Category: Real Estate Law

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Commercial Leases Litigation Real Estate Law

Anticipatory Breach of Contract & Limitation Periods

We have previously provided a general overview with respect to limitation periods in litigation. It is well established that the general limitation period extends for two years once a claim has been discovered, but when does the limitation period begin to run on a claim for anticipatory breach of contract? When does the clock start to run if there is no breach, but the Plaintiff has been made aware that a breach is imminent? This question was addressed by an Ontario court in a recent decision.

Changes to Commercial Property Impacted Plaintiff’s Business

The Plaintiff owned a commercial car wash operation in London, Ontario, and leased the property where the car wash was located from the Defendant. In addition to the car wash, the property contained other businesses including a gas station, a convenience store and a coin-operated car wash facility (this was separate from the Plaintiff’s business, which provided an automatic wash as well as interior car detailing services). The Defendant began to redevelop the land surrounding the car wash and demolished the gas bar, coin-op car wash and the convenience store. The Defendant also obtained site plan approval from the city to construct commercial buildings on the property to house various retail businesses.

The construction of one building on the property, as well as the addition of garbage dumpsters in front of the car wash, had reduced the visibility of the car wash from the main road.

The lease between the Plaintiff and the Defendant contained the following clause:

… the Lessor shall have the right to alter or modify the parking lot or the means of ingress or egress thereto provided that such alteration or modification shall not impede or limit any access to or from the leased premises nor will it divide or separate in any way the leased premises from any part of the Lessor’s lands, and further provided that any such alteration or modification shall not affect the marketability or potential marketability of the Lessee’s product from the leased premises in any adverse way; [Emphasis added]

The Plaintiff alleged that there had been a drop in the number of cars at the car wash, and largely attributed the change to the modifications made by the Defendant. In particular, the Plaintiff said that the reduced visibility of the car wash from the road had negatively impacted the number of cars the business had been servicing in the years following the changes.

Plaintiff Discovered the Potential Breach More Than 2 Years Before Bringing Action

The Plaintiff was made aware of the Defendant’s plan to construct a new building on the property in 2013. In response, the Plaintiff wrote a letter to the Defendant saying that this would block visibility of the car wash from the road and requested that the plans for the building be abandoned. The Defendant responded in early 2014, saying that they would be going ahead with their plans for construction. In addition to the planned buildings, the Defendant installed two garbage dumpsters in front of the entrance to the car wash in 2014 and constructed a concrete pad adjacent to the car wash in the same year. This also had the effect of reducing the visibility of the car wash from the main road.

The Plaintiff sought damages for the reduction in car count at their business owing to the loss of visibility and the Defendant defended on the grounds that the action was statute-barred. The discovery of the planned construction occurred in 2013, and the other incidents had taken place throughout 2014. The Plaintiff brought the action in February of 2016. The Defendant claimed this was outside of the 2-year limitation period.

The Defendant specifically claimed that the letter from the Defendant’s lawyer, dated January of 2014, constituted an anticipatory breach of the commercial lease and therefore the clock started to run on that date. However, the court held that:

[A] claim is not necessarily discovered when a party commits an anticipatory breach of contract as the innocent party may choose to treat the contract at an end and sue for damages, or it may treat the contract as subsisting and continue to press for performance of the contract and bring an action once the promised performance fails to materialize

In the case at hand, the Plaintiff chose to treat the contract as not yet breached and continued to perform its duties under the contract while pressing the Defendant to abandon the plans that would negatively impact the Plaintiff’s business. Given that, the complaint didn’t arise until the Plaintiff had experienced the reduction in car count, somewhere within the two-year limitation period.

This case should be of some comfort to parties concerned that advance knowledge of a potential breach may preclude them from seeking damages in court. However, it is always best to speak with an experienced lawyer as soon as possible to properly ascertain your position with respect to litigation and ensure that you are fully aware of any time limitations you may face when it comes to commencing an action. While limitation periods may seem cut and dry, as evidenced by this case, they can actually be quite complex depending on the specific circumstances involved.

