STATUS CERTIFICATE REVIEW – A Way Out of the Deal?

Last week, one of my clients called to inform me that the sale of his condo unit failed to firm up because the purchaser’s lawyer advised the purchaser not to waive the condition in respect of the condominium status certificate review.  My client said that the reason the purchaser did not waive the condition was because the status certificate disclosed that the unit is a bachelor, which it originally was before my client turned it into a one bedroom through condominium board-approved renovations.

My first thought was that typically, a status certificate does not describe the type of unit; it only describes the number of the unit or units (however, the classification of a unit may be disclosed in the accompanying condominium documents).  Second, and more importantly, the purchaser had seen the unit and knew it to be a one bedroom.

To me it sounded like the purchaser was looking for a way out of the deal and used the status certificate condition as means to that end.  Unfortunately it is becoming common for potential purchasers to get out of agreements on a whim, using the status certificate approval by a lawyer or financing conditions for that purpose.

Status certificates disclose important information from the condominium corporation to the unit owner and potential purchasers that could impact a purchaser’s decision to buy into the condominium property.  The information discloses monthly common expense fees, amount of money in the reserve fund, condominium corporation’s legal liabilities, special assessments levied on the units, the amount of units that are leased, etc. Typical status certificate conditions contained in an agreement of purchase and sale, allow the purchaser an opportunity to seek legal advice and have a lawyer review it and give his or her opinion on whether the disclosure reveals problems and whether in their opinion the purchaser should waive the condition and continue with the sale or not.

In a recent case, (Yanos v. Darkeff, 2008 CarswellOnt 8346) the courts framed the issue of status certificate review by a lawyer with regards to a lawyer using their discretion.  The court stated that a lawyer’s discretion is not absolute and that he or she must act honestly and in good faith.  In addition, the lawyer must pass the test of reasonableness.  The standard of reasonableness can be assessed on both a subjective and an objective basis; if the condition is drafted in such a way as to give the lawyer greater discretion, then the lawyer should apply both objective and subjective standards of reasonableness.

The objective standard applies to matters such as operative fitness, structural completion, mechanical utility and marketability.  In short, would a reasonable lawyer acting in good faith would be satisfied with what is disclosed in the status certificate, such as whether there are any special assessments levied against the condominium, whether there is an insurance policy, whether there is enough money in the reserve fund for future major repairs, etc.

The subjective component of status certificate review relates to matters involving taste, sensibility and personal compatibility, for instance the types of pets that are allowed.  The court qualified the subjective standard by stating that in applying it, the lawyer must be exercising his discretion honestly and in good faith and that any concerns must be reasonably based on upon objective evidence.

In applying this framework to my client’s situation, whereby the status certificate disclosed the unit as a bachelor instead of a one bedroom (apparently the only issue on the part of the purchaser), perhaps the lawyer felt that the renovation into a one bedroom would affect the unit’s marketability or function, yet it is unclear on what evidence he or she would base that opinion.  Perhaps the lawyer was unaware that my client had received all the necessary approvals for the renovation; had this not been the case, it would have been reasonable to walk away from the deal.  If that was the case, further inquiry on the part of the lawyer or purchaser could have eased that concern.  In all likelihood the purchaser wanted to get out of the deal for personal reasons, and used this condition to do so.

Could my client have a claim against the purchaser?  Without knowing all the facts it is difficult to say.  However, the point is that agreements are to be taken seriously – even though conditions are drafted in a manner that gives purchasers and/or their lawyers a wide degree of discretion, the courts tend take the approach that contracts should be binding in nature and should not be easily escaped.