Back in April, we looked at a Court of Appeal decision addressing disclosure to purchasers of proposed units in condominium developments. It was a cautionary tale for the risk associated with inconsistent or confusing disclosure or omitting to disclose where appropriate. It was this author’s view that, had the disclosure been more specific and clear, the Court would have been more likely to find the relevant provisions to be valid and enforceable.
In the recent case of Lin v. Brookfield Homes (Ontario) Ltd. (the “Lin Case”) from the Court of Appeal, the Court again looked at the builder’s Disclosure Statement, this time with regard to the notion of “material change” under the Condominium Act, 1998 (the “Condo Act”) and whether the builder’s disclosure was adequate. Under the Condo Act, whenever there has been a material change in the information contained in the builder’s disclosure to purchasers, those purchasers may, within 10 days of becoming aware of the material change, rescind their agreement of purchase and sale.
The Condo Act expressly defines “material change” (which can be paraphrased as a change that a reasonable purchaser would have objectively regarded as sufficiently important that they would not have otherwise entered into the agreement of purchase and sale) and also sets out, non-exhaustively, certain matters that do not meet the threshold.
The purchaser in the Lin Case signed an Agreement of Purchase and Sale to buy a pre-construction condominium unit for a purchase price of $1,657,107.86 (the “Agreement”) and had made deposits in excess of $133,000.00. On or about the scheduled closing date, the purchaser’s solicitor advised the vendor’s solicitor that if the parkette on the common elements referred to in the disclosure was not intended to be constructed on the closing date, the purchaser reserved its right to rescind the Agreement as a result of a material change. The vendor’s solicitors responded by saying that there was no material change and, as a result of the purchaser’s failure to complete the transaction, the vendor was terminating the Agreement and keeping the deposit.
The application judge found, and the Court of Appeal agreed, that the parkette and entry/exit gates were “amenities” and not essential features of the community. The language of the Condo Act and the Agreement were both persuasive in this case, with the Court finding that there was no material change, that the purchaser did not have any rights of rescission and that the purchaser forfeited the deposit to the vendor. The Condo Act expressly provides that a change in the schedule for the completion of amenities is not a material change, and under the default provisions of the Agreement, the vendor had the right to retain the deposits as liquidated damages and without prejudice to other rights or remedies it may have.
The Agreement was entered into at a time when the market for condominium units was at or near its highest. The property was resold a half year later at a loss of $357,107.86. Due to the changing winds in the market at the time, it is possible that the purchaser was looking for an “out”. The cost, however, has been higher than the diminution in value; in addition to losing their deposit, the purchaser was ordered to pay costs of $30,000 in the initial application (unless this was varied upon further submissions of counsel) and $15,000 on the appeal, all without limitation to the vendor’s right to claim its further losses.
One may wonder whether the disposition would have been different had the issue been not just an issue of timing and completion as of the closing date, but whether the parkette was going to be completed at all. This author posits that a finding that the parkette was not an essential feature of the community lends itself to a finding that it would not have been a material change in any event.
While the Condo Act expressly defines “material change”, the Lin Case adds further definition to a line of jurisprudence examining the notion, and further informs builders and purchasers (and their lawyers) in respect of meeting the threshold. When it comes to the sometimes elusive concepts of “reasonableness” and “objectivity”, we can find some greater comfort in the Court’s examination and interpretation.
The Lin Case also bolsters some of the common default language found in agreements of purchase and sale for pre-construction condominiums, having found such language to be fully binding and enforceable.