Category: Property Disputes

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Property Disputes Residential Real Estate

Condo Buyer Loses Deposit In Dispute Over Purchase Agreement 

The case of Chen v. Brookfield Residential (Ontario) Limited illustrates how changing market conditions and unpredictable construction schedules can affect condominium developments, both for the purchaser and for the builder. 

In Chen, the Ontario Court of Appeal upheld a decision from the Superior Court of Justice, permitting a condominium builder (the “Builder”) to retain a deposit paid by a condominium buyer (the “Buyer”), after terminating the Agreement of Purchase and Sale due to imminent breach. 

Buyer requests cancellation of the Purchase and Sale Agreement due to changing market conditions

The Buyer had entered into an Agreement of Purchase and Sale with the Builder for a detached condominium with joint ownership of common elements. Common elements included a parkette as well as automated entry and exit gates.  

The Agreement of Purchase and Sale was signed on January 19, 2017. A significant change in market conditions in late 2017 resulted in a lower valuation for the property at the time of closing. 

The Buyer contacted the Builder on November 24, 2017, seeking a mutual release or postponement, stating “at this time, I cannot close the deal due to low appraisal value.” 

The Builder offered a short extension, but was advised that the Buyer was seeking a “cancellation of the deal.” 

Buyer submits a Notice of Rescission

On December 7, 2017, the Buyer provided what he called a “written notice of recession” (the “Notice of Rescission”) pursuant to section 74(6) of the Condominium Act. Designed to protect consumers, section 74(6) permits a purchaser to rescind an agreement of purchase and sale when there has been a “material change” to the agreement, by delivering a notice of rescission under section 74(7).

The Notice of Rescission claimed that the amenities promised in the Agreement of Purchase and Sale would not be completed at the time of the closing, notably, the parkette and entry and exit gates. On this basis, the Buyer claimed that there had been a material change that justified the rescission of the contract. 

Builder terminates Buyer’s Purchase and Sale Agreement due to anticipated breach

The same day the Builder received the Notice of Rescission, it advised the Buyer that it was terminating the Agreement of Purchase and Sale due to the Buyer’s anticipatory breach of the contract. As a result, the Buyer’s deposit was forfeited, and the Builder reserved its right to recover losses against the Buyer. 

Buyer initiates a claim against Builder for deposit and damages

On January 18, 2018, the Buyer issued a Statement of Claim, in which he sought the return of his deposit, as well as damages against the Builder. 

Builder counterclaims and seeks summary judgment for damages arising from Buyer’s contractual breach

The Builder defended the claim, and brought a counter-claim for damages against the Buyer. The Builder re-sold the property in October of 2018, at a lower price than what the Buyer had agreed to pay in 2017. 

Shortly thereafter, the Buyer withdrew his claim. 

The Builder brought a motion for summary judgment on its counterclaim for damages resulting from the Buyer’s failure to complete the Agreement of Purchase and Sale (i.e., the lower purchase price that resulted). 

The Buyer then sought to reinstate his original claim, which the Court allowed.

The Motion Judge dismissed the Buyer’s claims and permitted the Builder to retain the deposit. 

Buyer appeals to the Ontario Court of Appeal

The Buyer then appealed to the Ontario Court of Appeal, requesting the Court set aside the decision and return his deposit, plus interest. 

In the alternative, the Buyer asked the Court to amend his claim to include that the Builder breached the Agreement by re-selling the property and seeking relief from forfeiture. 

The Ontario Court of Appeal dismissed the Buyer’s appeal. 

The Buyer argued that the Motion Judge made three main errors:

  1. Finding that the Notice of Rescission was not valid; 
  2. Finding that the Buyer anticipatorily breached the Agreement, which allowed the Builder to terminate it; and
  3. Finding that the Builder could retain the deposit and seek damages.

The Ontario Court of Appeal rejected each of these arguments.  

Notice of Rescission was invalid; failure to complete certain amenities on time does not constitute a material change

The Ontario Court of Appeal found that the Motion Judge correctly concluded that the Notice of Recisions provided by the Buyer was invalid.  

