My New Construction Condo Is Not What I Thought It Would Be?

Four years later (if your lucky depending how early you purchased your preconstruction condominium unit), you just finished your pre-delivery inspection (“PDI”) with a builder representative and realize that your floor plan is not exactly as illustrated in your agreement of purchase and sale, or that the total size of your unit appears slightly smaller, or that the ceiling heights are not exactly what you thought you were told they would be.  Something is off, and possibly the condo unit wont work for you.  Did you miss something during those four years from when you were first provided with the builder’s set of disclosure documents? What can you do now? Or what should you have done when you were first informed of the change?

The situation just described is very common, and almost inescapable by the builder.  In the past 15 years, 80% of the condominium units on the launch of a preconstruction condominium development are sold within the first few months, and in most cases prior to the builder obtaining zoning approval, the desired condo building size, the desired number of units, and floor plans.  This means, by the time the builder is able to break ground and begin construction, your condominium unit and the condominium project generally (i.e. the common areas and its amenities) would have gone through a series of non-material and material changes.  There is nothing wrong with a change so long as the builder provides disclosure in the manner prescribed under the condo laws and regulations, and provided that you, as the purchaser, act on your rights as and when you were provided the disclosure and within the time frame prescribed under the same condo laws and regulations.  The bottom line is that although you cannot do anything about a non-material change, you certainly can with regards to one that is.

What constitutes a material change is found in section 74 of the Condominium Act, 1998 (the “Act”), which states the definition of a material change, the obligations of the declarant (i.e. the builder or the vendor or both (for the purposes of this article “builder” and “declarant” are used interchangeably)) when a material change arises, the prescribed manner and form that the builder must undergo to disclose the material change to the purchaser, what happens in the event that the builder and the purchaser disagree on whether a change is a material change, the purchasers’ right of recission following a material change, the timing of the refund of the deposits upon recission and any other remedies that the purchaser may have following a material change.

However, what is a material change? To a purchaser this could feel highly subjective, and unfortunately there is no clear definition rather a test and the case law that follows from applying it to each situation over time, such that eventually you will read of a case that matches yours.  The test for what is a “material change” provides some guidance as to what is considered to be fundamental to an agreement of purchase and sale (the “APS”) of a condominium unit, such that if the change occurred, the Purchaser is entitled to rescind the APS (terminate and receive its deposits back). Essentially the test is the notion that a reasonable purchaser would have objectively regarded the change as sufficiently important that they would not have otherwise entered into the APS.  And therefore a material change means a change or a 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 condominium corporation, and that it is likely that the purchaser would not have entered into an APS for the unit or the proposed unit or would have exercised the right to rescind such an APS under section 73 of the Act, if the disclosure statement had contained the change or series of changes.  However, the Act explicitly carves out the following types of changes from being considered material:

• a change in the contents of the operating budget of the condo corporation for the current fiscal year if more than one year has passed since the registration of the declaration and description for the corporation;
• a substantial modification, within the meaning of subsection 97 (9) of the Act, that is an addition, alteration or improvement that the condo corporation makes to the common elements after a turn-over meeting has been held under section 43 of the Act (normally within 21 days after notice is given by the declarant board that 50% of the condo units have been transferred to purchasers on final closing, which also must be provided within 21 days of the builder completing such transfers (i.e. loosing control));
• a change in the portion of units or proposed units that the declarant intends to lease,
• 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, or
• a change in the information contained in the statement described in subsection 161(1) of the Act, of the services provided by the municipality or the Minister of Municipal Affairs and Housing, as the case may be, as described in that subsection, if the unit or the proposed unit is in a vacant land condominium corporation;
• except as is otherwise prescribed, an increase of less than ten percent (10%) in the common expenses mentioned in any part of subsection 72(6) of the Act (i.e. the first year operating budget), determined in accordance with the regulations; and
• except as is otherwise prescribed, an increase in the common expenses mentioned in any part of subsection 72(6) of the Act if it is the result of the application, in the prescribed manner, of any prescribed taxes, levies or charges or otherwise any else that is prescribed.

