Consumer Alert: Tips to Navigate Real Estate Transactions During Wildfire Season

• Consumer Alert

16 May 2024

Longer, hotter summers have led to more severe wildfires. With an earlier and anticipated prolonged wildfire season this year, many British Columbians are at risk of facing dangerous conditions and dealing with the devastation that wildfires cause to homes, businesses, communities, and pending real estate transactions.

The 2023 wildfire season was the most destructive in British Columbia’s recorded history, leading to hundreds of homes being lost or damaged, and evacuation orders and alerts affecting an estimated 185,000 people.

Wildfires pose a substantial risk to homeowners – as well as home buyers and sellers in the midst of a transaction when a wildfire starts. An active wildfire can make it difficult to complete a contract of purchase and sale (“CPS”), which can put buyers at risk of losing their deposit and sellers at risk of losing their sale.

BCFSA encourages home buyers and sellers to take the following measures to help protect their transactions during wildfire season.

Tips for Buyers Permanent link to this section

1. Obtain Suitable Home Insurance, and Obtain Your Quote Early Permanent link to this section

Mortgage lenders often require a fire insurance policy to approve financing for homes that are located within areas prone to wildfires, so it’s common for a CPS to have subject-removal requirements that include the buyer having an insurance policy in place.

Prioritize Securing Your Insurance Policy Quote

A key first step when placing an offer on a home in an area prone to wildfires is to talk to your insurance broker to secure a fire insurance quote early, and to ask detailed questions. For example, ask whether the insurance company could bind the policy in advance, and if they could revoke a bound policy.

Extend your questions to your entire suite of professionals to get a deeper understanding of the risks involved when purchasing a property located near an active wildfire or an area prone to wildfire. You could ask your mortgage broker about how long your mortgage rate hold is valid and if it is subject to change, and speak to your real estate professional and lawyer about what protections you have if the property is damaged by a wildfire before the deal closes.

If you’re having trouble obtaining insurance for the property, talk to your real estate professional about requesting insurance information from the seller to take advantage of the “incumbent stay on risk” approach (i.e., the seller’s insurer may be willing to temporarily reissue a policy in the name of a buyer of a property when the closing date falls during an imminent wildfire threat).

2. Add a Protective Clause to Your Contract Permanent link to this section

Buyers with accepted offers who have removed financing subjects can face situations where insurance companies have withdrawn their approval to insure the property due to an increased risk of wildfire damage. This could cause a ripple effect, leading to lenders withdrawing their approval for financing.

To help mitigate the risk of purchasing property near an active wildfire, BCFSA has introduced a new optional wildfire clause that a buyer can add to their CPS. The clause allows for one extension of the completion, adjustment, and possession dates in the CPS, up to a maximum of 30 days, if a wildfire prevents the buyer from obtaining fire insurance for the property (and by extension, mortgage financing).

The length of the extension in the clause is the earlier of 30 days or five business days after the buyer gives notice to the seller that they have obtained fire insurance. The clause may be modified to provide an extension of more or less than 30 days if the parties mutually agree. If used, the clause gives you time to contact your insurance broker and lender to discuss available options to insure the home.

Talk to your real estate professional and lawyer about the risks associated with using or omitting CPS clauses. If a seller is unwilling to agree to a clause in a CPS, you will have to consider whether to proceed with an offer and face potential conflict and negotiations should a wildfire affect the property and your ability to complete the purchase.

It’s important to note that the clause does not automatically release you from your obligations under the CPS – as a buyer, you must be able to show you made best efforts to obtain fire insurance and did not wait until the last minute to try to secure a policy. Best efforts sets a high bar, and you should keep a log of all attempts to obtain insurance starting from the time of the offer until the transaction closes or collapses. Talk to your lawyer about what else you can do to meet the best-efforts requirement.

Find the new wildfire clause and the fire/property clause on BCFSA’s Clauses page.

3. Stay Informed on Wildfire Zones Permanent link to this section

Track wildfire zones by using provincial resources like B.C. Wildfire Service’s Wildfire Map. The map shows the location and severity of active wildfires, as well as area restrictions and evacuations. Staying informed can help you determine whether to pursue a property, if you should add a clause to your offer, and next steps in case a seller is under an evacuation order. In any of these cases, reach out to your team of professionals to help you understand your options.

Tips for Sellers Permanent link to this section

If you are selling your home in a fire-prone area, it’s important to maintain your existing insurance coverage until after completion is confirmed in case the transaction falls through.

You should seek legal advice if:

• You are uncertain or have questions about any clauses or terms the buyers have added to the contract;

• Your property has been directly damaged by a wildfire; and

• You are planning to purchase another property after the sale of the current property and have concerns about how an extension due to a wildfire clause could impact your transaction and/or financing. In this situation, you may also want to talk to your lender about financing options.

The risk level is expected to increase with the growing frequency and severity of natural catastrophes, including wildfires. BCFSA’s new wildfire clause is one way it is helping to protect and empower consumers and build resilience in B.C.’s financial services sector.

If you have questions on CPS clauses and how wildfires may impact a transaction, please contact BCFSA’s Practice Standards Advisors.