At Baker & Company, our Toronto commercial real estate and litigation lawyers take the time to meet with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential.  We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of transactions, or through litigation. Call us at 416-777-0100 or contact us online for a consultation.

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Real Estate Law Residential Real Estate

Failure to Close May be a Costly Risk

In today’s competitive housing market, it is becoming more and more common for purchasers to enter into an Agreement of Purchase and Sale with no conditions. Where it was once standard for a purchaser to insist on a home inspection and financial approval before finalizing a deal, the fierce competition means that people may be willing to take a bigger risk in order to secure the home of their dreams.

However, this can be a big risk that may result in significant cost to the purchaser should they be unable to secure financing in time before the closing, as illustrated in a recent decision of the Ontario Court of Appeal.

Financing Troubles After the Fact

In the case at hand, the vendors listed their home for $1,398,000. The market was especially active at this point in time and there were multiple offers. The vendors ultimately accepted the purchaser’s offer of $1,555,000. The closing date was set for two months later. In the meantime, the vendors agreed to purchase a new home closing a month before their sale, and took out bridge financing to cover the gap in between the transactions.

Leading up to closing, the purchaser’s lawyer was in communication with the vendor’s lawyer. The vendors’ lawyer sent a closing package to the purchaser’s lawyer 10 days before closing. Then just two days before the deal was set to be finalized, the vendor’s lawyer was informed that a new lawyer had taken over in representing the purchaser and asked for an extension on the closing date by approximately a week. A few days later, the purchaser requested a further extension for another three days.

The vendors agreed to the extension, provided the purchaser agreed to pay the additional interest on their mortgage, line of credit and bridge loan. the purchaser agreed. On the new closing date, the purchaser’s lawyer advised that she did not yet have mortgage instructions from a financial institution. Later that day, she followed up to let the vendors’ lawyer know that the purchaser had ceased communication with her.

Meanwhile, the purchaser applied for a mortgage with two financial institutions and was denied. He informed his real estate agent that he would not be able to purchase the home.

When the transaction did not close, the vendors re-listed the home at the original asking price. Nearly two weeks later, their lawyer was contacted by a new lawyer for the purchaser, saying he had received approval on a mortgage and sought a 10% reduction in the price of the home. They responded with a proposal to resolve the matter and did not receive a reply. The vendors ended up selling their home for considerably less than the original sale – a difference of $275,000. The vendors brought an action against the original purchaser for damages.

The Deposit & The Damages – One and the Same?

The purchaser claimed that he had never needed financing approval to purchase the home because he had intended to pay with cash. He further argued that the vendors had not fully tendered for closing and had further failed to mitigate their damages by not accepting his offer to purchase the home at a reduced price.

The motions judge held that the purchaser could not rely on the defence of tender when he was clearly not in a position to close the transaction. Further, while it had been open to the vendors to accept the purchaser’s offer to close and pay a reduced price, they could not be obligated to do so. Further, the judge found that the vendors had taken reasonable steps to mitigate by not accepting the first offer once the home was re-listed and instead waited for the best possible price. The judge awarded the vendors damages for the difference in the purchase price, as well as costs of re-staging the home, carrying costs and interest, totalling over $300,000. Further, the judge held that the purchaser had forfeited his deposit, which would not be credited toward the damages award. The purchaser appealed.

The Court of Appeal dismissed the purchaser’s appeal except with respect to the issue of the deposit. The purchaser argued that the deposit should be credited towards the total amount of damages, and the Court of Appeal agreed, finding:

While the agreement only specifically calls for the deposit to be credited to the purchase price on completion of the agreement, the measure of damages is based on the difference between the purchase price and the lesser amount that the property sold for after the purchaser’s default. In other words, it is based on the vendor receiving the purchase price that was bargained for. One can infer that the intent of the parties was that the deposit be applied to the purchase price whether received on completion or as damages…The motion judge in the instant appeal erred in law by holding that the deposit be forfeited and not credited to the vendor’s damages.