The “material changes” identified in the Buyer’s Notice of Rescission do not fall under the definition of “material change” found within the Condominium Act. The Buyer’s Notice of Rescission claimed that the “material changes” were the failure to complete the parkette and the main entry and exit gates before closing. 

The Condominium Act, in section 74(2) defines material change as:  

“a change … that a reasonable purchaser, on an objective basis, would have regarded collectively as sufficiently important to the decision to purchase … that it is likely that the purchaser would not have entered into an agreement…”

The definition goes on to say that it 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.” 

Consistent with the Condominium Act, as well as with previous case law, the Ontario Court of Appeal held that the non-completion of the parkette and entry/exit gates was not a material change that would justify a Notice of Rescission. 

The Ontario Court of Appeal rejected the Buyer’s argument that a Notice of Rescission not delivered in good faith can still qualify as a valid notice. The Court noted that if this was accepted:

“this would create an absurd result by enabling purchasers to strategically use the rescission mechanism provided under the [Condominium] Act to side-step their otherwise valid contractual agreement, pressure vendors to negotiate releases or unjustifiably extend closing timelines. This could not have been the legislative intent.”

Notice of Rescission was an anticipatory breach of the purchase and sale agreement

Further, the Ontario Court of Appeal agreed with the Motion Judge that the Buyer’s notice of rescission, along with prior communications declaring his desire to “cancel” the Agreement, was an anticipatory breach of the contract. This entitled Brookfield to terminate the Agreement as well as claim damages.  

Builder entitled to retain the deposit and seek damages

Given that the Notice of Rescission was invalid and the Buyer anticipatorily breached the Agreement, the Ontario Court of Appeal upheld the Motion Judge’s decision that the Builder could retain the Buyer’s deposit and seek damages for the repudiation of the contract. 

Buyer not permitted to amend pleadings to seek damages for breach of contract or relief from forfeiture

The Buyer’s alternative claim that sought leave to amend his claim to include claims for breach of contract by the Builder (for selling the unit to a third party) and to seek relief from forfeiture were dismissed. 

The Court of Appeal held that these claims were not previously raised and it would not be in the interests of justice to allow them to be raised in the case at hand. Further, it seemed clear that these claims would be unlikely to succeed, as the Court commended that the Builder was obligated to mitigate its damages by re-selling the property once the Buyer communicated their anticipatory breach of the Agreement of Purchase and Sale. 

Contact Baker & Company in Toronto to speak with a knowledgeable real estate lawyer

At Baker & Company, our skilled real estate lawyers provide dynamic legal solutions and robust advice to clients on a variety of property disputes, including commercial real estate and title issues. We also represent clients in residential real estate issues, development projects, and leasing matters. To schedule a confidential consultation, contact us at 416-777-0100 or reach out online.

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Commercial Real Estate Property Disputes Real Estate Law

Innocent Purchasers Prevail in Power of Sale

When a mortgagor of a piece of real estate defaults on its payments, its mortgagee may initiate power of sale proceedings to recoup the debt it is owed. But what happens if the mortgagor arranges the sale of the property without the mortgagee being aware? This was the dilemma posed in the recent decision of the Ontario Court of Appeal in 2544176 Ontario Inc. v. 23947562 Ontario Inc.

The Mortgagor and Mortgagee sold the same property in separate transactions

In this case, one company (the Mortgagor) owned property that a mortgage had encumbered to the benefit of another company (the Mortgagee). The Mortgagee had purchased the property for about $5.4 million in October 2017. It financed its purchase with a mortgage of $3.79 million. Three years later, in November 2020, the Mortgagor had defaulted on the mortgage. The Mortgagee demanded payment. Eleven days after the Mortgagee’s demand, the Mortgagor entered into a conditional Agreement of Purchase and Sale to sell the property for $8.7 million without notifying the Mortgagee.

In December 2020, the Mortgagee began private power of sale proceedings. It served a notice of sale on the Mortgagor, who did not act during the 35-day standstill. As the closing date approached for the Agreement of Purchase and Sale entered into by the Mortgagor, it notified the Mortgagee in January 2021.

