Purchasers of new condominium units are entitled to receive a condominium that is built in accordance with the vendor’s representations. Unfortunately, condominium developments do not always meet purchasers’ expectations. Although reputable developers stand behind their products and work with purchasers to resolve disputes, some developers try to avoid all liability to purchasers. In some circumstances, the only way for purchasers and new condominium boards to ensure the declarant-developer complies with obligations that fall outside of new home warranty coverage is to commence legal proceedings.
The corporate structure of a declarant-developer can be problematic for purchasers bringing a lawsuit. Most declarants are single purpose companies, incorporated solely to build and sell condominium units. In the ordinary course of business, once deposit monies are insured or title to the units is transferred, the declarant will transfer money received from purchasers to investors and those financing construction. After registration of the condominium, once most of the units are transferred, declarant corporations are usually empty shell corporations whose only assets may be a small number of unsold condominium units. This can be problematic because lawsuits are only worthwhile if the target defendant has assets available to satisfy a judgment.
We are frequently asked how condominium corporations can prevent the developer from disposing of remaining unsold condominium units pending resolution of a dispute. Condominium corporations view the developer’s sale of the remaining condominium units as something that would frustrate their ability to recover damages from the developer.
Unfortunately, condominium corporations do not have the ability to “tie up” a developer’s assets pending resolution of a dispute. Courts view such requests as attempts to obtain judgment before trial, which is not permitted. In short, declarants can continue to market and sell condominium units in the ordinary course of business, regardless of complaints by purchasers.
Two recent judgments have confirmed that this is the law in Canada. In 2384125 Ontario Inc. v. The Diamond at Don Mills Developments Inc., purchasers brought a $7 million lawsuit against the declarant and vendor of the units alleging misrepresentation, unjustified increases in the purchase price, and overcharges on occupancy fees. One unit remained unsold, which had an estimated value of $500,000. The plaintiff unit owners moved for a court order preventing the declarant from selling the remaining condominium unit. Although the court acknowledged that the defendant was a single purpose company whose last asset was likely to be sold, the court refused to grant the order sought because “the law has a strong disinclination to permit execution before judgment.”
A similar decision was rendered in the recent B.C. case of The Owners, Strata Plan KAS 3267 v. Happy Valley Resort Ltd. In that matter, owners brought a lawsuit against the developer and others because the geothermal system required an alleged $2.5 million in repairs. The declarant’s only assets were condominium units, which were being sold. Again the owners asked for and were denied an injunction preventing the developer from disposing of the remaining condominium units, even though the sale of these units would render the defendants incapable of satisfying any judgment.
Canadian courts agree that declarant-developers can continue to sell condominium units despite the existence of allegations that the project was not built in accordance with representations made by the developer. Single purpose declarant corporations are entitled to dispose of remaining condominium units because this is precisely what those corporations were created to do. In short, purchasers or condominium corporations looking to collect damages arising out of their purchase of condominium units cannot rely on unsold condominium units as an asset to satisfy a judgment against the declarant.