What is Considered a 'Material Change' to a Purchase Agreement?
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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 The appellant brought an action for the return of her deposit and a determination that she had rightfully rescinded the APS, and the respondent claimed damages for breach of the APS.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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