Real Estate

Condo developers’ interests still trump owners

By Rob Lamberti, Contributor

The interests of condominium developers continue to supersede those of buyers although legislation offering more consumer protection waits to be proclaimed, Toronto condominium lawyer Audrey Loeb tells Law Times.

Indeed, a decision by the Ontario Court of Appeal overturned a breakthrough 1999 decision for condo owners that "set a minimum standard of disclosure that has governed developer disclosure until recently," she says.

"While we wait, buyers continue to find themselves in condominium communities where the interests of the developers take precedence over those of the purchasers," Loeb says, adding recent amendments to legislation deal with issues in the industry, but they have not been proclaimed.

She says condominium law experts in Ontario have been urging the province to provide a requirement of good faith in developer disclosure obligations.

"The development industry has resisted this," says Loeb, a partner with Shibley Righton LLP. "We do not understand why franchise legislation in Ontario offers much better protection to franchisees than the Condominium Act does to homebuyers. The franchise legislation requires good-faith disclosure on the part of franchisors with significant repercussions for failure to comply."

She says in the 1999 case, a townhouse condo corporation and its developer argued over the adequacy of disclosure about the potential use of a piece of adjoining parkland. The corporation argued disclosure wasn't made in good faith.

The developer revealed only that the parkland might be repurposed, but that information was buried in the document, she adds.

Loeb says disclosure requirements were established in the early days of the condo industry when development was relatively simpler than the structures and projects now being built.

"Disclosure was straightforward and not onerous," she tells the online legal news outlet. "Things have changed. Condominium projects have become part of very complex legal arrangements with many moving parts."

However, she cites two recent, separate cases — both now under appeal — that stress the Condominium Act disclosure requirements during the sale of units is considered akin to consumer protection legislation. Both condo corporations were successful in the Ontario Superior Court in seeking "relief against onerous agreements to which they were bound on the grounds that they were not adequately disclosed to purchasers and, as a result, oppressive," Loeb says.

In one ruling, a condo corporation sought to renegotiate an agreement that had given the developer sole authority over decision-making involving shared facilities.

"Although the entire agreement was appended to the disclosure statement, the court found that the consequences to the condominium of the developer retaining sole control over all the shared facilities was not disclosed and the agreement to be oppressive," Loeb says.

"The remedies when finding oppression are equitable and the court acceded to the corporation's request to not strike down the agreements," she says. "Instead it asked the court to require that the parties renegotiate the terms."

In the other case, the condominium corporation sought relief from deals where it was required to buy an HVAC system, unsold parking spots and locker units, the article says.

Loeb says the court heard the initial disclosure that HVAC equipment would be inside residential units and leased from a third party but instead sold the hardware — placed on balconies — to the condominium corporation for $2.2 million. Expert evidence determined the equipment was really valued at $525,000.

The unsold parking and locker units were sold to the condo corporation for $1,026,375, but Loeb notes expert evidence placed the value at $73,000. A land transfer tax paid on the parking and lockers was charged back to the condo.

"The court found that a developer cannot put expenses off into the second year and not disclose the expense," she says.

Loeb tell, the courts’ rulings on the legal costs is also interesting.

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