a bylaw restricting the rental of strata property is an area of law which requires the interpretation the Strata Property Act and the Strata Property Regulations.
Generally, a strata corporation may impose bylaws which limit the number of rentals which are permitted in the building. The enforceability of those bylaws (assuming they are properly enacted by the strata council) on owners who wish to rent is the subject of this blog entry.

A. Sometimes Rental Restrictions DO NOT apply to the FIRST BUYER. A owner who has purchased a strata lot from a developer will not be subject to rental restrictions if:
i) a "FORM J" has been filed which has permitted the developer to rent the strata unit purchased by the owner; and,
ii) the time period specified in the "FORM J" has not expired.

A common misconception in the industry is that all "first owners" have an exemption from Rental Restriction Bylaws, this is simply not true. Buyers and Realtors should ensure they obtain a copy of the filed Form J.

B. Rental Restriction Bylaws do not apply immediately if a unit is currently rented at the time the bylaw is passed. If the previously rented unit is VACANT when the bylaw comes into force then, the application of the bylaw to that unit is delayed for ONE YEAR. If the previously rented unit is OCCUPIED when the bylaw comes into force then, the bylaw applies ONE YEAR AFTER the occupying tenant moves out.

The key point here is that upon passage of the bylaw, the rental restriction WILL apply to the owner’s rented unit; it is simply a matter of time. This piece of legislation is simply a mechanism to ensure that tenants will not find themselves “on the street”, but it does little to protect the interest of owners. I strongly advise owners, who are facing a proposed bylaw restricting rentals to rally other owners to their cause prior to the meeting on the issue. Once the bylaw is enacted, you may have no choice but to eventually sell your property.

Execution of Real Estate Contracts

A. Contracts Must be In Writing

Real Estate Contracts, as contracts for the sale of land, are unique in British Columbia law as s.59 of the Law and Equity Act states that “A contract respecting land or a disposition of land is not enforceable unless there is, in a writing signed by the party to be charged or by that party's agent, both an indication that it has been made and a reasonable indication of the subject matter”

In the historical case of McKenzie v. Walsh, the Supreme Court of Canada made it clear that no particular form of contract for the sale of land was required, simply a contract “in writing” (email would likely qualify in 2009), which specifies all fundamental terms including: Parties, Property, and Price.

B. Real Estate Agents are Held to a Higher Standard

But, as the fictitious contract case of Wu points out, a suspension case brought by the Real Estate Council of British Columbia, a Real Estate Agent has a an obligation to ensure that the contracts they are presenting on behalf of their clients are legitimate and well intentioned. Therefore, real estate agents (and lawyers) are held to the standard of an expert vis a vis their clients when drafting and presenting contracts.

C. Witness of Documents is Important for Contracts, Essential for Land Title Documents

Having a real estate contract properly witnessed is a cornerstone of a good contract because it validates the contract with the written evidence of an independent third party who may refute later claims of identity, mistake, duress or undue influence during an action for breach.

On the Closing Date, when a transfer or mortgage is to be registered in the Land Title Office, the Land Title Act applies an higher standard stating there shall be no registration or charge registered in the land title registry unless that charge is witnessed properly by an “officer” (which includes lawyers in the Province of British Columbia). This is a key reason why lawyers are an integral part of every real estate transfer in British Columbia.

D. Special Consideration for Corporate Purchasers

Generally the law in British Columbia states that a corporation that does not exist (ie; because it has yet to be incorporated or it has been dissolved), cannot enter into a valid contract, unless that contract is specifically adopted by the corporation after incorporation. Therefore, if you are dealing with a corporate purchaser it is prudent to ensure (by calling your client’s lawyer) that that corporation is in good standing with the Corporate Registry.

E. Special Consideration for Execution by Power of Attorney

Often, elderly or non-resident clients wish another person (other than their agent) to function as their attorney for the execution of documents. Real Estate Agents should ensure that they have a copy of the valid power of attorney and this power of attorney should be registered in the land title office to ensure its validity on the Closing Date.