The builder is required under subsection 74(1) of the Act to deliver a revised disclosure statement or a notice to the purchaser whenever there is a material change in the information contained or required to be contained in a disclosure statement delivered to a purchaser under subsection 72(1) of the Act or a revised disclosure statement or a notice previously delivered to a purchaser under this section.  The builder bares all the risk in deciding what is a material change or not, and therefore the risk is in not providing a revised disclosure statement or notice to a purchaser of a non-material change when in fact it is.  To err on the side of caution, builders commonly deliver supplemental disclosure statements or notices to purchasers with any changes as and when applicable with a disclaimer that in the opinion of the builder they are not material, therefore transferring the onus to decide and object on materiality to the purchaser.

With a material change a builder is to:

Provide a revised disclosure statement or notice prepared in accordance with the regulations, which shall clearly identify all changes that, in the reasonable belief of the declarant, are or may be material changes and shall summarize the particulars of them in the prescribed manner.

Deliver the notice in a timely manner to the purchaser within a reasonable time after the material change occurs and, in any event, no later than 10 days before delivering to the purchaser a deed (transfer) to the unit being purchased that is in registerable form.

With a change a purchaser is to:

Apply to the courts within 10 days after receiving a revised disclosure statement or a notice, or of discovering a change that was not disclosed. A purchaser may make an application to the Superior Court of Justice for a determination of whether a change or a series of changes set out in the statement or notice is a material change.

With a material change a purchaser is entitled to:

Rescind if a change or a series of changes set out in a revised disclosure statement or a notice delivered to a purchaser constitutes a material change or if a material change occurs that the declarant does not disclose in a revised disclosure statement or notice as required, the purchaser may, before accepting a deed (transfer of title on final closing) to the unit being purchased that is in registerable form, rescind the agreement of purchase and sale within 10 days of the latest of:

1. the date on which the purchaser receives the revised disclosure statement or the notice, if the declarant delivered a revised disclosure statement or notice to the purchaser; and
2. the date on which the purchaser becomes aware of a material change, if the declarant has not delivered a revised disclosure statement or notice to the purchaser as required with respect to the change; and
3. the date on which the Superior Court of Justice makes a determination under the Act that the change is material, if the purchaser or the declarant, as the case may be, has made an application for the determination.

When rescinding, a purchaser is to:

Provide notice of rescission to rescind an agreement of purchase and sale, either by the purchaser or the purchaser’s solicitor in writing to the declarant or to the declarant’s solicitor.

When a purchaser provides notice of rescission under a material change, a builder is to:

Apply to the courts within 10 days after receiving a notice of rescission for which the declarant disagrees with.  The declarant may make an application to the Superior Court of Justice for a determination whether the change or the series of changes on which the rescission is based constitutes a material change, if the purchaser has not already made an application for the determination under subsection.

Refund upon rescission, unless a change is determined by the courts as not a material change or if the purchaser is out of time to provide their notice, a declarant who receives a notice of rescission from a purchaser shall refund, without penalty or charge, to the purchaser, all money received from the purchaser (i.e. deposits and upgrades) under the agreement and credited towards the purchase price, together with interest on the money calculated at the prescribed rate from the date that the declarant received the money until the date the declarant refunds it.  In a timely manner the declarant shall make the refund, within 10 days after receiving a notice of rescission, if neither the purchaser nor the declarant has made an application for a determination to the courts. Otherwise, the refund shall be made within 10 days after the court makes a determination that the change is material if the purchaser or the declarant has made an application.

A purchaser may be entitled to additional remedies when asking the courts for the determination of a material change if the builder fails WITHOUT REASONABLE EXCUSE:

1. to deliver to the purchaser, whenever there is a material change in the information contained or required to be contained in a disclosure statement delivered to a purchaser or a revised disclosure statement or a notice delivered to a purchaser, a revised disclosure statement or a notice;
2. to prepare the revised disclosure statement or notice in accordance with the regulations, and fails to clearly identify all changes that, in the reasonable belief of the declarant, are or may be material changes, and fails to summarize the particulars of them in the prescribed manner;
3. to deliver the revised disclosure statement or notice to the purchaser as soon as reasonably possible after the material change occurs and, in any event, no later than 10 days before delivering to the purchaser a deed(transfer) to the unit being purchased that is in registerable form;
4. to, when receiving a notice of rescission from a purchaser as a result of a material change and in accordance with the Act, refund, without penalty or charge, to the purchaser, all money received from the purchaser under the agreement and credited towards the purchase price, together with interest on the money calculated at the prescribed rate from the date that the declarant received the money until the date the declarant refunds it; or
5. to make the refund:
   • within 10 days after receiving a notice of rescission, if neither the purchaser nor the declarant has made an application for a determination of materiality; or
   • within 10 days after the court makes a determination that the change is material, if the purchaser or declarant has made an application.

