Protecting Pre-sale Strata Buyers and Developers

As the market soared during most of the 2000s, condo pre-sales were a popular and profitable way to buy a new home. Today, while there may not be long lines of buyers outside sales centres, pre-sales continue to be a popular choice for both investors and home buyers.

Regardless of the purpose of a pre-sale purchase, there is an inherently speculative aspect to it. This is because a pre-sales contract locks in the price. After the buyer signs the contract, the market may go up or down, mortgage rules and interest rates may change, and in extreme cases, a buyer may no longer qualify for a mortgage.

Before the market decline began in 2008, buyers paid little attention to the Real Estate Development Marketing Act (REDMA). Then, when the decline occurred, many buyers found themselves stuck with contracts to buy properties above market value. The result was litigation.

There have been a number of cases testing the consumer protections enshrined in REDMA. For the most part, the results have been very good for purchasers. Breaches of REDMA – some seemingly unimportant – have resulted in purchasers being able to rescind their contracts and get their deposits back.

In 299 Burrard Residential Limited Partnership v. Essalat, the Court of Appeal found that a roughly four month delay in construction required the developer to file and deliver an amended disclosure statement. The developer did not do so and the purchaser was entitled to rescind the purchase agreement. Notably, the purchaser knew of the delay, but it was not formally set out in an amendment to the disclosure statement.

In Woo v. ONNI Ioco Road Limited Partnership, purchasers were not provided with one of the amendments to the disclosure
statement. They completed their purchases and lived in the properties for seven months before learning of the missing amendment. They waited a further 10 months before issuing notices of rescission. The court recently held that the purchasers were entitled to rescission. By the time of the court’s ruling, the purchasers had owned the properties for over three years. They were entitled to return the properties for the full purchase price.

While REDMA provides robust protection for consumers, it also cuts both ways. While breaches by a developer will lead to a
seemingly harsh result, if the developer complies with REDMA, it has a free hand to do almost whatever it wants without the risk of purchasers lawfully rescinding.

A developer may change anything that affects the price, value or use of the property. The only caveat is that the developer must immediately file and deliver an amendment to the disclosure statement clearly identifying those changes. Critically, so long as this is done, the purchasers have no right of rescission. They must still complete the purchase, regardless of what they think about the changes set out in the amendment.

REDMA is clear that receiving a disclosure statement does not provide a right of rescission.

Pre-sales purchasers should understand that the developer can change the price, value or use of the property and purchasers
may not have a right to back out of the contract as a result. This is the quid pro quo of REDMA. While it provides purchasers
robust consumer protection, it also provides developers the right to change important aspects of the development while keeping purchasers tied to their contracts.

McMillan is a lawyer at Harper Grey LLP and focuses on real estate litigation, including pre-sales disputes. He teaches real estate courses and regularly contributes to real estate publications.

BCREA Mortgage Rate Outlook

The biggest change to the mortgage market this year had nothing to do with mortgage rates, but rather with further changes to mortgage regulations. In June, the federal government announced a number of new regulations for the Canadian mortgage market, the most important of which was reducing the maximum insurable mortgage amortization period from 30 years to 25 years.

imageIn lowering amortization from 30 years back to 25 years (the prevailing amortization period in 2004) the government has now completely undone its prior, and probably misguided, forays into the mortgage market. The change from 30 year to 25 year amortizations will have a fairly significant impact on monthly mortgage costs, similar to the impact of roughly one per cent increase in mortgage rates.

In order to offset the impact on consumer demand from stricter mortgage regulations, banks and other lenders will likely keep mortgage rates low with perhaps more competitive discounting for homebuyers with strong credit histories. Moreover, ongoing uncertainty in the global economy will translate into a persistence of very low Canadian bond yields.

We forecast that the posted five-year mortgage rate will remain at 5.24 per cent for the balance of 2012 before gradually rising in 2013 to 5.85. Little change is expected to the one-year rate over the next six months at 3.1 per cent, but it is expected to rise when the Bank of Canada raises interest rates in early to mid-2013.

The Bank of Canada is caught in a delicate balancing act. The trajectory of the output gap and the stickiness of consumer prices would under normal conditions, and under conventional monetary economics, have pushed the bank towards tightening interest rates. However, potential interest rate increases have been deferred by a near crisis environment in Europe, a stop-and-go US economy and, perhaps most importantly, the highly indebted position of Canadian households.

In terms of the domestic economy, the bank has been consistently exhorting Canadian businesses to spend and households to save. In a best-case scenario, consumers would be deleveraging while businesses invested in productivity enhancing capital. This would facilitate a necessary shifting of the burden of growth from consumers to Canadian firms.A slowing global economy and a high dollar continue to exert pressure on Canadian exporters. Furthermore, while the bank has carefully communicated that US monetary policy will not determine Bank of Canada rate actions, the explicit stance of the US Federal Reserve to keep interest rates low past 2014 does somewhat constrain the bank’s ability to raise interest rates without putting further upward pressure on the loonie and harming export growth.

