Terminating Condominium Agreements Explained
Terminating Condominium
Agreements of Purchase and Sale
By: Joseph Salmon
“UNDER CONSTRUCTION
–
COMING SOON”
RETAINER/TERMS OF ENGAGEMENT
What services are YOU providing to your client?
THIS PRESENTATATION WILL ADDRESS:
1.
TERMINATING PRE-CONSTRUCTION CONDOS- THE REGULATORY
FRAMEWORK
2.
THE DUTY TO ACT REASONABLY AND IN GOOD FAITH
3.
CANCELLED CONDOS AND LEGAL COUNSEL’S RESPONSIBILITIES
REGULATORY FRAMEWORK FOR PRE-CONSTRUCTION
CONDOS
•
What is the
Ontario New Home Warranties Plan Act
(“ONHWPA”) and
Tarion Warranty Corporation?
•
Warranty Coverage for Condos:
•
Protection of purchaser’s deposits up to $20,000
prescribed first and second year construction warranties
•
Major Structural Defects
•
Substitution of Materials Without Purchaser’s Consent
•
Compensation for Delayed Occupancy
THE PURPOSE OF TARION ADDENDUM
•
Occupancy dates and extensions
•
Adjustments applicable to balance due on closing
•
Early termination conditions
Many Uncertainties
…
TYPES OF EARLY TERMINATION CONDITIONS
WAIVABLE CONDITIONS:
•
Sales of units have exceeded a specified threshold
•
Satisfactory financing terms have been arranged
•
Financial resources of purchaser are to Vendor’s satisfaction
NON-WAIVABLE CONDITIONS:
•
Approvals from Governmental Authorities with respect to site plans and
other development agreements
•
Changes to Zoning By-Laws
•
Approvals for easements or similar rights servicing the property or
surrounding area
Exercising Termination Clauses Reasonably
and in Good Faith
•
S. 6(f) of the Tarion Addendum requires that:
a vendor must take
…
“
all commercially reasonable steps within its
power to satisfy
” the early termination conditions
Exercising Termination Clauses Reasonably
and in Good Faith
Ning Li v. Park Avenue
(2019) ONSC 1147
•
The Court found that the duty of good faith and honest performance is
both
(i) a
common law principle
and
(ii) a specific provision under the Addendum
–
s. 6(f)
•
The Court considered at
Bhasin v Hrynew
(2014) SCC 71
•
Good faith is “simply that parties generally must perform their contractual
duties honestly and reasonably and not capriciously or arbitrarily
”
•
The court found that the vendor took all reasonable commercial steps to secure
the Cost Sharing Agreement
–
and that the standard of good faith and the
contractual requirement to take all commercially reasonable steps as set out in
the Addendum did not require perfection from the vendor
Exercising Termination Clauses Reasonably
and in Good Faith
Ania v. Spice Danforth Inc
. (2019) ONSC 572
•
The Court determined that the Vendor acted unreasonably and in bad
faith in its application of the financing requirement under the purchase
agreement and in terminating the agreement with purchasers
•
Vendor asked for unconditional mortgage commitment for the purchase
of a unit in a development when ground had not been broken and
completion was years away.
•
Purchasers made number of attempts to show their ability to close on all
cash basis
•
Vendor took issue with any condition in the mortgage commitment, even
those that were reasonable.
Exercising Termination Clauses Reasonably
and in Good Faith
Reddy v. 1945086 Ontario Inc.
(2019) ONSC 2554
•
Vendor added wording beyond what was in the addendum giving vendor ability
to terminate if it was not satisfied with the financing condition in their “sole,
absolute and unfettered discretion”.
•
Court found that the termination provision, even with the additional wording,
was in compliance with the Tarion Addendum and that the vendor had taken all
commercially reasonable steps to obtain financing on satisfactory terms
•
The court focused on the
ONHWPA
as consumer protection legislation, and
should therefore be given a “broad and liberal interpretation”
•
T
he court found that the purchasers’ interpretation would lead to a
“commercial absurdity” as it would require a vendor to continue with a project
without satisfactory financing in place
Exercising Termination Clauses Reasonably
and in Good Faith
Jones v. 2341464 Ontario Inc. (2018) ONSC 717
•
Vendor tried to terminate agreement on basis that vendor was facing delays in
city approvals and construction (despite construction being nearly complete)
•
Vendor offered to re-sell the unit to purchasers at a higher purchase price
•
The court found that the vendor was ”
attempting to avoid its obligations to
complete the sale for the purpose of benefitting from an increase in the value
of real estate since the agreement was made.”
