Termination of Pre-construction Condominium Purchase Agreements
By: Maria Durdan & Maryam Samani
The issue of cancellations of pre-construction condominium purchase agreements has once again made headlines, this time emerging in response to unsurmountable delays and surging construction costs attributed to the pandemic.
When purchasing a pre-construction condominium, there is always a risk that the project could be cancelled. Under the Condominium Act, if a project is terminated, the vendor is obliged to refund all monies paid by the purchaser, plus interest calculated in accordance with the Act.
In cases where the termination is in breach of the pre-construction agreement of purchase and sale, purchasers may further be entitled to a claim for monetary damages. Usually, such damages are quantified based on the difference between the purchase price under the agreement of purchase and sale and the market value of a replacement property on or about the date the agreement was terminated.
That being said, pursuant to a recent decision, Ritchie v. Castlepoint Greybrook Sterling Inc., 2020 ONSC 3840, affirmed by the Ontario Court of Appeal, the existence of an exculpatory clause in a pre-construction agreement of purchase and sale may serve to limit a developer’s liability in the event of a breach to only a return of the deposit plus interest, irrespective of a failure to act in good faith.
Arguably, the Ritchie decision serves to further incentivize cancellation of pre-construction agreements by developers, by providing the additional comfort that their decision and reasons for cancellation of a project will not be subject to court review – provided they include an exclusion clause in their agreements of purchase and sale.
On the other hand, where the units at issue were either already completed or nearly completed, courts have yielded more favourable results for purchasers, even granting the rare remedy of specific performance following developers’ unilateral termination of the pre-construction purchase agreements.
Specific performance necessitates that the property in question be of a “unique” nature - a quality which can rarely be attributed to modern-day, mass-produced condominium properties. But a recent Court of Appeal decision has recognized that uniqueness is not limited to whether there are other similar homes in the same neighbourhood or subdivision, but whether any of those homes are “readily available” for the plaintiffs to purchase when the defendant breached the contract. That is, in Lucas v. 1858793 Ontario Inc. (Howard Park), 2021 ONCA 52, the Ontario Court of Appeal ordered specific performance of a wrongfully terminated purchase agreement by the developer, noting that over the course of the four years since entering into the purchase agreement, the unit had increased in value significantly and, as such, the Lucases would not be able to find a reasonably comparable substitute property in this price range.
Outside of the courts, the trend of cancellations in recent years has prompted the tightening of regulations to protect consumers. For example, as of January 1, 2020, condominium agreements of purchase and sale are required to include an information sheet that clearly outlines the key potential risks of buying residential condominium units in a preconstruction condominium project. These may include potential early termination conditions such as reaching a minimum sales threshold for the project to proceed, the developer securing necessary financing for construction and completion of the project, and obtaining the required approvals from the municipality.
Moreover, in the past year, the Ontario government further engaged in the restructuring of Tarion to remove the conflict between consumer protections and builder regulations. As of February 1, 2021, the Home Construction Regulatory Authority (HCRA) assumed responsibility for new home builder and vendor licensing in Ontario, addressing consumer concerns about potential conflicts of interest with Tarion.
Finally, the most recent trend in cancelations has again instigated further discussion on the inadequacy of the legal protection against a developer’s decision to cancel contracts. The provincial government has come forward with a number of measures to penalize and deter developer cancellations including threatening licence suspensions, requiring more disclosure of builder cancellation histories, increasing interest rates on refunded deposits, restrict builders from reselling units in a project for a specified period of time after a purchase agreement has been terminated, and imposing heftier fines for cancellations, and empowering the HCRA to launch its own investigation into shady practices by developers.
Maria Durdan is a Partner at SimpsonWigle LAW LLP and the Chair of the Condominium Practice Group.
Maryam Samani is an Associate at SimpsonWigle LAW LLP.
Samantha Beattie,“Some Ontario builders are giving pre-construction homebuyers 2 choices — pay more or forget it” CBC News (December 13, 2021) online: https://www.cbc.ca/news/canada/toronto/cancelled-sales-agreements-preconstruction-ontario-1.6278526
Condominium Act, 1998, S.O. 1998, c. 19, s. 82 and O. Reg. 48/01 s.19.
Ritchie v. Castlepoint Greybrook Sterling Inc.,2020 ONSC 3840, aff’d 2021 ONCA 214.
Lucas et al v. 1858793 Ontario Inc. o/a Howard Park et al., 2020 ONSC 964.