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18 Jan

Ontario Court of Appeal Adds Good Faith Requirement for Rescission under the Condominium Act

Wednesday, January 18, 2023Business Law, Corporate LawAgreement of Purchase and Sale, GTA Real Estate, Condominium Act

Chang Jiu Chen, the Appellant in the December 20th 2022 decision of Chen v Brookfield Residential (Ontario) Limited[i], signed an agreement of purchase and sale for a condominium unit in 2017. Nearly one year later, the property was re-appraised at a lower value and the Appellant could not complete the purchase[ii]. A month prior to the scheduled closing date, the Appellant moved for rescission claiming that the condominium’s parkette and its entry and exit gates were not completed on time. The Appellant argued that such failure constituted a material change and met the test for rescission[iii]. Although the Court held that the lack of a completed parkette and entry/exit gates were not a “material” change under the Condominium Act[iv], it also took the opportunity to discuss the role of good faith when a party seeks to rescind a condominium agreement of purchase and sale.  

Rescission is a court process by which a party can withdraw from contractual obligations without penalty, provided certain conditions are met. The Condominium Act (the “Act”) specifically allows for rescission where there has been a “material change” and mandates that all material changes be made known to condominium purchasers through a revised disclosure statement [v]. When a “material change” does occur, a purchaser can rescind the agreement of purchase and sale under section 74 of the Act within ten days of the latest of three occurrences laid out in section 74(6):

“ (a)  the date on which the purchaser receives the revised disclosure statement or the notice, if the declarant delivered a revised disclosure statement or notice to the purchaser;

(b)  the date on which the purchaser becomes aware of a material change, if the declarant has not delivered a revised disclosure statement or notice to the purchaser as required by subsection (1) with respect to the change; and

(c)  the date on which the Superior Court of Justice makes a determination under subsection (5) or (8) that the change is material, if the purchaser or the declarant, as the case may be, has made an application for the determination.”[vi]

Practically, section 74 means that condominium purchasers who are notified of a material change have the option to cancel their purchase and regain their deposit with interest[vii].

While these sections of the Condominium Act do not discuss a “good faith” requirement, the Court of Appeal mentions that the Appellant had not acted in good faith when seeking rescission and that the Appellant was using the rescission mechanism as an excuse for their inability to fulfill the purchase[viii]. The Court’s focus on the Appellant’s lack of good faith implies that good faith should be taken into consideration when applying section 74. The Court also specifically pointed out they did not share the Appellant’s concerns in recognizing such a requirement, stating that:

“[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.”[ix]

The Court also said that allowing bad faith notices of rescission would create “absurd results” such as weakening otherwise valid contracts and allowing purchasers to strategically use rescission to intimidate sellers[x]. It is apparent that the Court of Appeal believes that rescission under the Condominium Act contains an element of good faith.

Going forward, condominium buyers should be advised that attempting to use rescission for an ulterior motive, such as a lack of financing unrelated to the material change, may result in an unfavorable decision by the courts.


Noah Bonis Charancle 
Student-At-Law
416.865.6661
nbonischarancle@grllp.com
 

(This blog is provided for educational purposes only, and does not necessarily reflect the views of Gardiner Roberts LLP).


[i] Chen v. Brookfield Residential (Ontario) Limited, 2022 ONCA 887 [Chen].

[ii] Ibid at paras 2, 3.

[iii] Ibid at paras 3-5.

[iv] Ibid at para 17.

[v] Condominium Act, supra note 1, s 74(1).

[vi] Ibid, s 74(6).

[vii] Ibid, s 74(9).

[viii] Chen, supra note 2, at para 23.

[ix] Ibid, at para 26.

[x] Ibid, at para 24.

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