Exercise Caution Before Signing an Agreement

As demonstrated above, failing to close on an Agreement of Purchase and Sale can have hefty financial consequences for the party in breach. You may be held liable for interests and carrying costs, but there is also the consideration of the purchase price. The housing market can fluctuate quite significantly, and as in this case, result in drastically different purchase prices just months apart. While the temptation to enter into an Agreement condition-free is strong when the market is hot, purchasers are advised to complete their due diligence in advance and know their financial situation before they begin a house search in earnest.

At Baker & Company in Toronto, our real estate lawyers take the time to meet with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential.  We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of transactions, or through litigation. Call us at 416-777-0100or contact us online for a consultation.

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Commercial Leases Real Estate Law

Tenants in Default & Relief for Forfeiture

Can a party in default of a commercial lease successfully claim relief for forfeiture? This was the question recently considered by the Ontario Court of Appeal (ONCA) when a tenant who had been found in default of its commercial lease sought to exercise its right to renew and was refused by the landlord.

Dispute Over Terms

The plaintiff in the case was a commercial tenant renting space in a cold storage facility owned by the defendant landlord. The lease was for a term of five years and contained a clause allowing the landlord to pass on certain increases in energy costs to the tenant. The lease granted the tenant the right to renewal, providing the tenant was not in default of any terms of the lease at the time of renewal.

Approximately three years after the start of the lease, an issue arose around the term with respect to the increased energy costs. The landlord took the position that it was entitled to additional payment under the clause, while the tenant refused. The tenant continued to make its rent payments each month but refused to pay the additional fees charged for the increased energy costs. A few months into this dispute, the landlord informed the tenant that it considered the tenant’s failure to pay these costs a default under the terms of the lease. The landlord reiterated its position two more times and notified the tenant that it would not be permitted to renew the lease if it failed to pay the energy costs.

The Initial Application

A few months later, the tenant informed the landlord that it wished to exercise its option to renew. The landlord rejected this, owing to the tenant’s default. Five years after the start of the original lease, the tenant brought an application seeking an interpretation of the increased energy clause of the lease. The tenant sought the following relief:

  1. a declaration that it was not in default under the terms of the lease and that it had properly exercised the option to renew; and
  2. if the tenant was found in default, then a declaration that it was entitled to relief from forfeiture.

The application judge held that the tenant was, in fact, in default under the terms of the lease and as such, was not entitled to exercise its option to renew. With respect to relief for forfeiture, the judge looked to the reasoning in 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., and determined that the court’s equitable jurisdiction to grant relief for forfeiture was limited in cases where there is a failure to perform a condition precedent to a right, as in the case at hand. The court held that the tenant had failed to complete its due diligence with respect to securing the right to renew, and therefore was not entitled to relief for forfeiture.

The Appeal

The tenant appealed the application’s judge finding with respect to forfeiture. The tenant argued that the judge had applied the wrong test when determining the court’s discretion to grant relief for forfeiture and that the test from Saskatchewan River Bungalows Ltd v. Maritime Life Assurance Company should have been used instead.

The ONCA dismissed the appeal, finding that the applications judge had used the appropriate test. There was no question the tenant was in default of the lease. The court stated:

[W]here preconditions to the renewal of a lease are in issue, the jurisdiction to grant relief from forfeiture is narrower than the three-pronged test applied in cases such as Saskatchewan River Bungalows. With respect to the renewal of a lease, a precondition for the exercise of any such equitable discretion is that the tenant has made diligent efforts to comply with the terms of the lease which are unavailing through no default of his or her own[.]

The tenant in this case would have been better off paying the increased energy costs and maintaining its good standing under the lease. It could have then sought a return of those funds had the court found that the clause did not require they pay additional funds to the landlord. By refusing to pay, the tenant found itself in default with no options for relief, and without a place to operate its business.

At Baker & Company in Toronto, our real estate lawyers take the time to meet with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential.  We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of transactions, or through litigation. Call us at 416-777-0100or contact us online for a consultation.

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Commercial Real Estate Real Estate Law Residential Real Estate

Provincial Government Considering Private Lender Registry

The real estate market in Ontario, particularly in the Greater Toronto Area, seems to be ever-expanding, and with it, the demand for financing from purchasers. The private lending market, once a source for a small subset of Ontario mortgages, has also been growing. In 2017, it made up 8%, or approximately $10.6 billion, of Ontario’s mortgage transactions. This was up from $6 billion just three years prior. Due to the increase in private lending, the Ontario government is now considering a provincial registry for these lenders, in order to better regulate the industry, and better understand the level of risk in the private lending sector.