A purchaser’s additional remedies are:

1. a court may order the declarant to pay damages to the person for the loss that the purchaser incurred as a result of the declarant’s acts of non-compliance;
2. a court may order the declarant to pay the purchaser’s costs of the application;
3. a court may order the declarant to pay to the purchaser an additional amount not to exceed $10,000; and
4. a court may order the declarant to comply with the deficiencies in the declarant’s obligations under the Act.

What does the case law say about what constitutes a material change?

In some cases the courts have rule that there is no material change where there is no loss of the purchaser’s investment value, or where there is no depreciation in income in the case of a rental/investment property.

IN: Abdool v. Somerset Place Developments of Georgetown Ltd.

The definition of materiality was set forth in the Abdool case where the Court of Appeal defines material change as a change or series of changes or amendments 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 condo corporation, that it is likely that the purchaser would not have entered into an APS for the unit or the proposed unit or would have exercised the rescission right available under Section 73 of the Act if the change or series of changes was set out in the disclosure statement.

In this case, the declarant went into receivership, and during the period between September 8, 1989 and January 21, 1991 a number of notices of construction liens and certificates of action were registered against title to the project, including one filed by the general contractor for about $1,700,000.00, and furthermore there was a delay in completing the amenities. No amended disclosure statement was ever delivered to the purchaser with respect to these liens or any other matters affecting the project. As such, the purchasers contended that they were entitled to rescind their purchase agreements because they were not provided with material amendments to the disclosure statement.

The judge stated that a broad and flexible approach must be taken in determining whether a particular
statement is so incomplete in detail or lacking in content or, by the same token, so “encyclopedic”, as
to defeat the aim of the Act and render an agreement of purchase and sale non-binding. Additionally,
the disclosure statement cannot be viewed in isolation from the other documents mandated by the Act
but must be seen in the context of those documents. Not every defect in a disclosure statement will
warrant an order that an agreement is not binding. Moreover, the judge held that in determining a material change the purchaser must establish objectively that had the information that was not disclosed or that was inaccurately or insufficiently disclosed, been disclosed, then a reasonable purchaser would have regarded the information as sufficiently important to the decision to purchase, and that he or she would not likely have gone ahead with the transaction but would have rescinded the agreement before the expiration of the ten (10) day cooling off period. If the purchaser would not have gone ahead with the transaction then it is the court’s position that the declarant is obliged to deliver a supplemental disclosure statement and the purchaser’s ten (10) day cooling off period restarts from the date of the delivery of the statement. The judge went on to say that amendments that substantially change a purchaser’s anticipated use and enjoyment of the unit or the amenities associated therewith, or that adversely affect the value of the unit, are “clearly” material amendments that revive the rescission period.

The appeal judge held that the registrations of the construction liens or the delay in completing the amenities did not require the delivery of amendments to the disclosure statement and therefore the revival of the rescission period.

IN: Budinsky vs. Breakers East

Following the execution of the agreements of purchase and sale, several notices of construction liens
and certificates of action were registered against title to the project ranging from $1,396.00 to $2,100,000.00 and an amended disclosure statement was not provided to the purchasers with respect
to these liens. Also, in most cases, the disclosure statement was reviewed by the respective purchaser’s lawyer prior to entering into the agreement and prior to launching the project.  The application made no complaints about the form or content of the disclosure statements. The purchasers were seeking a
declaration that their disclosure statement did not comply with the Act and that they were not bound
by their agreements of purchase and sales. The issue in this case is when the ten (10) day cooling off
period has passed and the disclosure statement does not comply with the Act then is the purchaser
still bound by the agreement?

The courts held that not every defect in a disclosure statement will warrant a declaration that an agreement is not binding. Before a defect can have that effect, it must be of such substance as to render the disclosure statement defective in a material respect. Agreements should not be rendered unenforceable by technical deficiencies or immaterial omissions in a disclosure statement. The reasoning of the courts is that the declarant is required under the agreement of purchase and sale to provide clear title to the purchaser, which means that any encumbrances including construction liens and certificates of action must be discharged prior to the conveyance to the purchasers, which rendered the liens a non-issue until they are (at final closing).

