Strict Compliance with the Terms of an Agreement is required to Strictly Enforce Contractual Rights

 

 

The Takeaway

The terms of a contract govern the relationship between the contracting parties.  If a party intends to strictly enforce a contractual right that party must have strictly complied with the prerequisite requirements to do so.

The Case

The type of agreement that gives rise to the dispute in Giuseppe Di Millo v 2099232 Ontario Inc, 20151407 Ontario Inc., and Inderjeet Dhugga is one that many land developers are familiar with.

Giuseppe Di Millo (the “Developer”) entered into an agreement of purchase and sale with 2099232 Ontario Inc. (the “Builder”) for the construction of a home on a specific lot (the “Lot”) within the Developer’s proposed subdivision (the “Agreement”).  The Agreement provided the Builder was to construct the home on the Lot within 30 months of closing.  The Agreement also provided that time was to be of the essence.

The Agreement included an option agreement that permitted the Developer to repurchase the Lot (the “Option”).  The 30 month period would have expired on March 5, 2015 but the parties agreed to extend the date until March 5, 2016.  In the summer of 2016 the Developer discovered the Builder had built a temporary structure on the Lot that did not comply with the municipal by-laws or the terms of the Agreement.

The Developer elected to exercise the Option upon the discovery of the temporary structure.  The Developer’s lawyer wrote the Buyer’s lawyer and set the closing date to purchase the Lot pursuant to the Option (the “Option Purchase”) as July 6, 2016 (the “First Notice”).  The First Notice did not comply with the terms of the Agreement.  Two months after the closing date set in the First Notice, in September 2016, the Developer discovered the Developer’s lawyer had done nothing to complete the Option Purchase.

The Developer changed lawyers and, on September 24, 2016,properly served notice on the Builder indicating the Developer’s intention to exercise the Option (the “Second Notice”).  The Second Notice provided closing of the Option Purchase was to occur October 24, 2016.

In the 18 months since the Second Notice was sent, the Developer had done nothing to complete the Option Purchase. The Developer stated that the Developer was ready, willing, and able to close the Option Purchase as scheduled but was unable to do so as the Builder had placed unauthorized 2nd and 3rd mortgages on the Lot that were required to be discharged.

In this case, the Court concluded the 2nd and 3rd mortgages did not prevent the Developer from exercising the Option.

The Court stated that:

by adding the ‘time is of the essence’ clause, the parties made it clear that they would be bound, strictly, by the terms of the Agreement.

The Court found that providing proper notice to the Builder 6 months after the Option first arose did not comply with the time is of the essence clause.  This finding was sufficient to dismiss the Developer’s application, however, the Court went on to consider whether the Developer was ready, willing, and able to close the Option Purchase.

The Court stated that the case law with respect to the exercising of an option is clear, the optioning party must tender.  The Developer supplied no evidence that the Developer had the funds to complete the Option Purchase.  Additionally, the Court heard that the Developer held a power of attorney for the Builder and had the ability to execute any and all documents to give effect to the provisions of the Agreement but failed to prepare or sign any documents with respect to the Option Purchase.

The Developer’s application was dismissed.

The full decision can be found here:

https://www.canlii.org/en/on/onsc/doc/2018/2018onsc816/2018onsc816.html

Renewal of a Commercial Lease and the Doctrine of Waiver

The Take Away

Once a party waives an enforceable legal right its ability to then enforce such right is not immediate.

The Case

A recent decision of the Court of Appeal reaffirmed the manner in which a party may revoke its waiver.

In North Elgin Center Inc. v McDonald’s Restaurants of Canada Limited, the parties had entered into a commercial land lease agreement for a period of 20 years (the “Lease”).  The Lease was subject to renewal.  The parties agreed the Lessee, McDonald’s Restaurants of Canada Limited, had provided its written notice to renew the Lease within the required period, however, the parties continued to negotiate the rental rate after the deadline to set such rental rate pursuant to the renewal provisions of the Lease.

The application judge held that through such negotiation the Lessor, North Elgin Center Inc., had waived its right to enforce the strict terms of the renewal provisions in the Lease.  The application judge later found that the Lessor’s waiver was revoked by an email sent by the Lessor to the Lessee.

The Court of Appeal disagreed.

The decision emphasises that to be effective, revocation of waiver requires:

  1. reasonable notice to be provided to the receiving party;
  2. the notice to include a clear indication that the party who granted the waiver will insist upon the strict enforcement of its legal rights; and
  3. the receiving party to be provided an opportunity to cure any defect resulting from its reliance on the waiver.

The full decision can be found here:

http://www.ontariocourts.ca/decisions/2018/2018ONCA0071.htm

Man Lawyer

Post by: Craig Robson

When I was a junior lawyer, (back before computers) I worked in a firm with a senior counsel who was of an age to have fought in the first World War.  At the time, one of my co-juniors was a very capable young woman.

