Pursuant to Ontario’s Condominium Act, 1998 (the “Act”), purchasers have a 10 day cooling off period following execution of the agreement of purchase and sale during which they can change their minds and back out of their purchases for any reason whatsoever. How about the vendor? How easily can the vendor get out of a transaction? Can a Vendor Terminate a Condominium Project? Not nearly as easily.
However, the Tarion Addendum attached to all agreements of purchase and sale for new condominiums includes the requirement that the vendor take all reasonable steps to complete construction of the building, provide occupancy and register the condominium in respect of the project without delay. The addendum allows vendors to include a limited number of early termination conditions in purchase and sale agreements. If the conditions are not met by a certain date, the vendor can terminate the sale transactions and return deposits to purchasers with interest (at a fairly low rate prescribed by the Act).
Condominium projects generally require financing, and financing is often dependent on vendors meeting a certain number of sales in the project. In recognition of this, the Tarion addendum permits early termination conditions based on the vendor obtaining financing and reaching sales thresholds. The addendum also obligates vendors to take all commercially reasonable steps within its power to satisfy the early termination conditions.
However, in the case of Ritchie v. Castlepoint Greybrook Sterling Inc., 2020 ONSC 3840 (CanLII), the Superior Court of Ontario upheld a provision in a developer’s contract that limited its liability to purchasers to the return of deposits with interest required by the Act, notwithstanding purchaser claims of bad faith. The Court of Appeal for Ontario agreed. The developer, Castlepoint, included an early termination clause in its agreements of purchase and sale based on the availability of financing. Castlepoint attempted to terminate the agreements, claiming delays in the approval process had made the project “commercially un-financeable”. Purchasers claimed the vendor was trying to take advantage of increases in the market and hoped to resell the units at higher prices. A number of purchasers started an action against the vendor for damages, alleging bad faith. The court found that even if the developer had breached its obligations to complete the building, provide occupancy and register the condominium, and to take all commercially reasonable steps to satisfy the financing condition, the vendor could rely on the limitation of liability clause in the agreement and was required only to return deposits to purchasers, with interest, without further liability to the purchasers for any damages.
So, particularly in a climate of increasing prices, costs and with interest rates starting to increase, the prospect of signing an agreement that doesn’t contemplate occupancy for more than 5 years and ending up with a terminated agreement and return of deposits with a small amount of interest is real.
Developers should take comfort, and buyers should beware.