Lack of Information and Oversight

The recommendation for the registry comes from a report released at the end of September by the Ministry of Finance, which discussed concerns with respect to the lack of oversight and insight into the growing market.

The private lending market has gained traction in the last couple of years due to the implementation of stress tests for uninsured mortgages in 2018. Private lenders have become more popular with those facing financial difficulty, who may not qualify for a traditional bank-funded loan. The report indicates the need for better oversight into this industry, in a way that will enable the province to gain a much-needed glimpse into the role private lenders play in the provincial economy and housing market.

Money Laundering Concerns

There is also a growing concern that private lending could be a potential hotspot for money laundering, given similar issues found through recent investigations in British Columbia. The report encourages collaboration between the Financial Services Regulatory Authority of Ontario (FSRA) and the Ministry in order to create a registration system that would be mandatory for lenders who meet a certain threshold, and voluntary for those who don’t.

The report also suggests that the FSRA work with the Law Society of Ontario to create an exchange of information with respect to private lending facilitated by Ontario lawyers. The creators of the report would also like to see a requirement for lenders to periodically report their activities to a regulatory body.

Potential for Implementation

The provincial government is currently weighing the suggestions contained in the report, and considering implementing some of the recommendations as soon as next year. It will be interesting to see what if anything comes from this report. Currently, private lenders are often the only option for people who are already strained financially but are also often charging much higher interest rates than traditional regulated lenders. As a result, the private mortgage industry sees the highest rate of default across all mortgage lenders. Perhaps regulation could help to narrow this gap somewhat and help lessen the consumer’s risk when it comes to unregulated mortgage lenders. This remains to be seen.

Seek Experienced Legal Advice

Any person seeking to obtain a mortgage, whether through a regulated entity or a private lender, should seek the advice of a qualified real estate lawyer. Your lawyer can review all associated documentation with you and ensure that you are aware of your obligations before entering into a commitment. Defaulting on a mortgage is a demoralizing process that can affect your financial standing for years afterward. It’s best to have a full understanding of what you are committing to before signing.

At Baker & Company in Toronto, our real estate lawyers take the time to meet with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential.  We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of transactions, or through litigation. Call us at 416-777-0100or contact us online for a consultation.

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Real Estate Law Residential Real Estate

What Constitutes a ‘Material Change’ to an Agreement of Purchase and Sale?

A recent decision of the Ontario Court of Appeal (ONCA) was faced with determining whether a condominium corporation’s failure to begin construction on a parkette and entry gates by the closing date on a unit in the development constituted a ‘material change’ to the Agreement of Purchase and Sale (APS).

The Background Facts

The appellant had purchased a new construction condominium for $1.6 million, putting down a deposit of $133,000 at the time of signing the APS. The closing date was set for December 13, 2017. A month before the closing date, the builder notified the appellant’s lawyer that the condominium unit was ready for occupancy and that the transaction would be closing as planned.

The appellant’s lawyer requested an extension of the closing date by a month, as the appellant had been unable to secure a mortgage for the balance of the purchase price. The respondent agreed to an extension of one week. On the new closing date, the appellant’s lawyer contacted the respondent and requested a further extension of one day, to allow the appellant “to investigate an issue related to the property”. The respondent consented.

The following day, the appellant’s lawyer contacted the respondent again to say that, contrary to the Disclosure Statement, the construction of a parkette and exit and entry gates had not yet been started. As a result, the appellant wished to extend the closing until those common elements had been completed. The lawyer further stated that their client reserved the right to rescind the APS completely if the respondent no longer planned to construct those elements, pursuant to s. 74 of the Condominium Act (the “Act”). The respondent replied by saying that the appellant had failed to close the transaction and that the respondent was terminating the APS and retaining the deposit.