•
Court orders specific performance and vendor was required to uphold the
purchase agreement
CANCELLED CONDO PROJECTS AND LEGAL
COUNSEL’S RESPONSIBILITIES
•
The “10-day cooling-off” period
•
Section 73 of the Condominium Act, 1998
•
73(2) To rescind an agreement of purchase and sale under this
section, a purchaser or the purchaser’s solicitor shall give a
written notice of rescission to the declarant or to the declarant’s
solicitor who must receive the notice within 10 days of the later
of,
(a) the date that the purchaser receives the disclosure
statement; and
(b) the date that the purchaser receives a copy of the
agreement
of purchase and sale executed by the declarant
and the purchaser.
1998,
c. 19, s. 73 (2).
CANCELLED CONDO PROJECTS AND LEGAL
COUNSEL’S RESPONSIBILITIES
•
Section 13 of the Tarion Addendum
The Vendor and Purchaser agree that they shall not include any
provision in the Purchase Agreement or any amendment to the
Purchase
Agreement or any other document….that derogates
from, conflicts with or is inconsistent with the provisions of this
Addendum, except where this Addendum expressly permits the
parties to agree or consent to an alternative arrangement. The
provisions of this Addendum prevail over any such provision.
•
Tarion Warranty Corporation, Condominium Form (Tentative Occupancy
Date), online:
<
https://www.tarion.com/sites/default/files/inline-
files/BB47R_Condominium-Tentative-Occupancy-Date-Addendum_2.pdf
>
at Section 13.
NEW CHANGES IMPOSED BY TARION
•
January 1, 2020 – the new mandatory information sheet
•
emphasizing the risk that pre-construction condos may never be completed;
•
the early termination conditions applicable to the project;
•
information on the status of the development (e.g., formal zoning approval,
relevant approval authority and the date construction is to commence);
•
information on any title restrictions that may prevent the project from
moving forward;
•
the statutory 10-day cooling down period under the Condominium Act; and
•
the date of anticipated occupancy.
NEW CHANGES IMPOSED BY TARION
•
Tarion’s
Ontario Builder Directory
updated to provide more
information (i.e. status of project, number of units, the name of
the vendor/builder, builder’s history of cancelled condo projects
or convictions under ONHWPA)
Comprehensive overview of terminating condo agreements, discussing regulatory framework, duties, cancellation responsibilities, and early termination conditions in pre-construction condos. Includes information on the Ontario New Home Warranties Plan Act and the Tarion Warranty Corporation, along with the purpose of Tarion Addendum. Key insights on waivable and non-waivable termination conditions provided with expert guidance.
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Presentation Transcript
Terminating Condominium Agreements of Purchase and Sale By: Joseph Salmon
RETAINER/TERMS OF ENGAGEMENT What services are YOU providing to your client?
THIS PRESENTATATION WILL ADDRESS: 1. TERMINATING PRE-CONSTRUCTION CONDOS- THE REGULATORY FRAMEWORK 2. THE DUTY TO ACT REASONABLY AND IN GOOD FAITH 3. CANCELLED CONDOS AND LEGAL COUNSEL S RESPONSIBILITIES
REGULATORY FRAMEWORK FOR PRE-CONSTRUCTION CONDOS What is the Ontario New Home Warranties Plan Act( ONHWPA ) and Tarion Warranty Corporation? Warranty Coverage for Condos: Protection of purchaser s deposits up to $20,000 prescribed first and second year construction warranties Major Structural Defects Substitution of Materials Without Purchaser s Consent Compensation for Delayed Occupancy
THE PURPOSE OF TARION ADDENDUM Occupancy dates and extensions Adjustments applicable to balance due on closing Early termination conditions
TYPES OF EARLY TERMINATION CONDITIONS WAIVABLE CONDITIONS: Sales of units have exceeded a specified threshold Satisfactory financing terms have been arranged Financial resources of purchaser are to Vendor s satisfaction NON-WAIVABLE CONDITIONS: Approvals from Governmental Authorities with respect to site plans and other development agreements Changes to Zoning By-Laws Approvals for easements or similar rights servicing the property or surrounding area
Exercising Termination Clauses Reasonably and in Good Faith S. 6(f) of the Tarion Addendum requires that: a vendor must take all commercially reasonable steps within its power to satisfy the early termination conditions
Exercising Termination Clauses Reasonably and in Good Faith Ning Li v. Park Avenue (2019) ONSC 1147 The Court found that the duty of good faith and honest performance is both (i) a common law principle and (ii) a specific provision under the Addendum s. 6(f) The Court considered at Bhasin v Hrynew (2014) SCC 71 Good faith is simply that parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily The court found that the vendor took all reasonable commercial steps to secure the Cost Sharing Agreement and that the standard of good faith and the contractual requirement to take all commercially reasonable steps as set out in the Addendum did not require perfection from the vendor
Exercising Termination Clauses Reasonably and in Good Faith Ania v. Spice Danforth Inc. (2019) ONSC 572 The Court determined that the Vendor acted unreasonably and in bad faith in its application of the financing requirement under the purchase agreement and in terminating the agreement with purchasers Vendor asked for unconditional mortgage commitment for the purchase of a unit in a development when ground had not been broken and completion was years away. Purchasers made number of attempts to show their ability to close on all cash basis Vendor took issue with any condition in the mortgage commitment, even those that were reasonable.
