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:
- Finding that the Notice of Rescission was not valid;
- Finding that the Buyer anticipatorily breached the Agreement, which allowed the Builder to terminate it; and
- 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.
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