In a recent case, the purchaser of a condominium unit was successful in getting a court order compelling the vendor/developer to return the deposits paid by the purchaser, after the transaction failed to close.  The purchaser agreed to purchase a hotel condominium unit from the developer pursuant to a pre-construction agreement of purchase and sale entered into in February, 2009. The purchaser paid a total of $228,250 in deposits pursuant to the agreement.

The closing date for interim occupancy set out in an amendment to the original agreement of purchase and sale was January 31, 2012. However the vendor had the ability to unilaterally extend the closing date one or more times, provided that such extensions did not exceed two months in aggregate. This resulted in a closing deadline of March 31, 2012. The agreement also provided that if it was terminated through no fault of the purchaser, all deposit monies would be returned to the purchaser, together with any interest required to be paid by law.

By letter from the vendor’s lawyer to the purchaser’s lawyer the closing date was set at February 24, 2012. Prior to closing, the vendor provided the purchaser with a statement of adjustments which indicated that the common expenses attributable to the unit were 40% higher than the amount set out in the disclosure statement. The plaintiff’s lawyer took the position that this constituted a material change which required the production of a revised disclosure statement.

There was some communication about this between the purchaser’s lawyer and the vendor’s lawyer (e-mails and a voice mail message from the vendor’s lawyer indicating that the purchaser did not need to be concerned about not closing on February 24, while the issues relating to the common expenses were being addressed). However, no revised disclosure statement was provided, and March 31 came and went without the transaction having closed. Neither party tendered on the other.

As the transaction did not close by March 31, in April the purchaser terminated the agreement of purchase and sale and demanded the return of the deposits. The vendor took the position that the deposits were forfeited as the purchaser had breached the agreement by not closing on February 24, 2012. The vendor claimed the “entire agreement” clause in the agreement of purchase and sale precluded any verbal extension of the closing date. That clause provided:

“The Vendor and the Purchaser agree that there is no representation, warranty, collateral agreement or condition affecting this Agreement or the Property or supported hereby other than as expressed herein in writing.”

This argument was “quickly dismissed” as the judge concluded that the clause did not apply to future representations or agreements made after the agreement of purchase and sale was entered into. The judge determined that the voice mail communication from the vendor’s lawyer was “an unambiguous assurance” that the closing was extended to an unspecified date in the future while the plaintiff’s concerns about the common expenses were sorted out. The purchaser relied on this communication and did not take any steps to close on February 24.

The vendor also took the position that the purchaser should have rescinded the agreement of purchase and sale pursuant to sections 74(5) and (6) of the Condominium Act (the “Act”) within 10 days of receiving the statement of adjustments. Section 74 gives the purchaser of a new condominium unit from a developer the right to rescind an agreement of purchase of sale by written notice given to the vendor within 10 days after the latest of:

  • the date on which the purchaser has received a revised disclosure statement or notice that indicates a material change;
  • the date on which the purchaser becomes aware of a material change if the vendor has not delivered a revised disclosure statement or notice; and
  • the date on which a Superior Court judge makes a determination as to whether the change is material.

The judge concluded that the mere delivery of the statement of adjustments which indicated a 40% increase in monthly common expenses did not constitute the notice referred to in section 74 of the Act, as there was nothing that indicated to the purchaser that delivery of the statement of adjustments was intended to trigger the purchaser’s time-limited statutory rescission rights under section 74. As no revised disclosure statement or notice had been provided to the purchaser, the time period for the purchaser to exercise the right of rescission never began to run.

At the end of the day, the judge concluded that the agreement of purchase and sale was terminated through no fault of the purchaser. The purchaser had raised valid concerns about the common expenses, and in response to the purchaser’s concerns, the vendor extended the closing but did not establish a revised closing date to occur on before March 31, 2012, being the deadline set out in the agreement of purchase and sale. Because the agreement was terminated through no fault of the purchaser, the judge did not need to make any decision as to whether a 40% increase in common expenses did or did not constitute a material change. The vendor was ordered to return of the deposits to the purchaser, together with pre-judgment interest.

There are several lessons learned from this case:

  • Closing date extensions should not be open-ended. Where a closing date is extended, a fixed new closing date should be set.
  • All communications between the parties should be clearly set out in writing. Verbal communications should be promptly confirmed in writing.
  • Any notices sent pursuant to the Act or the agreement of purchase and sale should clearly indicate that they are formal notices.