Mortgagee sold the property to third-party Purchaser with a new mortgage attached

The Mortgagee questioned the legitimacy of the sale and asked for a copy of the Agreement. The Mortgagor quickly gave this to them, but the Mortgagee failed to provide a default statement that the Mortgagor had requested. The day after, the Mortgagee listed the property for sale. However, because the Mortgagee had not provided the Mortgagor with a default statement, the Mortgagee’s enforcement rights were suspended as per section 22(3) of the Mortgages Act.

Days later, the Agreement of Purchase and Sale was finalized at a reduced price of $5.4 million. The sale was to close on March 31, 2021. The Mortgagor, again, did not inform the Mortgagee of the sale. Within a week, the Mortgagee entered into an Agreement of Purchase and Sale with a different Purchaser for $4.49 million. The Mortgagee assured the Purchaser on two occasions that they had complied with the legal requirements for a power of sale. The sale closed on March 2, 2021. The Purchaser granted a mortgage to a third-party lender for $4.3 million, with a second mortgage for $1 million going to the Mortgagee.

Section 22 of the Mortgages Act suspends enforcement rights if certain documents not shared with mortgagor on request

After title to the property was transferred to the Purchaser, the Mortgagor applied to have it set aside based on section 22 of the Mortgages Act. Section 22 reads:

Statement of arrears, expenses, etc.

22(2) The mortgagor may, by a notice in writing, require the mortgagee to furnish the mortgagor with a statement in writing,

(a) of the amount of the principal or interest with respect to which the mortgagor is in default; or

(b) of the nature of the default or the non-observance of the covenant, and of the amount of any expenses necessarily incurred by the mortgagee.

Idem

22(3) The mortgagee shall answer a notice given under subsection (2) within fifteen days after receiving it, and, if without reasonable excuse the mortgagee fails so to do or if the answer is incomplete or incorrect, any rights that the mortgagee may have to enforce the mortgage shall be suspended until the mortgagee has complied with subsection (2).

The judge at the initial hearing set aside the transfer

The Mortgagor had requested the Mortgagee produce the default statement, as outlined in section 22 of the Mortgages Act. Because the Mortgagee’s enforcement rights were suspended when the property was sold to the Purchaser, the application judge focused on whether the Mortgagee had transferred good title. The application judge believed himself to be bound by 1173928 Ontario Inc v. 1463096 Ontario Inc, which held that some sales are invalid when executed during a suspension of enforcement rights under section 22 of the Mortgages Act. He held that the purpose of the Mortgages Act was to:

“protect the mortgagees’ ability to take and enforce security to support lending. But it also imposes limits to protect mortgagors from the ‘well-known history of abuses of mortgage lenders,’ with s. 22 being added specifically to protect a mortgagor’s equity of redemption.”

The application judge determined that a breach of section 22 trumped any claims the Purchaser had under the Land Titles Act. The transfer of the title to the Purchaser was therefore set aside.

The Purchaser was an “innocent purchaser” protected by registration under the Land Titles Act

Upon appeal, the Court of Appeal sided with the Purchaser. Even though the Mortgagee’s enforcement rights were suspended when the transfer of title occurred, the Purchaser was an innocent purchaser with title registered under the Land Titles Act system. This is in line with the principles of the land titles system:

“The philosophy of a land titles system embodies three principles, namely, the mirror principle, where the register is a perfect mirror of the state of title; the curtain principle, which holds that a purchaser need not investigate the history of past dealings with the land, or search behind the title as depicted on the register; and the insurance principle, where the state guarantees the accuracy of the register and compensates any person who suffers loss as the result of an inaccuracy. These principles form the doctrine of indefeasibility of title and [are] the essence of the land titles system[.]”

It was the Purchaser seeking to enforce rights, not the Mortgagee

At no time was the Purchaser given notice that there may have been any defects in the power of sale process. In fact, the Mortgagee had informed the Purchaser of compliance with the power of sale process on two occasions.

The Court of Appeal stated that the application judge had incorrectly interpreted section 22 of the Mortgages Act as an exception to the mirror principle of the land titles system. As far as the Purchaser knew, they had obtained good title to the property.

