Real Estate

Decision against condo developer important for consumers

By Kirsten McMahon, AdvocateDaily.com Managing Editor

A developer, who was found by the Ontario Superior Court to be behaving “unreasonably” in rejecting mortgage commitments for purchasers and then relying on that refusal to terminate their contracts and forfeiting their deposits, had no right to terminate the agreements, Toronto condominium lawyer Audrey Loeb tells The Globe and Mail.

The developer was trying to arrange for all the purchasers with whom it had agreements of purchase and sale to take their deposits back and walk away from their condominium purchases. The plaintiffs refused to accept the return of their deposit, maintaining that the developer had no right to cancel the project, the article states.

The Globe reports that the developer had acted in bad faith when it refused to accept the mortgage commitment papers delivered by the purchaser. This decision adds to the new precedents from the Ontario courts that could help tilt the balance of power toward new-home buyers and away from developers.

Justice Katherine Swinton found the buyers were not in default of an agreement to purchase a condo for $444,900 and that the developer failed to act in good faith when it claimed it could keep their $55,624 deposit, the Globe reports.

“Their money, plus interest, has been ordered to be returned, and the parties were ordered to discuss whether a settlement on further damages could be reached,” the article states.

The dispute started in January 2018, when the developer demanded proof of a “binding and unconditional mortgage commitment” in order to satisfy itself the couple could afford the two-bedroom townhouse they agreed to buy in 2016, the article states.

The couple reportedly provided mortgage commitments, income statements and other financial information at least six times, all of which were rejected by the developer, the article continues.

During the trial, the developer claimed that 96 of 116 buyers had failed to qualify for financing and that he no longer intended to build a condo project and was planning a rental project instead, the Globe reports.

“They had no right to terminate the agreements [under Tarion Home Warranty program] for a decision to change the use,” Loeb tells the publication.

In an interview with AdvocateDaily.com, she says, "They relied on their industry experience that purchasers cannot afford a fight and will just walk away as in this instance all but one did."

It seems like the developer needed to be able to find the purchasers in default of their contractual obligations, rather than cancel the building, says Loeb, partner with Shibley Righton LLP, who has long advocated for greater protection for Ontario purchasers. She has urged the province to enshrine an obligation of “good faith” on developers in their contract and disclosure obligations.

“They had no right to cancel except for being unable to secure financing,” she adds.

"The courts are making decisions, which demonstrate that the pendulum is swinging a bit more towards the consumer. The courts are imposing obligations on developers that should really come from the Condominium Act but the government has never been prepared to take that additional step," Loeb says.

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