A scenario of consumer deleveraging paired with ramped-up business investment and export growth will require interest rates to remain low. That said, the bank is also serious about maintaining its mandate of price stability and is increasingly indicating a desire to move rates off of historically low levels.

Balancing these objectives will require a delicate fine-tuning of monetary policy which we expect to proceed cautiously, perhaps with a rate-tightening of 25 to 50 basis points beginning in early to mid-2013. This slight increase in interest rates would allow the bank to signal to households that higher interest rates are on the horizon while still maintaining a substantial degree of monetary stimulus to encourage business investment.

For more information, please contact: Gino Pezzani

How Walk Score Works

Now, with the integration of Walk Score® into REALTOR.ca, consumers will be able to assess the walkability of any address so that they can go ‘walking after midnight,’ ‘walk on the wild side,’ ‘walk this way,’ go ‘walking in the rain’…

So, how does Walk Score® work?

Walk Score® helps people assess how walkable a neighbourhood is by assigning a number between 0 and 100 that measures the walkability of any address.

Walk Score helps you find a walkable place to live. Walk Score is a number between 0 and 100 that measures the walkability of any address. Learn about Transit Score and Bike Score.

Walk Score®

Description

90–100

Walker’s Paradise
Daily errands do not require a car.

70–89

Very Walkable
Most errands can be accomplished on foot.

50–69

Somewhat Walkable
Some amenities within walking distance.

25–49

Car-Dependent
A few amenities within walking distance.

0–24

Car-Dependent
Almost all errands require a car.

The Science of Good Living

  • People in walkable neighborhoods weigh 6-10 lbs less.
  • Walkable places make you happier and healthier.
  • Short commutes reduce stress and increase community involvement.

Read more about the benefits of walkability.

For Walkability Geeks

Walk Score has a world-class advisory board of urban planning experts.We support research on walkability, public transportation, and public health. We’ve received grants from the Rockefeller Foundation and the Robert Wood Johnson Foundation to make Walk Score more useful to researchers. Read our methodology.

Mortgage rule changes from the past 4 years

Thanks to Jessi Johnson who passed on this little cheat sheet of the changes to the Mortgage Rules over the past 4 years.

2012

  • LOC (line of credit) reduction to a maximum of 65% LTV (loan to value)
  • Stated income for BFS (business for self) programs require 35% down now
  • Cash-back no longer accepted as down payment
  • Qualifying rates on conventional lending to now use the 5 year benchmark rate for terms of less than 5 years and VRM’s (variable rate mortgages)
  • 30 year amortization gone for high ratio mortgages, now 25 years
  • No mortgage insurance (CMHC, etc) for properties over 1 million
  • Lower maximum LTV (loan to value) for refinances. Was 85%, now 80%
  • GDS (gross debt servicing) reduced from 44% to 39%
  • Rental property down payment requirement is now 35% from 20% with many lenders

2011

  • 35 year amortization gone for high ratio mortgages, now 30 years
  • Lower maximum LTV (loan to value) for refinances. Was 90%, now 85%
  • Elimination of government insurance on LOC’s (line of credits)

2010

  • Qualifying rates on high ratio lending to now use the 5 year benchmark rate for terms of less than 5 years and VRM’s (variable rate mortgages)
  • Lower maximum LTV (loan to value) for refinances. Was 95%, now 90%
  • Rental property down payment requirement is now 20% from 5%

2008

  • Minimum down payment changed from 0% to 5%
  • Minimum beacon score of 620 required for high ratio lending
  • New loan documentation requirement standards
  • 45% maximum TDS ratio
  • 40 year amortization gone for high ratio mortgages, now 35 years

 

The Importance of Bathroom and Kitchen Fans

Through my travels viewing and selling homes I find it surprising so many home owners and tenants who do not use their bathroom and kitchen fans properly. This can be one of the biggest issues with moisture damage in the home. Most people turn off the timer on their bathroom fans either to save energy or just being unaware what it is. This is a bad idea. Below a great article from CMHC on fans and the importance of using them.

Bathroom and kitchen fans are an important part of your home’s ventilation system. They remove odours from your house, which improves indoor air quality. They also remove moisture, which decreases the level of humidity in your house. High humidity can damage building materials and can cause mold growth. Mold may affect your family’s health.

Common Fan and Exhaust Systems

The two most common types of fans are impeller fans and blower fans.

Impeller fans move air with blades similar to airplane propellers.

