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Condominium Act Disclosure Statements, Clarified

In a recent decision, the Ontario Court of Appeal has clarified the Condominium Act’s requirements as to what information must be revealed in a disclosure statement provided by a developer.

The case concerned disclosure statements provided more than eight years earlier to prospective purchasers of units in two condominium buildings that shared certain recreational facilities. As required by s. 52 of the Act as it read at the time, the disclosure statement provided by the developer included a budget for the condominium’s operation in the first year following registration.  Among other things, it disclosed that the heating, ventilation and air-conditioning (HVAC) system in the recreational facilities was leased, and stipulated the cost for that lease.

What was arguably not clear from the disclosure statement was that: 1) the HVAC system was not part of the purchase price; 2) that the lease (and therefore any potential buyer’s liability) was for a duration of eight years; and 3) that as part of a sale-leaseback arrangement there was a purchase option price of $32,400 at the lease’s end.

Six years after delivery of the disclosure statement the condominium corporation discovered the full extent and nature of the lease.  It sued the developer, claiming that the document was misleading and lacked the necessary information required by s. 52 of the Act.  It sought damages as provided for by that section (which allows both unit owners and a condominium corporation to seek a remedy for any loss sustained as a result of relying on a misstatement contained in a disclosure statement).

At trial, the judge found that a reasonable purchaser would not have known from reading the disclosure statement that the equipment was leased.  Accordingly, the judge concluded that the developer had breached the Act, and awarded the condominium corporation the full amount of the lease, minus the amount of the first year of the lease which had been accurately set out in the disclosure statement.  

On appeal to the Court of Appeal, the developer was successful.  First of all, the Court disagreed with the trial judge’s factual conclusions, finding instead that the disclosure statement clearly stated that the HVAC equipment was leased.   The purchasers were therefore aware of this fact, and were also aware of the estimated payments.    

Secondly, the Court determined that in this situation, s. 52 only required that the developer disclose: 1) the existence of the lease; and 2) the annual cost of the lease.    These two items were clearly included in the disclosure statement in dispute; moreover, any other omitted details were not so significant that they amounted to a material misstatement or omission that would render the developer culpable, according to the Court.    

Thirdly, the Appeal Court concluded that the condominium corporation did not suffer any loss because of its reliance on the provided disclosure statement.   In doing so, it confirmed its own earlier decision in a 1998 case called Wellington Condominium Corp. No. 61 v. Marilyn Drive Holdings Ltd.:  that judgment established that, in the context of claiming damages for material misstatement or omission in a disclosure statement, there is a distinction between the proof of reliance required to be shown by a condominium corporation as opposed to an individual unit-owner.  Specifically, a corporation need not prove that it actually relied on the misstatement; this level of proof is only required of an individual unit-owner who brings an action.  Nonetheless, a condominium corporation must still establish some reliance on the facts, by demonstrating that it cannot reasonably carry out its duty to control, manage and administer the common elements and the corporation’s assets without incurring an expense that results from the false, deceptive or misleading information that appeared in the disclosure statement.  

This distinction in the level of proof required stems from the overall objective of the Condominium Act, and the fact that the legislation expressly creates a remedy for a condominium corporation even if it is not, strictly speaking, a party to the contract between the unit-owners and the developer.  See Essex Condominium Corporation No. 89 v. Glengarda Residences Ltd., 2010 (ONCA).