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Condominiums - Material Change in Disclosure Statements. Chen v. Brookfield Residential (Ontario) Limited
In Chen v. Brookfield Residential (Ontario) Limited (Ont CA, 2022) the Court of Appeal sets out and considers some Condominium Act, 1998 'material changes in disclosure statement' [s.74] activity:[4] On December 7, 2017, the appellant provided what it purported to be a “written notice of rescission” (the “Notice of Rescission”) pursuant to s. 74(6) of the Condominium Act, 1998, S.O. 1998, c. 19 (“the Act”), claiming that the “amenities” had not been completed as set out in the disclosure statement. The “amenities” referred to were the parkette and entry/exit gates. The appellant represented that this non-completion constituted a material change which justified rescission.
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[13] It is well-established that the Act is consumer protection legislation: Harvey v. Talon International Inc., 2017 ONCA 267, 137 O.R. (3d) 184, at paras. 62-63. Section 74 of the Act furthers this goal by imposing a continuing obligation on the seller of condominium property to disclose to purchasers when there is a “material change” to the information contained in a disclosure statement required by s. 72 of the Act. If the changes are material, s. 74(6) allows the purchaser to rescind the purchase and sale agreement by delivering a notice of rescission under s. 74(7).
[14] The motion judge determined that the appellant was not entitled to rescind the Agreement and his Notice of Rescission was invalid because “[t]he failure of [the respondent] to complete the parkette and entry/exit gates for closing was not a ‘material change’… within the meaning of s. 74”. She further held that the appellant’s purported rescission constituted an anticipatory breach of the contract, which entitled the respondent to terminate the agreement.
[15] For the reasons that follow, we agree with the motion judge’s conclusions on these two issues which are dispositive of this appeal.
[16] First, the appellant’s Notice of Rescission is invalid on its face because the “material change” he identified does not meet the express statutory definition of a “material change” under s. 74. Section 74(1) requires the seller to deliver to the purchaser a notice or revised disclosure statement identifying any “material changes”. Section 74(6) entitles the purchaser to rescind the agreement where there is a disclosed or undisclosed “material change”. “Material change” is statutorily defined in s. 74(2) as:a change … that a reasonable purchaser, on an objective basis, would have regarded collectively as sufficiently important to the decision to purchase … that it is likely that the purchaser would not have entered into an agreement … or would have exercised the right to rescind such an agreement … if the disclosure statement had contained the change or series of changes, but does not include, … (d) a change in the schedule of the proposed commencement and completion dates for the amenities of which construction had not been completed.... [Emphasis added.] [17] As noted by the motion judge, the alleged “material change” identified in the appellant’s Notice of Rescission was the respondent’s failure to complete the entrance and exit gates and the parkette before closing. We agree with her determination that the change was not a “material change” within the meaning of s. 74 of the Act because the gates and the parkette were amenities which are statutorily precluded from being material changes. Therefore, the appellant’s purported Notice of Rescission was facially invalid as a matter of law.
[18] We further note that in Lin v. Brookfield Homes (Ontario Limited), 2019 ONCA 706, at para. 9, this court held that“the non-construction, at [closing], of the parkette and entry and exit gates [in the same subdivision as in this case] – was not a material change in circumstances within the meaning of s. 74 of the Condominium Act.” ....
[24] Furthermore, we do not accept the appellant’s submission that a notice of rescission that was not provided in good faith qualifies as a “notice of rescission” under s. 74(7) of the Act. This would create an absurd result by enabling purchasers to strategically use the rescission mechanism provided under the Act to side-step their otherwise valid contractual agreement, pressure vendors to negotiate releases or unjustifiably extend closing timelines. This could not have been the legislative intent: Rizzo & Rizzo Shoes Ltd. (Re), 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, at para. 27.
[25] Nor do we agree with the appellant that the description of a “notice of rescission” articulated in Harvey v. Talon International Inc., 2017 ONCA 267, 137 O.R. (3d) 184, at paras. 6 and 75, purports to be an exhaustive definition. There was no issue in that case relating to the reasonableness or good faith of the notice of rescission.
[26] We do not share the appellant’s concern that recognizing a good faith requirement will enable sellers to ignore notices of rescission under the Act by claiming they are not being made in good faith. Sellers who do so run the risk of incurring liability for any resulting damages suffered by the purchasers.
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