Blower fans look like hamster wheels — they are often called squirrel cages — and generally do a better job of moving air than impeller fans.

Most exhaust systems consist of an exhaust fan, ducting and an exterior hood. Some houses have a central exhaust system, in which one fan draws moisture and odours from several rooms of the house using a network of ducts.

Kitchen exhaust systems usually have the fan and fan motor in the exhaust hood. Other systems use an in-line fan, which is in the exhaust duct, or a fan outside the house. In-line and outdoor exhaust fans are usually quieter than systems with the fan in the room.

A heat recovery ventilator (HRV) also exhausts moisture and odours. An HRV is a self-contained ventilation system that provides balanced air intake and exhaust. Like a central exhaust fan, it can be connected to several rooms by ducting.

How Good Is the Fan I Have Now?

CMHC’s research shows that many houses have exhaust fans that:

  • are too noisy
  • move very little air
  • are not energy efficient
  • may cause backdrafting of combustion appliances
  • use high-wattage lighting

Are There Better Fans?

Yes. There’s a new generation of effective, quiet, energy-efficient exhaust fans and controls.

How Do I Choose the Best System?

First, choose the quietest, most energy-efficient fan in the size range required. Most fan labels have Home Ventilating Institute (HVI) ratings so you can compare noise and energy efficiency. Look for a fan with replaceable parts and permanent lubrication. A fan suitable for continuous use is preferable. Be prepared to pay more for a quality fan.

Second, select low-resistance (smooth) exhaust ducting. Seal the joints and insulate sections that run through unheated spaces.

Third, place the exhaust hood where it will not cause moisture damage on exterior surfaces.

Fourth, if you have heating appliances with chimneys, make sure that fans won’t cause the appliances to backdraft.

Fifth, install the proper controls.

Bathroom Fans: What Should I Look For?

Fan exhaust capacity is rated in litres per second (L/s) or cubic feet per minute (cfm). A normal bathroom needs a good-quality fan that draws 25 L/s (50 cfm). A poor-quality fan won’t exhaust enough air and will be too noisy for regular use. The best fans have sound ratings of 0.5 sones or less and consume about 20 watts. Older units typically run up to 4 sones and 80 watts.

Large bathrooms, or those with bigger fixtures, such as spas, need larger fans. Place the bathroom fan as close as possible to the source of moisture or odour. For in-line fans, as long as the intake grille is properly located, the fan itself does not have to be close to the bathroom. Some bathroom fans have lights or heating lamps. If you choose a fan with integrated lights, look for efficiency. Any fan installed in an insulated ceiling — for instance, if the attic is above the bathroom ceiling — must not leak air and must be rated for use under insulation.

Make sure that exhaust fans, lights and heaters in bath or shower enclosures are rated and approved for wet conditions. Newer units approved for wet conditions may include ground fault protection.

Noise

Noise determines whether people use a fan. Many people won’t use a noisy fan. Select the quietest fan in the size you need. Look for fans labelled “low noise” or “quiet,” and check for the HVI rating. If it is not rated, there is a good chance that it will be noisy. In-line fans, due to their potential remote mounting, can also be very quiet.

Fan Power Requirements and Airflows

There is more to energy efficiency than selecting an energy-efficient fan. Ducting can affect fan performance. Uninsulated, undersized, or droopy flex ducting, ineffective or dirty backdraft dampers and exhaust louvers can cut rated airflow by more than 50 per cent.

To find out if your exhaust fan is drawing air, hold a piece of toilet tissue up to the grille. The exhaust air should hold the tissue tightly to the grille. You could also check the outlet to make sure the air is leaving your house. CMHC has developed a simple test to measure flow and published it as an About Your House fact sheet titled CMHC Garbage Bag Airflow Test.

Controls

Bathroom fans connected to light switches start running when the light is turned on. Often, users turn the light off before all the moisture is exhausted after a bath or shower. An electronic timer, which is usually quieter than a mechanical timer, offers a wide range of settings. Make sure the time instructions are easy-to-understand and the timer is easy to use. You can use motion or humidity sensors, or a combination of both, to control the fan. Controls which allow you to specify operating times or maximum humidity levels are preferable to those where the operation is pre-set by the manufacturer. Use a delayed fan shut-off to keep the fan running for 15 minutes after you leave the room.

Cleaning

Fans create static electricity which attracts dirt like a magnet to the fan and its housing. The dirt can encourage mold growth and restrict air movement. Clean fans, housings, backdraft dampers and exterior flaps seasonally. A typical bathroom fan can be cleaned by pulling down the grille, and unplugging and removing the fan module. Fans in ducts and exterior fans may be difficult to clean.

