When family members enter into financial arrangements with each other, there is often a hesitation to document those arrangements.  Therefore, many choose to document loans between family members and friends by using Demand Promissory Notes.  A Demand Promissory Note is used between a lender and a borrower and provides for payment of the outstanding loan on demand.  However, there are limitations on when the lender can sue for payment using a Demand Promissory Note.

In British Columbia, the current common law has determined that the limitation period for suing for payment starts from the date the Demand Promissory Note was entered into and expires 6 years after that date[1].  This has caused many issues for family lenders, who may not wish to enforce payment of their loan until many years after it was made.

On June 1, 2013 the new Limitation Act (British Columbia) is coming into force and bringing with it significant changes to the limitation periods for bringing an action within the Province.  One of those changes is the limitation period for bringing an action under a Demand Promissory Note. This limitation period is going to change from 6 years to 2 years (with a 15 year ultimate limitation period).  In addition, the  calculation of the start of the period is no longer when the Demand Promissory Note was made, but when default occurs under terms of the note (i.e. payment is not made in terms with the demand).

This is a positive change for lenders as it could provide them with the option of structuring their loans over longer periods of time.  In order to combat issues surrounding the transition between the current Limitation Act and the new Limitation Act the Ministry of the Attorney General has published a flow chart which can be viewed here.

If you have any specific queries regarding the application of a Demand Promissory Note under the current or new legislation, we suggest that you seek legal advice regarding same.

[1] Please note that the current limitation period for a Demand Promissory Note is slightly different than a Delayed Demand Promissory Note which starts to run from the date the loan is in default.