In an attempt to enhance consumer protection for homebuyers, the B.C. government has introduced a new 3-day “cooling-off period” on residential real estate sales. The “homebuyer protection period”, asit is referred to by the B.C. government, is a first of its kind in Canada, and becomes effective on January 1^st, 2023.

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The cooling-off period is meant to protect B.C. homebuyers from being pressured into high-risk sales. Amendments to the Property Law Act made in April 2022 grant the B.C. government the power to enact regulations which enhance buyer protection in the real estate market. The regulations will come into force by January 1, 2023, and will add a right of rescission (cancellation) to the Property Law Act, under which a buyer of residential real estate will have 3 business days (the “cooling-off period”) following an accepted offer to conduct research on the property, such as carrying out inspections, securing mortgage loan financing, and seek ng legal advice, before deciding whether to rescind their offer. The new cooling-off period is intended to apply to resale property and newly constructed homes. Cooling-off periods for pre-construction sales of multi-unit development properties, like condominiums, are already in place under the province’s Real Estate Development and Marketing Act.

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Buyers can still make offers conditional at any time (for example, on things like obtaining financing or a satisfactory home inspection). The cooling-off period is meant to offer homebuyers the opportunity to conduct research on the property at times when their offer does not have any conditions in place, as was often the case during the booming market over the past several years.

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The new cooling-off period includes a rescission (cancellation) fee of 0.25% of the property’s purchase price, or$250 for every $100,000, for those buyers who choose to back out of a deal. For example, if the buyer exercises its right to cancel its offer on a $1-million property, they would be required to pay $2,500 to the seller. Commentators have noted that the penalty could be small enough that there could be increased activity in buyers backing out of deals after big announcements, such as substantial Bank of Canada interest rate hikes or particularly jarring inflation reports.

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The cooling-off period is one of several recommendations which the B.C. Financial Services Authority  (BCFSA) made in May 2022 to cool down the province’s white-hot residential real estate market. The B.C. government had initially pitched a 7-day cooling-off period, but the B.C. Real Estate Association had pushed back. Instead, the realtors’ association proposed a5-day pre-offer period, which would require that a listing remain on the market for at least 5 days before an offer could be accepted, which should theoretically have the intended effect of stemming bidding war by desperate buyers. The BCFSA included the real estate sector’s proposed 5-day pre-offer period in its list of recommendations in May.

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Contrary to the BCFSA’s recommendations, the new legislation does not include the 5-day pre-offer period, legal provisions to ensure that a buyer gets reasonable access to the property during the cooling-off period to conduct an inspection, or a requirement for a buyer to have to inform the seller whether or not the buyer has active offers on other properties before the seller accepts the buyer’s offer.

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Although the new regulations are intended to protect individual buyers of houses and condos, they use the term“ residential property”, which is quite broad. This means that sales of apartment buildings and seniors homes may be caught by the changes, even though such sales are typically considered business transactions. If the regulations that come into force at the end of this year do not provide exemptions, commercial brokers and investors will need to be aware of the new cooling-off provisions and account for them under their contracts of purchase and sale. As the new laws will come into force at the end of the year, the full details, including potential exemptions for residential properties such as apartment buildings and seniors homes, are not yet clear.

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If you have any questions regarding the new cooling-off period, please contact Christine Wang or Aman S. Bindra of our Surrey office, or Tyler Evans or Dan Grice of our Abbotsford office.