Kitchen Range Hoods

A kitchen range hood must move more air than a bathroom fan — about 50 to 140 L/s (100 to 300 cfm). As a result, they are noisier, with the lowest sound rating of about 4.5 sones, although they can be relatively quiet on low speed.

The most useful units have a low noise rating, an energy-efficient fan, fluorescent lights, sound insulation, anti-vibration mounts and duct connections. For heavy duty use, select non-corrosive materials such as aluminum or stainless steel. High quality hoods may have heat sensors and a safety shut-off.

Kitchen exhaust systems should discharge outdoors. Recirculating range hoods rely on filters to capture some odours and grease. The filters are generally made of carbon which must be replaced frequently to be effective. Grease will coat carbon, making it ineffective. With recirculating fans, cooking moisture and odours will usually remain in the house.

Positioning

Range hoods are most effective when they extend out over the stove surface and are close to the stove top. Island units are less effective than wall units.

Cleaning

Range hoods usually have washable, aluminum-mesh grease filters. Better quality filters have a smaller diameter mesh over a larger surface area and can be cleaned in the dishwasher. Clean or replace grease traps and filters frequently. There are now range hoods available that allow you to remove the fan, but not the motor, for cleaning in a dishwasher.

Fire

There is always the possibility of a grease fire with a kitchen range hood exhaust. Smooth metal ducting, preferably galvanized steel, is safer in a fire than lighter assemblies.

Installation

Install fans and exhaust systems so they make the least possible noise, vibrate as little as possible and leak as little air as possible.

Anti-vibration pads or foam tape can isolate the fan housing from wood joists and drywall. You can wrap fan housings and some duct sections in rubber or vinyl noise barrier mats.

Ducts

Install exhaust systems according to the building code and manufacturer’s recommendations. Straight, short duct runs, with few turns, will result in the highest fan flow.

For bathroom fans, use duct with a diameter of at least 100 mm (4 in.). For long runs, use larger, 150 mm (6 in.) diameter duct to improve airflow. It is usually best to avoid fans with 75 mm (3 in.) exhaust ports and ducts. Follow manufacturer’s instructions for kitchen exhaust duct sizes.

Seal all duct joints and connections with aluminum duct tape or duct mastic (available at contractors’ supply shops) to prevent air, moisture and noise leakage. Standard cloth duct tapes tend to dry out and fall off.

Seal and then insulate all ductwork running through unheated areas to avoid moisture problems. The best practice is to slant horizontal runs of duct down toward the exterior outlet to drain any condensation outside.

Exhaust air should not be released into the attic, into a wall or ceiling cavity, crawl space, basement or in the roof soffit. These locations can promote condensation damage and mold growth.

Weather Hoods, Grilles and Backdraft Dampers

Even when fans are off, stack effects and wind loads may cause outside air to enter or inside air to exhaust through fan ducting. Fans are equipped with backdraft dampers, usually in the fan box exhaust port. Check damper flaps from time to time to make sure they are clean and working. The exterior exhaust flap or louvers should be clean and in good repair to maintain unobstructed airflow and reduce air infiltration. Most exhaust ducts are fitted with a single flap exhaust hood or triple louver aluminum or plastic exhaust grille. Use weather hoods that lie flat on the wall in driveways and other places where hood-type units could be damaged.

Plastic hoods break down over time and need to be replaced. Clean exhaust hoods of lint and nesting materials seasonally to ensure that the flap or louvers are not blocked or stuck open.

Some Dangers

Chimney Connections

Some older bathrooms have static exhausts which look like upside down funnels on the ceiling. If these exhausts are hooked into the furnace chimney, disconnect them from the chimney, seal the hole in the chimney with hydraulic (expanding) cement, and install a new powered exhaust. If these static exhausts go directly outside, they can still be used, but a good fan will be more energy efficient and less drafty.

High Capacity Systems

High capacity, industrial or oversized exhaust fans, and range-top barbecue fans can cause chimney backdrafting. Backdrafting occurs when air is drawn down the chimneys, bringing dangerous combustion exhaust gases into the house. Avoid backdrafting by selecting sealed combustion heating appliances. If you have appliances with chimneys in your house, and you wish to install high capacity exhaust fans, you will need a matching supply air fan to balance house pressures.

Many ventilation contractors or salespeople are unaware of the effects of large exhaust fans on other house appliances. Make sure that your system is properly installed with supply air. At the very least, make sure that you have smoke alarms and carbon monoxide detectors to warn you if you have severe chimney backdrafting.

For More Information

Fact sheets and product ratings are available from:

Home Ventilating Institute
Telephone: 847-416-7257

Courtesy of Canada Mortgage and Housing Corporation http://www.cmhc-schl.gc.ca/en/index.cfm