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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 The appellant brought an action for the return of her deposit and a determination that she had rightfully rescinded the APS, and the respondent claimed damages for breach of the APS.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.

Does a Wife’s Failure to Work After Divorce Constitute a Material Change?

Background of the Case

The couple had married in 1968 and separated in 1985. At the time of their divorce, the husband was a successful dentist, earning between $250,000 and $300,000 per year. The wife did not work outside of the home, other than some bookkeeping work for her husband’s dental practice during the marriage. Prior to the separation, the wife had successfully undergone treatment for breast cancer.

In 1991, the parties entered into a settlement agreement which formed part of their Divorce Judgment. As part of the settlement, the parties agreed that the husband would pay the wife spousal support in the amount of $4,000 per month for her lifetime.

The Superior Court of Justice Decision

In 2017, the husband brought a motion seeking a number of orders, including a variation of his spousal support obligations. At over 70 years of age, the husband had retired from his dental practice, and his income had changed significantly. In retirement, he earned approximately $65,000 per year, plus some additional income from an open investment. The husband’s motion argued that his support obligations should be terminated based on the material change to his income, as well as the fact that his former wife had failed to seek other employment in the many years since their divorce.

The husband argued that the wife had received a staggering amount of support over the years, especially given that they had been divorced longer than they had been married. In turn, the wife pointed to the 1991 settlement, asserting that her husband had agreed to pay the support for her lifetime, perhaps taking a gamble on her health prospects given her medical history.

The judge found that there had been two material changes to the circumstances, warranting a variation in the husband’s support obligations. The first of which being the change to the husband’s income post-retirement, and the second being the wife’s failure to seek other employment following the divorce:

The case law is clear that there is no “duty” on the wife to become self-sufficient. However, there is an obligation on her as a spousal support recipient to make reasonable efforts to contribute to her own support.

The judge ordered that the wife’s support entitlement be reduced from $4,000 per month to $1 per month.

The Ontario Court of Appeal

The wife appealed the decision, arguing that the original settlement agreement was not susceptible to amendment, as it had clearly stated the payments were to continue for her lifetime. The ONCA disagreed that the agreement could not be changed, but it did find that the original judge had erred in two ways:

In considering what constituted a “material change” in circumstances, and

In failing to give deference to the original agreement between the parties.

With respect to the material change argument, the ONCA did agree that the husband’s retirement and subsequent income reduction reflected a material change in circumstance. However, they disagreed that the same could be said about the wife’s failure to seek or secure employment in the intervening years since the divorce:

We disagree that the appellant’s failure to seek employment since 1991 constitutes a material change in circumstances. The clear wording of the divorce judgment was that spousal support would continue to death. The appellant was entitled to rely upon that judgment. The respondent waited far too long to raise the appellant’s decision not to seek gainful employment until an age when she was effectively precluded from correcting the situation.

What Does This Mean for Support Awards Going Forward?

This decision highlights the importance of contemplating long-range circumstances when designing and drafting a separation agreement. In the case at hand, the couple had not contemplated future changes in income, retirement, or any expectations that the wife to mitigate her own expenses. When entering into a separation agreement or divorce settlement, it is important to take all potential considerations into account in order to allow for future adjustments as circumstances may dictate. An experienced and skilled family law lawyer will be sure to point out relevant concerns in order to draft a document that allows for flexibility and reasonable amendments as needed in order to protect their client’s interests.

At Baker & Company, our Toronto family law lawyers are highly experienced in high-conflict divorce matters and support litigation. We are committed to making the process of legally addressing a family matter as clear and approachable as possible. Call us at 416-777-0100 or contact us online for a consultation.