The respondent later sold the unit for $1.3 million to another purchaser, $300,000 less than the amount in the original APS. The appellant brought an action for the return of her deposit and a determination that she had rightfully rescinded the APS, and the respondent claimed damages for breach of the APS.

Lower level decision

In the original decision, the trial judge considered the appellant’s argument that the respondent’s failure to begin construction of the parkette and entry/exit gates by the date of closing amounted to a ‘material change’ of the APS. In doing so, the court looked at the definition of ‘material change’ under s. 74(2) of the Condominium Act:

[A] change or series of changes that a reasonable purchaser, on an objective basis, would have regarded collectively as sufficiently important to the decision to purchase a unit or proposed unit in the corporation that it is likely that the purchaser would not have entered into the agreement of purchase and sale for the unit or the proposed unit or would have exercised the right to rescind such an agreement of purchase and sale under section s. 73, if the disclosure statement had contained the change or series of changes, but does not include,

…

[A] change in the schedule of the proposed commencement and completion dates for the amenities of which construction had not been completed as of the date on which the disclosure statement was made.

The court went on to say:

The test for what is a “material change” provides some guidance as to what the legislature considered to be fundamental to an agreement of purchase and sale of a condominium such that if that change occurred, the Purchaser was entitled to end the agreement. The legislature did not consider a change in the construction schedule for amenities to be a material change.

Ultimately, the court found that the issues relied upon by the appellant were not sufficient to rescind the APS, and dismissed the appellant’s action, finding in favour of the respondent. The appellant then appealed the decision.

The Court of Appeal

The Court of Appeal (ONCA) found no fault in the original decision. With respect to s. 74(2) of the Act, the ONCA affirmed the lower court’s interpretation. The appellant further argued that the lower court had erred in characterizing the parkette and gates as ‘amenities’ rather than essential features of the community. The ONCA disagreed, citing a clause of the original APS, which read:

In any event, the Purchaser acknowledges that failure to complete other units within the Condominium in which the Unit is located, or the common elements on or before the Occupancy Date shall not be deemed to be a failure to complete the unit.

Ultimately, this case demonstrates that purchasers of new construction real estate must exercise extreme care when seeking to rescind an APS, or considering the option of not closing on the set date. The financial ramifications can be quite significant. If considering such actions, it would be prudent to seek advice from a knowledgable lawyer well in advance fo the closing date in order to review all potential options.

At Baker & Company in Toronto, our real estate lawyers take the time to meet with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential.  We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of transactions, or through litigation. Call us at 416-777-0100 or contact us online for a consultation.

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Real Estate Law Residential Real Estate Wills & Estates

Severing Joint Tenancy Via the ‘Course of Dealings’

It is taken for granted that, if a home is owned jointly, the full interest in the home will pass to one party upon the death of the other, by right of survivorship. While it has always been possible to sever a joint tenancy by mutual agreement or unilaterally (typically by one owner registering a deed to themselves as a tenant in common), there is a rarely-used third method, referred to as the ‘course of dealings’ rule. A recent decision from the Ontario Superior Court of Justice demonstrates how this method of severing joint tenancy may create a greater degree of uncertainty in the right of survivorship.

Joint Tenants at Time of Death

A man and his second wife purchased a home together as joint tenants in 2004. The husband had children from his previous marriage, two daughters and a son. The husband executed a will in 2015. In the will, the husband effectively creates a life estate for his wife with respect to the home, in which he directs the estate trustee (ET) to allow her to remain living in the home until her death, or until one of several other enumerated events occurs. Upon the termination of the life estate, the property is to be sold, with the husband’s share forming a part of the residue of his estate. The husband’s two daughters were the residual beneficiaries of his estate.

Two and a half years after their father passed away, the daughters commenced an application seeking an order declaring that they were entitled as residuary beneficiaries to a 1/2 interest in the property. They further sought an order directing the ET to sell the home and disperse the proceeds accordingly.

In response, the wife registered a Survivorship Application on title to the property and commenced her own application seeking a declaration that she was the sole and beneficial owner of the home.

