Loaning money to family members…

With the ever rising cost of real estate in Vancouver, first time home buyers are often required to look for additional sources of financing in order to purchase a home.  Usually these first time home buyers receive assistance from their families and the family may try to document and secure this loan with a promissory note in the event that their child eventually gets a spouse.  This is a suggestion that an accountant made to one of my clients.  The concern with this is that there are two kinds of promissory notes commonly used in these transactions, a demand note that is payable upon the demand of the lender or holder of the note, and a contingent note that is payable once an event occurs, such as the passing of a certain amount of time. 

Since these situations usually occur when there is a “friendly” loan made between family members, a simple demand note is usually chosen as the lender can simply request payment when the borrower is ready to pay rather than requiring payment by a certain date. Many would think that this means that the limitation period for a demand note will begin to run when the repayment is demanded, however this is actually not the case.  This exact type of situation was considered by the British Columbia Court of Appeal in Kong v. Saunders, 2014 BCCA 508 (CanLII), and there the court found that the limitation period begins to run from the date that the demand note is made for all such demand notes made prior to June 2013.  Fortunately, section 14 of the current Limitation Act, passed in June 2013, states that the limitation period of 2 years begins to run on the first day that a failure to pay the note has occurred.  Unfortunately, all demand notes that were made prior to June 2013 are already under a 6 year limitation period that began to run once that note was created.

If you have a demand note, for whatever reason, that was made prior to June 2013 then you should consult a lawyer to determine the current status of the enforceability of such a note.

If you have a situation where you have loaned money to a family member and are in situation where you seek to recover that amount or your family has become embroiled in a family law dispute please contact Chen Shen.