When new condo sales go wrong!!
By Martin Rumack
When things go as planned in the purchase of a new condominium, everyone walks away happy, but when they don’t, it could get very complicated. Buyers may not have all the recourse and remedies that they think.
That’s the lesson to be learned from the recent Ontario court decision in Mitchell v. Printing Factory Lofts Inc. (2014 ONSC 5503). The buyer had agreed to purchase Suite 25 in the building marketed by the seller as the Printing Factory. Like other units in the building, it was a loft sthat had been marketed to the public as suitable for a live/work-type dwelling; Unit 25 in particular was designed to have a private entrance from the adjacent street. This feature was of special appeal to the buyer, and in his discussions with various representatives of both the Printing Factory and the builder, it was verbally confirmed that there would indeed be a private door to the street level from the unit.
Despite of what was promised, by the time construction was completed the unit’s layout had changed. The private door was eliminated to accommodate unforeseen requirements relating to hydro ducts that were imposed by the municipality. There were certain building code violations and other deficiencies in the unit as well.
Needless to point out that he buyer was not happy with these significant deviations from the plan. The Printing Factory suggested that he could either accept the unit “as is” or select another unit for the same price per square foot as the original. Neither options was appealing to the Buyer so in March 2011 the buyer took possession of the unit – under protest – and the sale closed four months later.
Upon closing, the buyer requested to be compensated for the missing exterior door to the street, but his request was refused. He then sued both the Printing Factory and the builder, claiming that the fundamental character of Unit 25 was changed because of the missing door and that he deserved compensation.
Perhaps surprisingly, the court decided that the buyer’s remedy was restricted to suing the Printing Factory (the seller) ; the builder was off the hook.
The rationale for the court’s decision was found in the clear wording of the Agreement of Purchase and Sale. That document exhaustively and comprehensively dealt with the rights and obligations between only two parties: the buyer and the seller. The builder wasn’t even mentioned, except to expressly release it from liability from such claims.
Nor could it be shown that the builder had separate legal obligation in this scenario, outside of what the agreement provided. The builder’s representative (with whom the buyer had conversations prior to closing) had not made any representations about the door that were legally binding on the builder.
Since the builder was not liable, the court then had to consider the obligations and rights of the Printing Factory, as seller. The Agreement of Purchase and Sale included the express right to make certain changes to the design or layout of the units if necessary. Under the circumstances, this right could feasibly encompass the unanticipated need to eliminate the exterior door in order to accommodate the hydro ducts.
As for the building code deficiencies: this was a matter between the buyer and the Printing Factory as well. The agreement was clear on this point and provided for a one-year post-closing warranty period. It stipulated that if the buyer chose to go ahead with the closing, he was releasing the Printing Factory and the builder for any liability in connection with building standards, workmanship and materials.
Accordingly, the court confirmed that the buyer’s lawsuit could proceed only against the Printing Factory, but not the builder. It noted that the buyer had chosen this particular path himself. Having learned about the missing door before closing, he could have rescinded the agreement entirely, on the legal basis that there had been a material change. Yet, after knowing that the Printing Factory would not compensate, he had opted to go ahead with the deal. He was therefore constrained to the remedies set out and agreed to in the written contract.
What’s the take-away lesson here? All condo buyers hope that everything goes smooth, but before they sign on the dotted line, they should make sure they know who they can go after, should the deal fall short of what was bargained for.
Toronto lawyer Martin Rumack’s practice include real estate law, corporate and commercial law, and civil litigation. He is co-author of Legal Responsibilities of Real Estate Agents. Visit Martin Rumack’s website at www.martinrumack.com.