Exercising Termination Clauses Reasonably and in Good Faith Reddy v. 1945086 Ontario Inc. (2019) ONSC 2554 Vendor added wording beyond what was in the addendum giving vendor ability to terminate if it was not satisfied with the financing condition in their sole, absolute and unfettered discretion . Court found that the termination provision, even with the additional wording, was in compliance with the Tarion Addendum and that the vendor had taken all commercially reasonable steps to obtain financing on satisfactory terms The court focused on the ONHWPA as consumer protection legislation, and should therefore be given a broad and liberal interpretation The court found that the purchasers interpretation would lead to a commercial absurdity as it would require a vendor to continue with a project without satisfactory financing in place
Exercising Termination Clauses Reasonably and in Good Faith Jones v. 2341464 Ontario Inc. (2018) ONSC 717 Vendor tried to terminate agreement on basis that vendor was facing delays in city approvals and construction (despite construction being nearly complete) Vendor offered to re-sell the unit to purchasers at a higher purchase price The court found that the vendor was attempting to avoid its obligations to complete the sale for the purpose of benefitting from an increase in the value of real estate since the agreement was made. Court orders specific performance and vendor was required to uphold the purchase agreement
CANCELLED CONDO PROJECTS AND LEGAL COUNSEL S RESPONSIBILITIES The 10-day cooling-off period Section 73 of the Condominium Act, 1998 73(2) To rescind an agreement of purchase and sale under this section, a purchaser or the purchaser s solicitor shall give a written notice of rescission to the declarant or to the declarant s solicitor who must receive the notice within 10 days of the later of, (a) the date that the purchaser receives the disclosure statement; and (b) the date that the purchaser receives a copy of the agreement of purchase and sale executed by the declarant and the purchaser. 1998, c. 19, s. 73 (2).
CANCELLED CONDO PROJECTS AND LEGAL COUNSEL S RESPONSIBILITIES Section 13 of the Tarion Addendum The Vendor and Purchaser agree that they shall not include any provision in the Purchase Agreement or any amendment to the Purchase Agreement or any other document .that derogates from, conflicts with or is inconsistent with the provisions of this Addendum, except where this Addendum expressly permits the parties to agree or consent to an alternative arrangement. The provisions of this Addendum prevail over any such provision. Tarion Warranty Corporation, Condominium Form (Tentative Occupancy Date), online: <https://www.tarion.com/sites/default/files/inline- files/BB47R_Condominium-Tentative-Occupancy-Date-Addendum_2.pdf> at Section 13.
NEW CHANGES IMPOSED BY TARION January 1, 2020 the new mandatory information sheet emphasizing the risk that pre-construction condos may never be completed; the early termination conditions applicable to the project; information on the status of the development (e.g., formal zoning approval, relevant approval authority and the date construction is to commence); information on any title restrictions that may prevent the project from moving forward; the statutory 10-day cooling down period under the Condominium Act; and the date of anticipated occupancy.
NEW CHANGES IMPOSED BY TARION Tarion s Ontario Builder Directory updated to provide more information (i.e. status of project, number of units, the name of the vendor/builder, builder s history of cancelled condo projects or convictions under ONHWPA)