Moreover, the fact that the Mortgagee’s enforcement rights were suspended does not mean their substantive rights had also been suspended. It merely could not enforce the mortgage until it complied with the Mortgagor’s request for the default statement. In this case, the only party seeking to enforce rights was the Purchaser. For that, the appeal was allowed. The Mortgagor’s application to set aside the transfer was dismissed.

Contact the Baker & Company in Toronto for Experienced Real Estate Legal Services

At Baker & Company, our skilled real estate lawyers provide dynamic legal solutions and robust advice to clients on a variety of property disputes, including commercial real estate and title issues. We also represent clients in residential real estate issues, development projects, and leasing matters. To schedule a confidential consultation, contact us at 416-777-0100 or reach out online.

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Property Disputes Real Estate Law Residential Real Estate

Purchaser Denied Certificate of Pending Litigation on Closing Date

A certificate of pending litigation (CPL) is a tool used to put others on notice that a property is the subject of ongoing litigation. With a CPL registered on title, others will be prohibited from dealing with the property by selling it, registering a mortgage, or refinancing. However, a recent decision showed that an Ontario court was reluctant to grant a purchaser with the right to register a CPL on the title of the property he was set to purchase later that same day.

Purchaser Seeks to Block Sale Until Provided With Warranty

The purchaser and sellers entered into an Agreement of Purchase and Sale (APS) for a residential home in Newmarket. The sellers were a father and two sons, who had renovated the existing home as well as constructed additions to the home themselves with the intention that the father would eventually reside in the home. The nature of the type or extent of the renovation and construction work was not made clear to the court. In July of 2018, the Tarion Warranty Corporation (“Tarion”) issued a letter to the owners that the house met the requirements for an “owner-built home”.

On January 5, 2020, the parties entered into an APS for the sale of the home. According to the terms, the closing was to take place “no later than 6:00 pm on February 5, 2020”. The plaintiff had the home inspected in mid-January and visited the home again on January 26th. He had identified some issues with the construction that he had requested to be addressed prior to closing. This led him and his wife to contemplate the idea of a warranty with respect to the construction to give them protection once they became the owners of the property.

On January 31st, the plaintiff’s lawyer inquired with the seller’s lawyer as to whether the property was warranted by Tarion. Later that day, they received a reply stating that the property had not been registered under the warranty program as the home had originally been intended for one of the sellers. The response also stated that the nature of the work had been a renovation rather than new construction and that the structure of the home had not been changed.

The day before closing, the sellers confirmed that no Tarion warranty would be provided and that no HST would be collected on the purchase (as would have been the case with a newly constructed home). The next day, the closing day, the plaintiff reached out to Tarion directly and inquired as to whether the house qualified for warranty protection. Tarion provided the following response:

If the home was never occupied then it should have been enrolled and the builder should have been registered with Tarion. A home is not required to be enrolled to be covered under the warranty but the determination has to be made by Tarion that the home is eligible for coverage. That usually involves investigation and that is always more than one day. From the information you have provided it would seem likely that the home is entitled to warranty coverage but I cannot confirm that to you right now. I will get back to you with more information as soon as possible.

The plaintiff then brought an emergency ex parte motion for leave to register a CPL against the property, halting the sale until the warranty issue was resolved.

What are the Requirements for a Certificate of Pending Litigation?

As set out in the decision Perruzza v. Spatone, 2010 ONSC 841, the requirements are as follows:

  • There must be a triable issue as to the interest in the land (note that it is not required that the plaintiff demonstrate a likelihood of success)
  • The party opposing the CPL is required to establish that there is no triable issue with respect to the interest in the land
  • A court must look at all relevant factors and use its discretion in determining whether a CPL should be granted. These factors can include:
    • whether the property is unique
    • the ease or difficulty in calculating damages
    • the intent of the parties in acquiring the land
    • the harm to each party if the CPL is granted

In considering the factors, the court denied the plaintiff’s request for a CPL in the case at hand. The court considered the following in reaching this decision:

  • The APS did not provide for a Tarion warranty and no representation was made with respect to the construction being Tarion-warranted. The plaintiff appeared to make this demand in the final hours.
  • While the plaintiff claimed to be “ready, willing and able” to close, the court found that he was unwilling unless his last-minute condition was met.
  • The plaintiff presented no evidence that the sellers would be unwilling to correct any defects after the date of closing, nor that they had insufficient financial assets should they be required to satisfy a future judgment.
  • The plaintiff brought the motion ex parte on the date of closing and had made no attempt to try to extend the closing first.
  • The potential harm to the defendants (sellers) should a CPL be granted outweighed any potential harm to the plaintiff.

