IMPACT OF THE PANDEMIC ON RESIDENTIAL REAL ESTATE TRANSACTIONS
The government response to the COVID-19 pandemic changes frequently, resulting in government-mandated and elective closures of businesses, as well as government regulations on landlord activities, such as evictions and property operations. This article outlines common issues faced by buyers/sellers and tenants of residential property as they navigate the disruption caused by the pandemic. Parties to real estate transactions fear that the pandemic will interfere with their ability to assess the value of property, complete due diligence effectively and fulfill closing conditions. Buyers want to protect themselves against decreasing value. Sellers want to maintain the certainty of the transaction while managing their property before closing. Tenants facing income loss may default on rent or request rent relief. It is now more important than ever for parties to carefully review their Contracts of Purchase and Sale and tenancy agreements because it is likely that many standard form provisions need to be or have already been amended or clarified in response to pandemic-related matters.
Accessing and Showing Property
The Real Estate Council of BC is currently advising realtors not to hold open houses. Rental and home viewings are restricted to six people. Landlords may enter rental units to conduct monthly or move-in/move-out condition inspections, make regular repairs, and show units to prospective tenants and buyers, provided they give proper notice to tenants. At these viewings, all persons must wear masks and maintain the mandated 2-meter physical distancing, and proper cleaning guidelines must be followed.
Completion Date Extension
In March, 2020, when the pandemic first began in North America, many buyers and sellers inserted clauses into their Contracts of Purchase and Sale allowing for an automatic extension of completion dates due to pandemic-related matters. Some of these clauses failed to consider its effect on other clauses in the Contract and related deals, or failed to properly define or clarify terms being used, leading to deals failing to close on time or collapsing. Ironically, the parties’ efforts to create certainty resulted in uncertainty and disputes.
Presale Contracts – Outside Date Extension
There are typically two types of clauses in presale contracts that protect the developer from liability if construction falls behind schedule. The first clause allows the developer to extend the construction completion date at its discretion. The second clause protects the developer from delays caused by events outside of its control.
Presale contracts provide for an “outside date” for completion in addition to a completion date. The completion date is the date by which the developer expects construction to be completed. The “outside date” is a back-up to the completion date, often set for several months after the completion date. Developers also give themselves an automatic right to extend the outside date several times up to a certain amount of days, as long as notice is provided. The presale contract can only be terminated if the developer misses the final outside date.
For example, if the completion date is January 1, 2021, but the outside date is April 1, 2021, and the developer exercises its right to extend three times for 100 days each time, you may not be able to gain possession until January 26, 2022.
Presale contracts also provide for additional rights of extension if construction is delayed by shortages of material, equipment or labour, acts of government authority, strikes, lockouts, natural disasters, fires, or any event beyond the developer’s control. Shortages of material, equipment or labour and acts of government authority cover pandemic-related delays. Some developers are now adding specific language to this clause to account for pandemics and government-mandated closures or shutdowns. The extension is usually for a period equivalent to the delay.
Rent Increases Frozen
The BC government originally froze rent increases on March 18, 2020, with the ban set to expire on December 1, 2020, where landlords could raise rents by a maximum of 1.4 per cent. On November 9, 2020 (with less than a month’s notice to landlords), the government extended the freeze on rent increases to July 10, 2021. Increases that were scheduled to occur between December 1, 2020 and July 10, 2021 were cancelled. Many landlords had already given their tenants notice of rent increase as they must provide three months’ notice. Landlords are prevented from combining 2020 and 2021 rent increases, effectively cancelling, rather than delaying, the 2020 rent increase.
Rent Repayment Plan
For any unpaid rent or utilities that became due during the period from March 18 to August 17, 2020, a repayment plan for the tenant must be devised:
- late fees or interest are not allowed to be charged;
- the repayment period starts on the date the repayment plan is given by the landlord to the tenant and ends on July 10, 2021;
- payment of the overdue rent/utilities must be in equal instalments;
- each instalment must be paid on the same date that rent is due;
- the date the first instalment is due must be at least 30 days after the date the repayment plan is given by the landlord to the tenant.
Eviction Ban Ended
There was a ban on issuing evictions for non-payment of rent from March 30 to August 18, 2020. This ban even prevented landlords from ending a tenancy if they entered into a good faith agreement to sell the rental unit. Apart from the repayment plan discussed above, landlords may now issue a Notice to End Tenancy for unpaid rent or utilities if tenants:
- failed to pay rent that was due before March 18, 2020;
- failed to pay full rent due after August 17, 2020; or
- default on the repayment plan.
Rent and Mortgage Support
The BC Temporary Rental Supplement (BC-TRS) Program ended on August 31, 2020. However, eligible low income families can still apply for the BC Housing Rental Assistance Program (RAP). Homeowners facing financial hardship may be eligible for mortgage payment deferral, depending on their lender’s policy and options.
Although the residential real estate market has been doing well since the pandemic started due to limited supply compared to demand and the ability to adapt to ever-changing circumstances, both sellers/buyers and landlords/tenants should consider adding or amending clauses in the Contract of Purchase and Sale or tenancy agreement to protect themselves against possible new pandemic-related restrictions.