Back in July, the BC government announced that it was introducing a mandatory homebuyer protection period as a consumer safeguarding tool that would give buyers a three-day period during which they can back out of a deal without legal consequence by paying a 0.25% rescission fee.
That provision, officially called the Home Buyer Rescission Period Regulation, comes into effect on January 3, 2023 and a BC Supreme Court case that concluded last week serves as an apt example of what the rescission period can and cannot do.
The case at hand is Kaltenegger v. Cao, presided over by Justice Matthew Kirchner, which concluded with a judgement on Friday, December 16.
The plaintiff, Jeffrey Kaltenegger, is the seller of the property located at 917 Pacific Drive, near Tsawwassen Beach in Delta, is at the centre of the case.
The defendant, Na Cao (along with her husband Xin Qiang Li) made a $4,280,000 offer for the Pacifc Drive home on November 17, 2016. After some negotiations and counteroffers, a final offer of $4,450,000 was accepted just two days later by Kaltenegger on November 19.
Cao and her husband were simultaneously negotiating an offer for a property on 241 English Bluff Road -- a few minutes south of 917 Pacific Drive -- and that offer was accepted by the seller on November 21.
On November 23, Cao's realtor, James Liu of West Coast Realty, emailed Kaltenegger's listing agent, Christina Watts, saying that Cao would not be paying the $300,00 deposit. Kaltenegger wrote to Cao demanding payment of the deposit, while extending the deadline to November 28.
Cao never paid the deposit, and Kaltenegger repudiated the contract on November 30. He subsequently put the property back on the market, but found that the market had softened, ultimately selling it some 17 months later on May 2, 2018 for $3,480,000 -- $970,000 less than Cao had originally agreed to pay.
In his reasoning, Judge Kirchner said that Cao and her husband had been told by friends that they were overpaying for both properties, prompting Cao's husband to tell their agent, Liu, on November 22 that they wanted to reconsider both offers. They did this despite Liu's warning that the couple could be taken to court if they did not follow through on the contracts.
Kirchner notes that Cao and her husband also refused to pay the deposit for the property on English Bluff Road, but that seller chose not take legal action.
Cao's argument is that Kaltenegger misrepresented the property, specifically as it relates to where the property ends and where land belonging to the Tsawwassen First Nation begins. "She argues his silence in these circumstances constitutes a misrepresentation that entitles her to rescind the contract," Judge Kirchner wrote.
Kaltenegger says he accurately identified the lot area in the MLS listing as 14,392 sq. ft and maintained the lawn in the same state with the same cut-off point throughout his ownership of the property -- which was confirmed via satellite images dating back to 2008 that were presented to Judge Kirchner -- and that it was the responsibility of Cao to confirm the exact boundaries of the property with him.
Cao subsequently took legal action against Liu, her agent, claiming he was negligent in advising her on the boundary of the property, claiming damages in case that Judge Kirchner heard and judged simultaneously. Kirchner ultimately sided with Cao, saying that Liu "did not meet the standard of care expected of a realtor when he failed to identify the patent uncertainty of 917 Pacific’s western boundary and failed to caution Ms. Cao and Mr. Li about that uncertainty."
READ: BC Home Sales Plummet More Than 50% YoY: BCREA
However, regarding Kaltenegger, Judge Kirchner ruled that he made no misrepresentation of the property as seller and that Cao was not entitled to rescind her offer. "Mr. Kaltenegger engaged in no unconscionable or bad faith conduct to take advantage of what might have been a misapprehension," he wrote. "It was for Ms. Cao to investigate the property line if that was important to her."
Kirchner concluded that Kaltenegger was entitled to the $970,000 lost as a result of Cao's rescission, but nothing beyond that amount, such as damages for the property taxes, utilities, and maintenance of the property Kaltenegger had to continue paying between November 2016 and May 2018 when the property was eventually sold. Kirchner also found that Cao had failed to prove she suffered damages as a result of Liu's acts or omissions and that the fine she now must pay is the result of her refusal to complete the transaction.
BC Home Buyer Rescission Period
In Cao's case against her agent, Judge Kirchner also concluded that Liu "failed to take reasonable measures to ascertain market conditions and provide Ms. Cao with information on the approximate value for 917 Pacific." He also sided with Cao regarding her claim about Liu's negligence as it relates to the aforementioned property boundary issue, an indication that while Cao's reasoning for backing out of the deal was reasonable, her nixing of the offer was not legally permissible.
Had this case occurred with the new Home Buyer Rescission Period in effect, Cao likely would have been able to rightfully back out of the deal (within three business days) by paying a $11,125 rescission fee, rather than the $300,000 deposit or the resulting $970,000 fine.
When it announced this new provision in July, the Province of BC said that "the mandatory three-day period will give homebuyers an opportunity to take important steps, such as securing financing or arranging home inspections."
Even once the change comes into effect, buyers may still make offers conditional upon inspection or financing, which usually amounts to a period of more than three days. The rescission period is put in place for transactions without those conditions. It's also a time that can be used to reconsider the purchase, and perhaps consult your friends. That's why it's also referred to as the "cooling-off" period: because cooler heads tend to prevail.