The difference in Budinsky and Abdool, is that in Budinsky the purchasers had completed interim closing (occupancy) and later decided that they no longer wished to go ahead with their contracts and resulted in them searching for flaws or deficiencies in the disclosure statement to use as leverage against the declarant. At this stage, the disclosure statement was of no importance to them and was merely a vehicle to escape the transaction.

IN: Gallow v. HPH (Broadview) Limited

The purchasers entered into the agreement of purchase with the declarant for a unit marketed as a 2 bedroom plus loft and roof deck, however no individual floor plan was attached to the agreement and
one was provided almost a month later which illustrated the living/dining/kitchen on the first floor, 2
bedroom and bathroom on the second floor and the loft on the third floor with the laundry area and stairway to the roof for access to the roof deck. The purchasers purchased this unit due to the configuration of the loft with the 2 bedrooms, as the purchasers both wanted to work from home, they required 2 office spaces and the extra bedroom and loft space seemed to fit their needs perfectly.

During the construction of the project, the president of the declarant advised the purchasers about some changes to the location of the closets in the bedroom and enlarging the bathroom, while the purchasers were also looking at the construction from the street to watch its progression. By the end of the construction framing, it was clear to the purchasers that the loft had disappeared and in its place was a closed stairway constructed to the roof deck (where the loft was originally located as per the original floor plan). The declarant’s explanation for the lack of the loft was that there was a change in the size of the roof top stair enclosures for all units as a result of the building permit process and that the City would only permit said area to be used as a stair enclosure. The purchasers then advised the president of the declarant that they bought this unit because of the size of the loft and would not have purchased it as it currently is and the president did not respond.

The purchasers retained counsel who argued that the purchasers would not have purchased the unit without the loft, what they bargained for was not provided and that no notice of material change was provided by the declarant pursuant to the requirements under the Act.

The issue in this case is whether these changes, which have come about as a result of zoning and the City’s planning requirements, were material changes requiring disclosure by the declarant. It was held that there was a material change made by the declarant when the loft disappeared as the declarant specifically knew that the purchasers chose that particular unit due to it being a 2 bedroom with a loft and the declarant was
aware of their intention to use the loft as a home office. Hence, the loft was the enticement for the purchasers to purchase the unit.

The judge held that the declarant was aware of the building zoning and permit issuance process, and that such changes had to be made and was obligated to inform the purchasers of same.  Furthermore, that the reasonable purchaser, on an objective basis, would see the disappearance of the loft into a staircase as sufficiently important and the purchaser likely would not have entered into an agreement of purchase and sale for the unit and the unit was not what they bargained for.

This case clarifies that a developer who makes a material change in the plans for a condominium unit will not be able to rely on contract clauses which would appear to force a purchaser to accept changes made at the insistence of the municipality.

IN: TSCC No 2051 v Georgian Clairlea Inc.

The declarant went bankrupt, entered into 2 vendor take back mortgages with the condominium corporation when the declarant controlled the board of TSCC 2051 (prior to turnover) and had assigned the 2 mortgages. The first mortgage related to HVAC equipment in the condo building, as the declarant decided to purchase the HVAC equipment and sell it back to the condominium corporation in the form of service units during the time when the declarant controlled the board, which agreed to pay for the service units by giving the declarant a mortgage in the amount of $2,228,100.00 at an interest rate of 10% per annum, but the mortgage was interest free for 1 year so as not to affect the first year operating budget after registration of the condo declaration. The second mortgage is in connection with 32 parking units, 16 storage units and 2 combination parking/storage units that were unsold at the time of the registration of the condominium; the declarant conveyed these unsold units to the condo corporation, and to pay for said units, the declarant gave another vendor take back mortgage in the amount of $1,026,000.00 at an interest rate of 10% per annum.  This second mortgage was also interest free for 1 year.

