Presale purchasers prevail in clash between REDMA rights and CCAA stay

KingSett Mortgage Corporation v Lumina Eclipse Limited Partnership, 2026 BCSC 1598
Can presale purchasers void their purchase agreements on the basis of material undisclosed facts?

Summary: The British Columbia Supreme Court has ruled that 38 presale purchasers of units in the 329-unit Lumina Eclipse development in Burnaby can treat their purchase agreements as unenforceable after the developer failed to timely disclose a series of material developments before entering CCAA protection. The undisclosed events included a $12 million CRA judgment, the alleged misappropriation of approximately $9.7 million received from the City of Burnaby, suspension of new home warranty coverage, cessation of construction following suspension of the building permit, and the eventual transfer of control of the project to the monitor. KingSett Mortgage Corporation, the senior secured creditor and interim lender, Westmount West Services Inc., the deposit insurer and second-ranking secured creditor, and the monitor argued that the CCAA stay prevented purchasers from relying on their statutory rights under B.C.’s Real Estate Development Marketing Act, warning that cancellations would force units back onto a deteriorating market while interest accrues at more than $59,000 per day. The Court rejected that position, finding the developer had breached REDMA before the CCAA proceedings commenced and that the agreements had already become unenforceable against the purchasers by operation of statute. While a CCAA court has broad powers to stay proceedings and restrain contractual and statutory rights, the Court held that those powers cannot transform a contract that was already rendered unenforceable into an enforceable one. The applications were therefore granted.

Thirty-eight applicants applied for a declaration that certain presale condominium agreements entered into with the Developer between 2021 and 2023 were unenforceable in relation to a 329-unit development project called Lumina Eclipse in Burnaby, B.C. (the “Development”) under s. 23 of the Real Estate Development Marketing Act due to alleged breaches of the disclosure-amendment obligations in Part 2 of the Act. At the time the applications were brought, the Development was under Companies’ Creditors Arrangement Act protection.

The applicants submitted that the Developer failed to immediately disclose, among other things:

1. A $12 million judgment obtained by the Canada Revenue Agency against the Developer on June 30, 2023, and registered against title;

2. The misappropriation of approximately $9.7 million received by the Developer from the City of Burnaby in or around September 2024 in respect of cash in lieu of certain letters of credit commitments from the City of Burnaby;

3. The suspension of the Developer’s new home warranty coverage on October 31, 2024, due to non-payment to the insurer;

4. The cessation of construction of the Development due to the suspension of the building permit on November 14, 2024; and

5. The change in control of the Development to the Monitor on January 8, 2025.

The Monitor, KingSett Mortgage Corporation (“KingSett”), as the senior secured creditor and interim lender, and Westmount West Services Inc. (“Westmount”), as the deposit insurer and second-position secured creditor (collectively the “respondents”) asserted that the relief was not available because the stay orders issued in the CCAA proceedings precluded the applicants from relying upon s. 23 of REDMA. In this regard, they argued the CCAA, and the orders issued under it, overrode the operation of REDMA as a result of the constitutional principle of paramountcy. They further argued that the applicants stood to receive what they bargained for (their respective units), and if the applicants were successful, the Monitor would be forced to relist the units in a deteriorating market during an insolvency proceeding in which interest exceeding $59,000 per day accrues. The resulting erosion in asset value and increase in cost and expense would materially prejudice the debtors, and their creditors, who would suffer a substantial shortfall.

The Court noted that the division of powers conflict alleged by the respondents was not between provincial and federal statutory provisions. Rather, it was between a provincial statutory provision (s. 23 of REDMA) and a broad, permissive grant of discretion to issue an order (under ss. 11 and 11.02 of the CCAA). The CCAA provides supervising courts broad discretion to stay rights held by creditors if the exercise of those rights could jeopardize the restructuring process. The primary tool for achieving a restructuring is a stay of proceedings and of creditors’ rights. The stay provides a level of stability by preserving the status quo for a period during which the debtor is shielded from its creditors while restructuring efforts are undertaken. While there is broad discretion, it has been held that the discretion is not without limits.

REDMA regulates the marketing of presale development properties. The disclosure regime addresses the significant information imbalance between developers, who possess ongoing information regarding construction progress, financing, liabilities, regulatory approvals, and project risks, and purchasers, who are largely dependent upon disclosure statements and amendments for such information. It also enables the efficient and profitable operation of the real estate development sector. The Act affords the development industry the benefit of greater certainty and flexibility through a more structured and predictable business environment, including the ability to access buyer deposits for financing; a standardized seven-day right of recission for buyers; codified definitions of a “material fact” and a “disclosure statement”; and rules for the marketing and selling of development units before obtaining municipal building permits or financing approvals.

A breach of the continuing amendment obligations imposed by s. 16 of REDMA engages s. 23. From a consumer perspective, significant personal and financial decisions are made in reliance upon the anticipated completion of the development. Purchasers’ ability to make informed decisions throughout this period depends upon receiving timely disclosure of material developments affecting the project. Up-to-date disclosure would also be important to the value and marketability of the purchaser's assignable interest, to the extent assignment is permitted. Accordingly, the continuing amendment obligation represents a fair and rational balance between the commercial advantages conferred upon developers and the informational protections afforded to purchasers. If ongoing non-disclosure carried no meaningful legal consequence after the purchase agreement was signed, the continuing amendment obligation imposed by s. 16 would be substantially diminished..

The Court found that the non-disclosures were material facts requiring disclosure under REDMA. The alleged non-disclosures included significant liabilities and litigation affecting the development, anticipated completion dates, warranty coverage, and development approvals. This information was not disclosed to purchasers when the events occurred or filed in amendments to the disclosure statement within a reasonable time. The Court rejected Westmount's submission that the events were not material because the Development ultimately completed and the purchasers may ultimately receive the units they contracted to purchase. Materiality is assessed at the time the disclosure was required, not with hindsight after completion. The question is whether the facts could reasonably be expected to affect value, price, or use when they occurred and when disclosure was required. Subsequent completion of the project does not retroactively deprive those events of their material character.

Collectively, these events contributed to a materially different state of the Development than that presented by the disclosure record available to the applicants. The Developer was required to comply with the amendment obligations set out in s. 16 of REDMA. The Developer breached its continuing disclosure obligations under Part 2 of REDMA by failing to disclose material facts relating to the Development in a timely fashion. Those breaches occurred before the commencement of the CCAA proceedings. As a result, pursuant to s. 23 of REDMA, the applicants' Presale Agreements became unenforceable against them by the Developer at the time of its breaches, which was before the start of these proceedings..

While CCAA courts have broad discretion to stay proceedings, suspend remedies, restrain the exercise of contractual and statutory rights, centralize disputes, and otherwise control the manner in which rights are asserted, a contract rendered unenforceable by operation of another statute cannot be treated as enforceable against the purchasers under the CCAA.

The Court granted the applications.

Judge: The Honourable Justice D.M. Masuhara

Professionals involved:

• Daniel Yaverbaum, Bryan Baynham, K.C. and Roselle Wu of Harper Grey for the presale purchasers

• Mary Buttery, K.C. and Emma Newbery of Osler for KingSett Mortgage Corporation

• Sean Zweig, Andrew Froh and Joshua Foster of Bennett Jones for AlixPartners as monitor