BUILDING BETTER COMMUNITIES 2004 — CASE LAW UPDATE
Recovering Damages for Misrepresentation
By Jonathan H. Fine, LLB
1. The developer, Law Development Group (Thornhill) Limited, set up YRCC #889 so
that parking units were not sold to unit purchasers, but were owned by Law Development
and leased to the condominium corporation from Law.
2. Each standard form agreement of purchase and sale provided that the parking spaces
would be leased by the condominium corporation “...at an initial monthly rental (subject
to escalation) of $50 that shall form part of the common expenses…. The condominium
documents will reflect this arrangement.”
3. What happened, however, was that shortly after registration, Law, which controlled the
board of directors of the condominium corporation, caused the condominium corporation
to enter into a parking lease with Law that provided for a minimum monthly initial rent
for each of the 304 parking spaces of $58, subject to future escalation, on a “completely
carefree net lease.” The lease had a term of 50 years.
4. The result of this was that by 2002, the condominium corporation was being charged
$97.55 per parking space per month, or around $300,000 rent per year from the parking
spaces.
5. Financially, the condominium corporation was in a serious deficit position and had no
reserve fund.
6. The condominium corporation sued Law Development and the matter proceeded to
arbitration by agreement.
7. In the arbitration, the condominium corporation claimed a refund of overpayments of
such rent since 1997 totaling more than $650,000.
8. A declarant is bound not to prefer its interests over those of the unit purchasers.
Peel Condominium Corporation No. 505 v. Cam-Valley Homes Ltd., 53 O.R. (3d) 1,
[2001] O.J. No. 714, (Court of Appeal)
Middlesex Condominium Corporation. No. 87 v. 600 Talbot Street London Ltd., 37 O.R.
(3d) 22, [1998] O.J. No. 450 (Court of Appeal for Ontario)
9. A developer has a good faith obligation to carry out the agreement of purchase and sale
and deliver whatever title the contract between the parties calls for.
Peel Condominium Corporation No. 505 v. Cam-Valley Homes Ltd., supra
10. In PCC #505, supra, the Ontario Court of Appeal confirmed the statement made by
Wilson, J. A. in Newrey that:
It would be wholly unreal to view those transactions as agreements for the sale of
separate pieces of real estate…. I think [the court] must also look to the general law of
real property as to the status of a purchaser once his offer has been accepted. I do not
think the position of the owner-developer remains unchanged after he starts to sell units.
I think that at that point he has committed the character of the project to that of
condominium under the Act and declaration.
York Condominium Corp. No. 167 v. Newrey Holdings Ltd. (1981), 32 O.R. (2d) 458
(C.A.)
11. It was argued that from the moment that the first agreement of purchase and sale was
executed on January 4, 1995, Law was obligated, pursuant to its good faith obligation, to
carry out the agreements of purchase and sale in accordance with their terms, which
included renting the parking spaces to the condominium corporation “at an initial
monthly rental (subject to escalation) of $50.”
12. Putting it another way, Law did not act in good faith by preparing the parking lease:
(a) With an initial rent at $58;
(b) On a net-net, carefree basis; and,
(c) To provide for future increases in rent, when the agreement of purchase and sale did
not contemplate same.
13. There is no principle of law that would permit one party to a contract to amend
unilaterally the terms of the contract and then insist upon compliance with the amended
terms because the other party did not object, or because the other party acquiesced.
14. When one is bound by agreement to supply goods to another at a certain price, and
the other subsequently agrees to pay a higher price, the supply of the goods is not
sufficient consideration to support the promise to pay the higher price.
Gilbert Steel Ltd. v. University Construction Ltd. (1976), 12 O.R. (2d) 19, OCA
15. Similarly, in this case, there was no consideration to support an agreement to pay a
rent higher than that set out in the agreement of purchase and sale.
16. Purchasers of condominium units are in a particularly vulnerable position because
often, as in this case, they buy from plans prior to construction, and then must close on an
interim basis, take possession, renovate, etc., while they await registration of the
declaration and final closing.
17. At the arbitration, the condominium corporation was awarded more than $840,000
inclusive of interest and costs.
18. The condominium corporation then filed a writ of execution against Law, thereby
freezing its unit sales.
19. Law Development attempted to set aside the arbitration award.
20. The condominium corporation stopped paying rent pursuant to the parking lease
because it had in excess of an $840,000 credit that amounted to prepaid rent.
21. Law Development stopped making its mortgage payments on the parking units which
caused the mortgagee to attorn rents from the condominium corporation, and then to sue
the condominium corporation, claiming an order that the condominium corporation be
compelled to pay rent to the mortgagee. The mortgagee was unsuccessful.
22. The parties were at a stalemate, but found a win–win solution that permitted the
condominium corporation to receive value for its award, the mortgagee to get paid and
Law Development to pay its debt to the condominium corporation and realize on the sale
of other units. What was it?
23. The condominium corporation purchased all of the parking units and some other units
and received credit for its award against the purchase price.
24. The condominium corporation’s rent payments have been replaced by loan payments
that are less than the rental payments. The loan should be paid off in less than 10 years,
meaning that the condominium corporation will save millions of dollars over the next 40
years or so.
Jonathan H. Fine, LLB, is a partner in the law firm Fine & Deo. He is a founding
director, founding member, past president and a fellow of CCI. He has acted for
condominium developers, mortgagees, condominium corporations, unit owners and
managers, and has acted as condominium development legal consultant to other legal
firms on a number of major projects.
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Condominium Manager Magazine – Spring 2005