The provincial government’s new 15 per cent tax on foreign purchasers of residential property is the talk of the town in Metro Vancouver. While many local residents have spent the last several days debating about the likely effect of the tax, others are already facing the consequences as buyers respond to the tax by failing to complete on binding agreements of purchase and sale.
As mentioned in a Vancouver Sun article published August 3, 2016, there are various ways in which the new tax can impact buyers and sellers of local real estate, even if the buyer does not meet the definition of a ‘foreign entity’ in the new legislation (see link at the end of this article). For example, in addition to foreign buyers failing to complete in order to avoid payment of the tax, binding real estate deals can also collapse as a result of:
- foreign buyers failing to have sufficient funds to pay the purchase price and the additional 15 per cent tax on closing;
- local buyers being unable to sell their previous property at the price required to raise the necessary funds to close on the purchase of a new home; and
- a domino effect of any sale cancelled for the reasons above and affecting another sale that depended on it.
Sellers need to be on guard to protect their legal rights in these circumstances. If the buyer has removed the subject conditions for the purchase of the sale of a property, the seller has a legal right to enforce the contract which is unaffected by the imposition of the new tax. If the seller has any reason to believe that the buyer will not complete the transaction, the seller should advise their conveyancing lawyer, who can assist the seller to ensure that the contract remains valid and binding on the closing date. If the buyer fails to complete on the closing date, the seller then has the option of re-listing the property and pursuing the buyer in Court to claim compensation for the difference between the purchase price in the original contract and the eventual sale price obtained from a new buyer. When bringing such a claim, sellers can seek to have the deposit paid into Court pending a resolution of the proceedings, which will be of particular assistance to ensure recovery of damages against a foreign buyer who does not have assets in BC.
Realtors and sellers should be aware that the Collapse Release Form, which is provided by the Real Estate Board of Vancouver, is not appropriate in circumstances where the seller seeks to recover compensation from the buyer for their failure to complete the transaction. If the seller is asked to sign this form or any other forms or documents in relation to the collapsed sale, they should consult with a lawyer before signing it.
More information about the application and calculation of the new tax is available on the Real Estate Law Blog, also published by Lawson Lundell LLP.