Native Land: Trust Completion Dates

In the province of British Columbia, leased lands on native reserve are now sold by a new RECBC contract which contemplate both a Trust Completion Date and a Final Completion Date.

The Trust Completion Date is the date where the Buyer deposits the Purchase Money with his or her lawyer. The Final Completion Date is the date following actual registration in the Indian Lands Registry.

Buyers should note that these days can often be as much as 90 days apart, and therefore it is important that appropriate escrow provisions be in place to ensure:
a) that the Buyer has occupancy of the home when desired;
b) that transfer and mortgage documents are appropriately registered; and,
c) the Seller is able to i) payout prior mortgages, and ii) receive the balance of the purchase price within a reasonable period of time. Title insurance may be helpful in this situation to provide "gap" coverage.

IMPORTANT: these consideration do not apply to Westbank First Nations Lands, for these property please consult the WFN Contract prepared by Peter Borszcz and Barry Porrelli.

Home Inspections

The home inspection industry in British Columbia has grown rapidly in the last 15 years, from fringe service, to mainstream acceptance. What is seldom explained to Buyers is that there a limits to what a home inspection can do.

Most home inspectors are "problem spotters" not "problem solvers or quantifiers". Usually a home inspection will say "I think you have a roof issue" or "you may want to get the deck checked out". Often new buyers will take this advice as something to look into AFTER purchase. This is often a mistake.

If a home inspector spots something, even if the home inspector does not think it is a critical issue, it is best to then look into it further by calling in a qualified expert. Therefore if there a roof issue, get a roofer in to look at the property, if there is a structural issue, get a structural engineer. A few dollars on spend investigating a home purchase is money well spent.

Buyers should also note that there are limits to the liability of home inspectors. Usually the contract you sign with the home inspector limits their liability to problems they can see without moving furniture, ceiling tiles ect....

Real Estate Agents: Dual Agency

A "dual agent" is an agent who acts for both the buyer and the seller in a single real estate transaction. Often this occurs on "sign calls" where a prospective buyers drives by (or "surfs by") a home they like and calls the agent associated with the property.

Dual Agency places the Real Estate Agent between both clients, and the Agent owes a duty to act in the bests interest of both parties, which naturally conflict. Therefore, dual agency is only allowed in very limited circumstances. As a Dual Agent, realtors must secure the consent of both parties, disclose all material facts to both parties, but must keep secret the buyers or sellers motivation or their own thoughts on pricing or negotiation strategy.

Strata Property: Special Levies

Where there is an outstanding or, contemplated special levy (as found in the minutes), Buyers and Sellers need to clearly state WHO is responsible for paying the levy. Ideally, a sharp realtor has considered the issue and stuck in a clause in the contract but, in the event it is forgotten:
1) ensure you get a copy of the resolution authorizing the special levy to see if it contains an acceleration clause; and,
2) look to s.109 of the Strata Property Act: the SELLER owes if the special levy is payable prior to the CLOSING DATE, whereas the BUYER owes if the special levy is payable on or after the CLOSING DATE.

Buyers Need to Get Insurance by 12:01am on Closing

Under the standard contract of purchase and sale, used by most Realtors, the RISK of the property passes to the Buyer at 12:01am on the CLOSING DATE. Therefore Buyers are well advised to ensure that their insurance policy is effective at 12:01 on the CLOSING DATE.

Often Buyers will obtain insurance to be effective the POSSESSION DATE (or moving date), this can leave the property uninsured for a period of time and, may, in the event of a fire/ flood/ or other insurable event happening at this time, cause great loss to an uninformed Buyer.

Buying a Home with Existing Tenants

Buying a home with existing tenants involves a few additional obligations on buyers and sellers as 1) there is another party involved (the tenant), and 2) there are additional provincial laws that appy (the Residential Tenancy Act).