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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Property Disputes Real Estate Law Residential Real Estate

Neighbours Enter Costly Litigation With No Successful Party

Before entering into litigation with a neighbour over a property dispute, it is vitally important to consider the chances for success, and what may be at stake if you lose. While property damage can no doubt be costly, litigation might be even more so, as was demonstrated by a recent decision of the Ontario Superior Court.

Neighbours Both Undergo Construction; One Suffers Water Damage

The parties involved owned homes on adjoining properties in Toronto, with the defendant’s property being uphill from the plaintiff’s land. Both parties undertook large construction projects on their respective homes. The plaintiff completed significant landscape construction which included the removal of hard surfaces in the backyard; the removal of concrete and asphalt surfaces in the laneway, the addition of a downspout to the second story balcony; and the installation of water management features, including installing a soak‑away pit, installing weeping tile tubes to drain water away from the foundation of the home to the soak-away pit; grading the backyard to slope away from the foundation of the house, and installing a new retaining wall.

The defendants, meanwhile, tore the existing house down on their property and had a new one constructed. The main changes to their property as a result of the new construction were:

  • a new garage was erected with a downspout directed toward the plaintiffs’ backyard;
  • a downspout was installed at the southwest corner of the house;
  • the grading, completed in May of 2016, was raised, resulting in an increased slope towards the plaintiffs’ house;
  • an underground pipe was installed, connecting to and draining water from the northeast and southeast corner downspouts of the house. Therefore, approximately half of the roof of the defendants’ house drains to the southwest downspout and toward the southeast corner of the plaintiffs’ house, and the other half of the roof of the defendants’ house drains to the front yard pipe and toward the plaintiffs’ driveway.

The plaintiffs began to notice water infiltrating their basement the same month that the defendants moved into their new home. After completing remedial work to stop the water from entering the basement, the plaintiff brought an action against the defendants for over $83,000 in damages including rent abatement for the basement tenant, remedial work to stop the leaking and additional costs associated with the damage to the basement. The defendants argued that they were at most 25% contributorily negligent for the damages to their neighbours’ property.

Expert Evidence on Both Sides

Each side retained an expert to plead their case, with the plaintiffs’ witness claiming that the damage would not have occurred but for the change in direction of the water flow from the defendants’ property. The defendants’ expert, on the other hand, claimed that even though there was increased water directed at the plaintiffs’ yard, the damage would not have occurred had the plaintiff’s not removed the hard surfaces in their yard when they completed the landscape construction.

Ultimately, the court found that the defendant’s expert evidence was preferable, concluding that:

I have not found liability on the part of anyone for anything…It is very unfortunate that these neighbours could not have found some way to work this out. Sadly, both sides have incurred significant legal costs and an even more significant amount of stress.

The Takeaway for Potential Litigants

Litigation is expensive, particularly when expert evidence is necessary, as was the case here. In addition to that, litigation can be extremely time-consuming. While it is important to seek remedies when one has been wronged in some way, it is equally important to ensure that an attempt is made to resolve issues in the most efficient way possible for everyone involved. The risks of doing otherwise may not be worth it in the end. Particularly when dealing with neighbours, finding an amicable and cost-effective resolution should always be the primary goal, with litigation being a last resort. An experienced lawyer can facilitate negotiations or a settlement that can help the parties to reach a resolution before stepping into a courtroom.

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 real estate disputes, or through litigation if necessary. Call us at 416-777-0100 or contact us online for a consultation.

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Litigation Property Disputes Real Estate Law Residential Real Estate

Suing a Condo Corporation for a Delay in Repairs

What a condominium corporation’s obligations to individual owners with respect to repairs? If an owner is unsatisfied with the response to repeated complaints, are they entitled to damages? When might a condo corporation’s failure to address an issue to an owner’s satisfaction be considered oppressive?

