marty_rumack webBy Martin Rumack

When everything goes right in the purchase of a new condominium, everyone is happy. But when things go wrong, it gets complicated. More importantly, buyers may not have all the recourse and remedies that they think.

That’s the lesson to be drawn from the recent Ontario court decision in Mitchell v. Printing Factory Lofts Inc. (2013 ONSC 5603). The buyer had agreed to purchase Unit 26 in the building marketed and sold by the seller, the Printing Factory. Like the other units in the building, it was a loft space that had been marketed to the public as suitable for a live/work-type dwelling; Unit 26 in particular was designed to have a private entrance leading from the adjacent street. This feature was of particular appeal to the buyer, and in her discussions with various representatives of both the Printing Factory and the builder they verbally confirmed that there would indeed be a private door to the street level in that unit.

However, by the time construction had been completed, the unit’s layout had changed.  The private door had to be eliminated to accommodate unforeseen requirements relating to hydro ducts that had been imposed by the municipality. There were now certain building code violations and other deficiencies in the unit as well.

Needless to say, the buyer was not happy with these significant deviations from the plan. The Printing Factory suggested that she could either accept the unit “as is” or move into another unit for the same square-foot price as the original one. Neither of these options was appealing, so in January 2010 the buyer took possession of the unit – under protest – and the sale closed about six months later.

After closing, the buyer asked the Printing Factory to compensate her for the missing exterior door to the street, but it refused. She then sued both the Printing Factory and the builder, claiming that the missing door had changed the fundamental character of Unit 26 and that she deserved damages.

Was she right in asking for compensation? If so, who should pay? Was it the Printing Factory, as seller? Was it the builder? Was it both? And which of them was responsible for building code deficiencies?

These were the questions faced by the court. Perhaps surprisingly, it decided that the buyer’s remedy was restricted to suing the Printing Factory; the builder was off the hook.

The rationale for the court’s conclusion was found in the clear wording of the Agreement of Purchase and Sale. That document comprehensively and exhaustively dealt with the rights and obligations between only two parties: the buyer and the Printing Factory. The builder wasn’t even mentioned, except to expressly release it from liability for these kinds of claims.

Nor could it be said that the builder had any separate legal obligation to the buyer in this scenario, outside of what the agreement provided. This is because the builder’s representative (with whom the buyer had some pre-closing conversations) had not made any representations about the door that were legally binding on the builder. (To hold otherwise would offend the basic legal principle – designed to promote contractual certainty – that says that such extrinsic, off-the-cuff statements by a third party such as the builder’s representative cannot affect contractual obligations between the buyer and the Printing Factory).

Having found that the builder was not liable, the court then had to consider the obligations and rights of the Printing Factory, as seller. These were clearly set out in the Agreement of Purchase and Sale, and 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. The buyer was entitled to sue the builder to determine whether damages should nonetheless be awarded.

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 also stipulated clearly that if the buyer chose to go ahead with the closing, she 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 herself. Once having learned about the missing door before closing, she could have rescinded the agreement entirely, on the legal basis that there had been a material change. Yet, even after knowing that the Printing Factory would not compensate her, she had opted to go ahead with the deal nonetheless. She 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 nothing goes wrong, 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 they bargained for.

Toronto lawyer Martin Rumack’s practice areas include real estate law, corporate and commercial law, wills, estates, powers of attorney, family law and civil litigation. He is co-author of Legal Responsibilities of Real Estate Agents, 3rd Edition, available at www.lexisnexis.ca/bookstore. Visit Martin Rumack’s website at www.martinrumack.com.

  • Philip

    I just wonder in any salespeople were involved. Seems like a commercial purchase.