Prior to considering the purchase of a rental property buyers should ensure a) that the suite is a legal suite (as opposed to the commonly marketed "inlaw suite") and b) that there are no strata bylaws which prohibit the rental.

If the new Buyer is planning to Move In to the Property:
**** Ensure the Tenant is given property notice to vacate - the notice can only be given a) once the Purchase Contract is subject free, and b) the tenant must have 60 days from day before the next rental payment date. This means, if rent is due on the 1st for a periodic monthly tenancy, and you give notice to the tenant on April 15th, the tenant does NOT have to move out until June 30 (60 days following April 30, the effective date of notice)

If the Tenant is staying resident on the Property
*** the Buyer should review the residential tenancy agreement to ensure that a) it is valid and enforceable and b) that the rent and damage deposit is properly adjusted on closing (note interest adjustment is required here under the Residential Tenancy Act)

Non-Resident Sales

When a non-resident of Canada is the Seller of real property special considerations apply to ensure that the government of Canada is paid all applicable taxes on sale.

s.116 Income Tax Act - provides that the BUYER must withhold between 25-50% [depending on the nature of the property] of the Purchase Price from the Seller until the Seller provides the Buyer with evidence that they have obtained a s.116 clearance certificate from the Canada Revenue Agency.

Currently these certificates are taking up to 8 months to process, therefore, Vendors are advised to apply early, and ensure that they can clear financial charges from title without the entire purchase price prior to entering into a binding contract.

Estate Sales

Unfortunately, there are only two universal truths in life, death and taxes...

When the former arises, an estate sale is usually the result. As the heirs of the deceased, a binding contract for the sale of the home can only be entered into once the estate has done the following:
a) obtained a grant of probate or letters of administration;
b) disclosure of affairs to mortgage lenders; and,
c) filing of transfer of property into the name of the estate.
Therefore, any contract should be written as "John Doe, as executor of the estate of Jane Deceased" and should be "subject to the grant of probate or letter of administration in favor of the Vendor"

Strata Property

Most people think of condos when they think of strata property, however in British Columbia, strata property can include detached and semi-detached homes, apartments, and even bare land. The Strata Property Act imposes rules on the home owner which regulates the home owners use of the lands. The rules can include pet restrictions, tenancy restriction (ie; no rentals), and age restrictions. Buyers should very carefully review the rules, known as Strata Bylaws, prior to the entering into a binding contract of purchase and sale for strata property. Some key questions to ask:

1) If I have a pet, does the strata corporation allow pets?

2) If there is an age restriction, how does the effect my ability to pass on my unit or have my grandkids stay with me?

3) If I am an investor, are rentals allowed or are they capped at a certain maximum?

4) How old is the building, will there be major repairs upcoming?

5) Does the style of building management mesh with my personality (ie; are you a stickler for the rules or are you lenient)?

6) What do the minutes of the strata meeting disclose about the personality of my neighbours?

At the end of the day, in strata property, “You’re All in This Together”, which means you are signing up for a community living, to varying degrees depending on how the strata is managed. Prior to buying, introduce yourself to the strata council members and find out more about them to see if this strata is right for you.

Affordable Housing Covenants

Affordable Housing Covenants are generally registered on your land title as s.905 LGA notices and s.219 LTA Covenants. These covenants limit a) WHO can live in the property and b) HOW MUCH the property can be sold for.

The OWNER (meaning all persons on title) must:
a) RESIDE in the Property;
b)Be part of a HOUSEHOLD whose gross annual income does not exceed the Affordable Ownership Income level. This includes everyone over 15 years old living in the residence;
c)Total Household income cannot exceed: $63,737 ( in 2009, City of Kelowna)
d)File a statutory declaration (evidence under oath) that the Owner continues to meet the criteria while remaining an owner (1-4 times each year).

A Seller of an affordable housing unit is responsible for vetting Buyer to ensure they meet the above criteria.