A recent decision of the Ontario Superior Court of Justice dealt with these questions, following a five-year battle between a condominium owner and the corporation.

A Five-Year Complaint History

The complainant had purchased a unit on the top floor of a 15-storey condominium building. Four years after moving in, she began to notice an excessively loud noise emanating from what sounded like an industrial fan or a motor on the roof of the building that disturbed her significantly. She made a verbal complaint to the condominium corporation in 2014 about the noise and when nothing was done, she made a further complaint in writing.

In 2019, five years after the owner’s initial complaint, the condominium corporation replaced two exhaust fans that were located above the owner’s unit. While the noise was still present, the owner said that this helped to reduce it significantly. The complainant brought an action against the condo corporation for failure to meet its statutory obligations with respect to repairs and maintenance, as well as oppression.

What Exactly Are a Condominium Corporation’s Obligations?

Under ss. 89 and 90 of the Ontario Condominium Act, a corporation does have a statutory obligation to repair and maintain the common elements of a condominium:

89 (1) Subject to sections 91 and 123, the corporation shall repair the units and common elements after damage.

90 (1) Subject to section 91, the corporation shall maintain the common elements and each owner shall maintain the owner’s unit.

However, the court, in this case, was careful to point out that the standard of a corporation’s obligation is one of reasonableness. In this case, there was no evidence that the complained-about noise had occurred as a result of a failure to properly repair or maintain the fans that were eventually replaced. Further, there was evidence that the corporation had ensured that the fans were inspected and maintained on a regular basis, going back to before the complaints began.

To address the noise complaints, the corporation brought in a third party company to inspect the fans, and no underlying cause of the noise was found. The same company inspected the fans again six months later, and then six months after that. On the last visit, the company installed new blower assemblies on the fans above the complainant’s unit in an attempt to make them quieter.

In 2018, the complainant hired an acoustic engineer to inspect the fans. His report showed that the fans were old, contained some rust and did not appear to have any acoustic or vibration insulation. However, he did not test the fans beyond inspecting them visually.

Three months later, the corporation retained mechanical engineers to inspect the fans. The engineers recommended some servicing to address a slight bearing noise on one fan and said the other was actually quieter than industry standards. The corporation carried out the recommended service but the complainant said that the sound persisted.

Given the fact that the fans were regularly inspected and maintained, and that the corporation had the fans inspected by engineers specifically to address the complaints, it could not be said that the corporation had violated a reasonable standard of repair and maintenance. Further, the complainant alleged that the noise had been due to a failure to maintain the fans, but also said the noise persisted even after the service recommended by mechanical engineers had taken place.

Was the Corporation’s Conduct Oppressive?

The complainant alleged that the corporation had ignored her complaints and failed to address a serious issue that was highly disruptive for five years. However, the court found that this ignored several steps the corporation took during that time frame to identify and address the noise she complained of. When the corporation eventually did order new fans, the complainant, through her lawyer, objected to the manufacturer’s installation instructions, based on the opinion of a consultant she had retained to review them. The installation was delayed for nearly nine months due to this objection, and eventually, the complainant allowed the corporation to proceed with the original instructions.

While the corporation’s response had some faults, including failing to respond in writing initially, and then providing a memo from the superintendent that was dismissive and sarcastic in tone, overall the response was reasonable in the given circumstances. On the issue of oppression, the court ultimately concluded that:

A unit owner seeking an oppression remedy under the Condominium Act must show both that there was a breach of their reasonable expectations and that those reasonable expectations were breached by conduct legitimately characterized as oppressive. I find that [the complainant] had a reasonable expectation that [the corporation] would comply with its statutory obligations to repair and maintain its common elements. I also find that [the corporation] acted reasonably and in compliance with these obligations.

While condominium owners certainly have a right to expect action from their condominium corporation when it comes to the repair and maintenance of the common elements, the standard of reasonableness must be kept in mind. Prior to initiating a potentially costly and time-consuming action in court, a complainant should carefully consider whether they will be able to establish that the corporation failed to meet the reasonableness standard under the given circumstances.

At Baker & Company in Toronto, our 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, disputes, or through the litigation process. Call us at 416-777-0100 or contact us online for a consultation.

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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.

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