Severing Joint Tenancy

The court had to first determine whether the joint tenancy ownership had been severed in some way before the husband’s death. A 2012 decision of the Ontario Court of Appeal endorsed three methods for severing joint tenancy:

  1. By unilaterally acting on one’s own share, such as selling or encumbering it (typically an owner will register a deed to him or herself);
  2. By mutual agreement; or
  3. In the course of dealings in which the parties demonstrate an intention to own the property as tenants in common.

The parties to the case at hand agreed that if the joint tenancy had been severed, it would have been by way of the third method, via the “course of dealings”. In order to make this determination, the court was required to consider the totality of the evidence.

The court considered three pieces of evidence in particular:

  1. The will – there was a clear intention on the husband’s part to create a life estate that is inconsistent with joint tenancy. The common law has established that joint tenancy cannot be severed by testamentary disposition alone. However, if the wife knew about the provision, it could help to establish that both parties contemplated their ownership as tenants in common.
  2. Recorded conversation – one of the daughters recorded a conversation between the wife and her husband while in the hospital. While the court could not determine whether the recording had been made surreptitiously, the evidence was deemed to be admissible.  In the recording, the wife could be heard acknowledging the daughter’s share in the home and her life estate under the will. She also appeared to take credit for the terms of the will, saying that had she not insisted the husband sign it, his daughters would not be entitled to a half interest in the home.
  3. An affidavit from a family friend – a long-time family friend of the husband swore an affidavit which stated that she had met with the couple prior to the husband’s death and they discussed his will and his intentions for his estate. The friend said he had asked her to act as an alternate ET, and had mentioned that he intended for his daughter’s to eventually receive his share in the matrimonial home. The affidavit was hearsay, and not sufficient evidence in an of itself, however, it did serve to corroborate the contents of the will and the recorded hospital conversation.

The Court’s Findings

The court found that both the terms of the will and the recorded conversation established that the parties had both intended to treat their ownership of the home as that of tenants in common. The affidavit of the family friend corroborated this. As a result, the court held that, in the course of dealings, the husband and wife had successfully severed their joint tenancy.

The court dismissed the daughter’s application to order the ET to sell the home. The will was very clear about establishing a life estate for the wife and the daughters had no right to demand their inheritance prior to the time contemplated in the will. If there was a breach of the terms of the life estate, it was entirely up to the ET to make that call. The daughters did not hold a legal interest in the land until the life estate was terminated.

What Does This Mean for the Future of Joint Tenancy Ownership?

This case demonstrates that property owners cannot solely rely on the fact that title to their home is held in joint tenancy in order to ensure a right of survivorship. While it is a key factor, parties should also be cautious about how they discuss their intentions with others, and how they structure their estate. Any apparent deviance from an intention to maintain the joint tenancy may be sufficient to extinguish it in court. When drafting any legal documentation, including an estate plan, a will or a domestic agreement that addresses ownership of a jointly-held property, seek the advice of a skilled and knowledgable lawyer to ensure that your intentions are made clear.

At Baker & Company, our experienced Toronto lawyers can help you ensure that your property ownership structure and estate plan accurately reflect your intentions and future plans. We have extensive experience and expertise in providing clients with estate planning and family law advice that contemplates real estate interests, both simple and complex. Call us at 416-777-0100 or contact us online for a consultation.

Categories
Property Disputes Real Estate Law Residential Real Estate

Condominium Corporation Not Permitted to Reopen Approval Process for Structural Changes

A home renovation can be a long and drawn-out process; one that causes great inconvenience to a homeowner and may require extensive permissions before it can even begin. Anyone who undertakes a major renovation after completing the due diligence to obtain the necessary permits would be justifiably surprised and upset if said authorization was revoked after the work had been completed. That is just what occurred in a conflict that was recently decided by the Ontario Superior Court between condominium owners and the condominium corporation. The dispute centred around the lack of an agreement under s. 98 of the Condominium Act (the “Act”).

What is a s. 98 Agreement?

Before looking at the case itself, it is helpful to review the purpose of s. 98 of the Act. This section requires that an owner enter into an agreement with the condominium corporation before making any changes that affect the common elements of a condominium. If the changes are approved, the corporation will enter into an agreement with the owner(s) with the primary purpose of setting out the following terms:

  • To apportion the cost of the proposed change(s) between the owner(s) and the corporation;
  • To set out the maintenance, repair, and insurance obligations with respect to the proposed change(s).

