What happens when the new-build condominium unit you buy from just the plans is significantly different from the one the builder has completed? Are you obliged to close the deal?
That was the issue in a case heard in the Ontario Superior Court late last year.
Gillian Gallow signed an agreement of purchase and sale with a developer, HPH (Broadview) Limited, back in January, 2011.
The $543,400 unit, which Gallow purchased from floor plans, was marketed as a “two-bedroom + loft plus roof deck.” The condominium was to be a stacked townhouse on three levels in a 63-unit project called Riverside Towns in Toronto. The development, on Broadview Ave. near Queen St. E., is a joint venture of Hyde Park Homes and Lamb Development Corp.
Although no floor plans were attached to the agreement, a subsequent amendment contained a sketch of the 1,140-square foot unit. The plans showed a living, dining and kitchen area on the first floor, two bedrooms and a bathroom on the second floor, and a loft on the third level with a laundry area and stairway to the roof for access to the roof deck. The loft was to be nine-foot-10 by 11-foot-four.
As construction progressed, it became apparent the loft had disappeared and in its place was an enclosed stairway to the roof deck.
The agreement provided that:
It turned out that the city of Toronto would not permit a rooftop loft area to be used as livable space, but only for mechanical use and a landing. The builder’s position was that it never guaranteed Gallow the exact size of any room on the third floor.
Gallow repeatedly asked the builder for revised floor plans, but her requests were ignored. The builder later took the position that any changes made at the request of the city were specifically permitted under the agreement, and were not a “material” change to the agreement which entitled Gallow to rescind the deal.
Under the Condominium Act, a purchaser has 10 days to terminate a transaction after being notified of a material change in the required disclosure statement.
Ultimately, Gallow terminated the agreement and demanded return of her deposit of $79,611. She applied to the court for a declaration that the disappearance of the all-important loft space was a material change entitling her to cancel the agreement and have her deposit refunded.
In the face of the clear wording of the agreement, her refusal to close carried considerable risk. Losing the legal battle would have meant forfeiting the deposit and paying legal costs for both sides.
In November, Justice Susan Greer ruled that a material change was indeed made by the builder when the loft disappeared into an enclosed staircase. The builder was aware that Gallow had chosen the townhouse so that the loft space could be used as a home office. The change in the plans, the judge ruled, was “drastic” and significant enough to affect a reasonable buyer’s decision to purchase the unit. That required the builder to disclose the change and allow the buyer 10 days to back out of the deal.
Justice Greer allowed Gallow to terminate the agreement and receive a deposit refund.
This case clarifies that a builder who makes a material change in the plans for a condominium unit will not be able to rely on contract clauses which would appear to force a purchaser to accept changes made at the insistence of the municipality.
It also emphasizes how important it is to have floor plans with measurements attached to any agreement of purchase and sale of a new condominium or house.
Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at firstname.lastname@example.org, phone 416-364-9366 or fax 416-364-3818.
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