Freehold vs. Leasehold

At common law, in British Columbia, land tenures can be generally divided into two large catagories, fee simple land and leasehold lands.

Fee simple lands (also called freehold lands) are lands where the owner owns all the property rights associated with thoses lands, except the rights which are reserved for the Crown (for example oil and gas rights). The restrictions on use on freehold land are imposed by the Province and the local municipality.

Leasehold lands are lands where the rights of the owner are limited by the another party, usually a landlord. Long term leases (49 - 99 ys) are commonly found in the Province of British Columbia when land is sold on Native Reserves as the inalienability of native lands, under the Canada Constitution, prohibits Native Reserve being "sold" to anyone except to the Crown. Additional restrictions on the use of leasehold land are found in a LEASE or HEADLEASE document which creates contractual obligations between the Landlord and Tenant.

Discharging your Mortgage

For sellers the essential bargain in a real estate transaction is "I give you my house, free an clear, and you give me money"...

The "free and clear" part is key, it means that the Seller is giving the Buyer title free and clear of all financial encumbrances on title. A financial encumbrance includes things like your mortgage or a secured line of credit. When the mortgage is held by the bank the discharge is relatively straight forward: your lawyer requests a payout statement from the bank and on the closing date pays the money to the bank on their promise to discharge the mortgage.

When the mortgage is not held by the bank, things get a little more complicated. For example, if Uncle Buck loaned you 200k for your home and registered a mortgage, your lawyer would have to have a registered discharge "in hand" on closing and this creates a "catch-22" with the Buyer (who won't part with the cash until he gets assurance of title). This problem is usually solved in British Columbia by the exchange of lawyers undertakings (court enforceable promises) with the lawyer holding all documents in "escrow" until everything is ready to go.

Property Transfer Tax - First Time Home Buyer Exemption

This exemption is more limited than most first time home buyers realize, its not enough that this is your first home in British Columbia, to qualify you must meet all of the following criteria:

1) Be a Canadian Citizen or Permanent Resident.
2) Must have resided in BC for the last 12 months, and at least 2 of the last 6 tax years.
3) Must never held title to property any where in the world
4) Must not have previously applied for the exemption.

Usually, #2 causes the most problems. For example, if you are a college student in Ontario and you are moving out to British Columbia to start your first job. Upon buying your first home you would not qualify for the FTHB exemption as you have not resided in British Columbia for a sufficient time.

Property Transfer Tax - Related Induvidual Exemption

One of the limited exemptions to paying property transfer tax occurs where the Seller is related to the Buyer. However, for this exemption to apply, the Seller and Buyer must be "vertically related" and the property must be a principal residence.

So, consider the situation where husband is on title and wishes to add his wife to title to their family home for estate planning purposes. Normally, this transfer would be taxed by Property Transfer Tax, however, the exemption applies and no tax is applicable.

If however, an uncle wishes to sell his property to his neice, since they are not vertically related the exemption does not apply, and Property Transfer Tax is payable on a direct transfer from the uncle to the niece.

Similarly, if the property is a rental property, no exemption is available as it is not a principal residence.

Property Transfer Tax

For most out of province buyers, finding out about Property Transfer Tax often comes as an unpleasant shock. Property Transfer Tax is charged on every transfer of freehold title in the Province of British Columbia as is calculated as 1% of the first $200k and 2% of the remainder of the Purchase Price

This means a $300,000 home buyer will pay $4,000.00 in Property Transfer Tax on closing. Similarly, a $600,000 home buyer will pay $10,000.00 in Property Transfer Tax on closing. This tax hit is made even more difficult as banks will not finance this payment.

The tax can be avoided if you qualify for a limited set of exemptions, the two most common are:
a) the first time home buyer exemption; and,
b) the related induvidual exemption.
I will discuss this exemptions in more detail in later posts.

Welcome to the B.C. Real Estate Blog

This blog will attempt to be a valuable resource for Realtors, Buyers, and Sellers of real estate in the Province of British Columbia.