Generally, once an agreement is executed, it will be registered on title for the property.

Background of the Case

The applicants in the case at hand were the owners of one unit in a twenty-unit condominium in Muskoka. Soon after purchasing the unit, the applicant husband was appointed to the Board of Directors (the “Board”), a role that he filled for three years. At one point the applicants expressed an interest in buying another unit in the building in order to accommodate more visitors, and the owners of the unit next door to theirs advised them that they were planning to sell. Before committing to purchase the unit, the applicants submitted a proposal to the Board seeking approval to create an opening between the two units in order to create one large condominium. The changes would affect a common element in the building, being the shared wall between the two units.

At the time of the proposal, the Board consisted of four members, one being the applicant husband and another being the owner of the unit next door to the applicants. All four of the Board members were present for the meeting, along with the property manager. However, the owner of the unit the applicant wanted to purchase declared a conflict of interest and excused himself for the relevant portion of the meeting. The applicant remained for the entire meeting but abstained from voting on his proposal. The proposal was approved, leading the applicants to then purchase the condominium from their neighbour. At the meeting, those present had discussed the need for a formal agreement under s. 98 of the Act, but one was never put into place. At the time, the condominium corporation was in the habit of approving changes to common elements without a formal s. 98 agreement.

The applicants completed extensive renovations, opening the connecting wall between the units, and removing the kitchen in one unit to create a more cohesive single condominium. After the changes had been completed, a new Board president was elected. The new president took issue with the lack of a s. 98 agreement with respect to the applicants’ renovations, and all other changes that had been made by other condo owners. It was decided that all owners who had made changes affecting common elements would be required to enter into retroactive agreements. The applicants were provided with an agreement to sign, which contained a clause not found in the agreements received by other owners. It stated as follows:

The Improvements shall be removed by the Unit Owner, at the Unit Owner’s sole expense, before the Unit is sold.  Specifically, the Unit shall be restored to the condition before the Improvements were made, including but not limited to the reinstallation of the common element demising wall within the Unit and any changes that were made by the Unit Owner related thereto.  

The Court’s Ruling

The applicants brought a claim against the corporation, saying that the clause overreached by requiring the restoration of changes unrelated to the common elements. They claimed that the corporation’s behaviour was oppressive and unfairly prejudicial in light of the fact that the changes had already been approved and completed, and the agreements provided to the other owners did not contain a similar clause. The corporation responded saying that the permission previously granted was invalid due to the applicant’s conflict of interest, which resulted in a non-quorum at the meeting, and cited the lack of a s. 98 agreement to further invalidate the approval.

The court found in favour of the applicants, reasoning:

Board approval was sufficient and was given.  [The applicant] did not have a conflict because the proposal was not material to the Condominium.  There was therefore a quorum.  The approval is not problematic as a result of these issues. I therefore conclude that there was an effective Board approval given for the structural change made by the applicants.  The relief sought by the Condominium, which assumes that it can begin the approval process again, is therefore inappropriate.

The court awarded the applicants $10,000 in general damages due to the corporation’s oppressive and unfair conduct. The court did agree that a s. 98 agreement was necessary but ordered the overreaching language in the oppressive clause be removed. The applicants will be required to restore the common wall prior to selling either unit, but would not be required to say, reinstall a kitchen in the second unit. The changes unrelated to the wall would not be covered by a s. 98 agreement as they are not common elements. The applicants would be under no obligation to restore them since restoration was not contemplated at the time approval was granted.

This case should be a lesson to condominium boards regarding the importance of putting a s. 98 agreement into place from the start and setting out all expectations with respect to changes affecting any common elements. A corporation will likely be prevented from placing an unfair onus on condominium owners after the fact if that onus is deemed to be oppressive or unfair.

At Baker & Company in Toronto, we take the time to meet with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential.  We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of transactions, or through litigation. Call us at 416-777-0100 or contact us online for a consultation.