In this case, the declarant issued revised disclosure statements but the judge held that the disclosure statements related to the service unit mortgage was confusing, did not clearly indicate to the purchasers what they are buying, and with respect to the parking and locker unit mortgage the revised statement did not tell the purchasers the amount of the mortgage. Moreover, the cover letter accompanying the revised disclosure further confused matters as it directed purchasers to the revised budget to see the mortgage payments owing but the revised budget did not show any mortgage payments. It was the opinion of the courts that the declarant concealed the cost of servicing the mortgages by including a term that specified that no payments would be due in the first year. The first year interest free provisions for both mortgages enabled the exclusion of the annual cost of the mortgages from the revised budget and the inclusion of a note in the budget statement that there were “no services the declarant provides, or expenses the declarant
pays, that are reasonably expected to become a common expense at a subsequent time”.  The disclosure only requires that the declarant provide the operating budget for the first year once the condo declaration is registered.  The judge found that the creation of the service units, service unit mortgage and parking and locker unit mortgages which did not appear in the original disclosure statement were in fact material changes that the declarant was required to disclose to the purchasers. Furthermore, the judge said that the declarant took advantage of its preferred position and control of the condominium board, disregarded the interests of the purchasers, and unfairly burdened the condominium with vendor take back mortgages for equipment and unsold units at inflated prices.

IN: Lau v. 1755 Holdings Ltd.

The declarant held a presentation in a hotel where the purchasers had an opportunity to examine a sales brochure and to see a model or mockup of the condo units for sale in the project. When the building was constructed, several purchasers found what they perceived to be substantial changes in the construction and refused to proceed with the transaction or take occupancy. The purchasers believed that the condo units where materially different from what was in the brochures and upon which they based their decision to purchase. Such changes included hot water heating to electric baseboard, substitutions of concrete guardrails for glass rails, changes to the lobby and the landscaping and the elimination of five windows in each suite, windows which gave light and views to the east and west sides of a condominium units.

The issue in this case is whether making minor changes or modifications to the building could be described as minor modifications. The judge held that these units were not substantially in accordance with the sales brochures and that the modifications were not minor and the purchasers did not get what they bargained for.

IN: Jiang v. Jade-Kennedy Development Corporation

The purchaser purchased a pre-construction commercial unit from the declarant and was provided with a disclosure statement containing 2 draft condominium plans, and 2 months later the purchaser received a supplemental disclosure containing a revised draft condominium plan. In all 3 condo plans the storefront was depicted by a straight line and the purchaser thought that the storefront of his unit would be all glass.

The issue in this case is whether the features of the constructed condominium constitutes a material change that was not disclosed as required to be provided to the purchaser pursuant to the Act.

The purchaser argued that the existence of the pillar was not disclosed in either of the disclosure statements, as the straight line on the draft plans led one to believe that no pillar would be present.  The existence of the pillar constituted a material change that should have been disclosed.  The judge found that the purchaser’s assumption that the storefront shown on the plans was all glass was not supported by the documents provided. In particular, the straight line on the storefront does not represent what type of construction material would be used. It could have represented any type of material. To qualify as a material change, the change had to be information that was contained in the disclosure statement. Furthermore, the straight line on the condominium plans, which were all schematic in nature, did not indicate the absence of a pillar, thus the presence of a pillar did not constitute a material change. The Act requires that the disclosure statement provide a condo plan that is “intended to give purchasers an overview of the units in the Condominium and the location of the Condominium.” It was not intended to provide structural details.

IN: Israel v. Towngate Limited

The declarant’s sales brochures showed a solarium in the condo unit being about 7 by 12 feet. Like most agreements of purchase and sale for preconstruction condominiums there was a clause that indicated that the room sizes were subject to change without notice (not that the declarant can make changes to accommodate zoning and planning requirements by the City). When the unit was constructed, the solarium was smaller being about 5 by 7 feet (i.e. less than half).  The purchaser’s dining room table could no longer fit into the room and she refused to close. The judge ruled that the change in measurements of the solarium was not enough to allow the purchaser to back out of the contract. He awarded the builder damages exceeding $100,000.  From similar case law, judges have overruled the exculpatory clause where purchasers made it clear to the declarant or to their sales team that certain elements of the condominium unit were important and were part of the negotiations.  Perhaps, in this case, had the purchaser negotiated the minimum size requirements to fit the dining room table in the solarium the judge would have granted her relief.

In summary, there is no hard and fast rule whether changing the floor layout, size, features, etc. constitutes a material change, and furthermore that a material change is dependent on several factors, such as the nature of the change, the particular facts and circumstances of the case, the purchaser’s intention when entering into the agreement, whether the declarant was aware of the purchaser’s intention when entering into the APS, how was the APS negotiated, etc., despite any exclusionary or exculpatory clauses in the APS stating otherwise (for example when the breach is fundamental).

For any questions or help with your matters, feel free to contact the lawyers at Levy Zavet.