One day, the senior counsel approached/tottered towards the two of us and interrupted our conversation to ask my associate to do some typing for him.  She reddened and pointed out she did not know how to type.  The counsel was shocked.  He may never have had that response before from a woman employee in his office.  He wandered away muttering comments that made it clear he did not understand how she could be employed in a law office as a woman and not know how to type. He became even more confused when I, a young man, took his notes and typed them out for him.

We are over these types of scenarios, right!?  It’s a new age when men and women are treated equally in the legal profession?  Maybe not.

In the last couple of years some of our firm’s senior law clerks and one of the firm’s lawyers (all women) have noticed something that tells me gender equality is still a good ways off.  When these clerks and lawyer cannot get a response from a client or someone else that we are dealing with, they will eventually ask me if its “time for the man lawyer?”.    When that time comes, I will send a short email or make a short call and 99 out of 100 times I get a response, sometimes while I wait.  The recipients don’t usually know who I am, but it seems the fact that a man has contacted them makes all the difference in the world. This seems to be the case even when our clerks and lawyer are trying to get a response from other women.

I think we  will be a lot closer to gender equality when women’s emails and calls are considered as important as a man’s.  My hopes in that regard were dashed a little more today when the lawyer was asked if she was a “real lawyer”.   I don’t know of many male lawyers who get asked this question.

Sigh.

Craig Robson
(man lawyer)

Condominiums, Drinking Water Systems and the Safe Drinking Water Act

Posted by: Roy Gentles

Recently we have run into a number of issues surrounding the interpretation of the Safe Drinking Water Act, 2002 (the “Act”).  Namely, several municipalities have declared that the system of works that supplies water to the unit owners of the condominium plan is a “non-municipal year round drinking water system”, a “non-municipal drinking water system” or in laymen’s terms a private drinking water system under the Act.

The interesting part from our perspective is that municipalities only appear to be raising this concern when the project is being developed as a vacant land condominium plan.  As you may be aware, a standard condominium plan and a vacant land condominium plan can appear exactly the same once built out (although this is not always the case).  Yet, it appears that if two developments are built side by side, one a standard condominium plan and the other a vacant condominium plan, both of which have the exact same number of units, the exact same layout, and the exact same system of works distributing water, the municipalities would only consider the vacant land condominium plan a non-municipal drinking water system under the Act.

Therefore, it appears that in most, if not all, of these cases it is not a safety concern that results in the vacant land condominium corporation having to comply with the added security, reporting, inspection, and testing imposed by the Act on non-municipal drinking water systems, but rather the location of the unit boundaries.  We draw this conclusion based on the fact that if there was a legitimate safety concern with the system of works distributing water itself, then the municipalities would not allow standard condominium plans to be exempt from these requirements.  Further, we are experiencing these issues in developments where one hundred per cent (100%) of the water supplied to the condominium has already been treated in accordance with the Act by the municipal drinking water system.

This issue is yet to be resolved, but when considering what type of condominium to use for your development be aware that a vacant land condominium plan is likely to run into this issue.  We suspect that common element condominium plans and possibly phased condominium plans will receive similar treatment, however, to date we have not experienced this first hand.

It should be noted that we have solutions to the concerns raised by the municipalities, which should satisfy even a strict reading of the legislation.

If you’re considering developing a vacant land condominium, a standard phased condominium, or a common element condominium we strongly recommend discussing drinking water systems with your legal counsel at the outset of the project.

Enforcement of a “One Family” Clause in Condominium Declarations

Enforcement of One Family Requirement in Condominium Declarations

Post by: Carly Haynes

We have noticed in recent court decisions the imposition of a restrictive definition of “one family” or “single family”[1] residence in condominium declarations where the term is not otherwise explicitly defined in the condominium declaration.

It is our concern that the application of this definition may result in unintended discriminatory practices based on family status or lack of family status and may not be supported by an analysis of the relevant case law.

The definition of “one family” residence which has recently been applied by the Ontario Courts seems to arise from a case involving Nipissing Condominium Corporation No. 4 whose declaration defines a family as:

a social unit consisting of parent(s) and their children, whether natural or adopted and includes other relatives if living with the family group

The declaration of Nipissing Condominium Corporation No. 4 further provides:

(1) Each unit shall be occupied only as a one family residence. For the purpose of these restrictions “one family residence” means a unit occupied or intended to be occupied as a residence by one family alone, including guests, and containing one kitchen, provided that no roomers or boarders are allowed.

A “boarder” for the purpose of these restrictions is a person to whom room and board are regularly supplied for consideration and a “roomer” is a person to whom room is regularly supplied for consideration.

(2) Notwithstanding any definition or provisions in any By-Law of the City of North Bay, no unit shall be used in whole or in part for any commercial or professional purpose involving the attendance of the public at such unit. Without limiting the generality of the foregoing, no unit or part thereof, shall be used as an office by a doctor, dentist, optometrist, drugless practitioner or other professional person.”

In our experience the foregoing declaration provisions are unusual if not unique.  In short, few other condominium declarations in Ontario attempt to define what constitutes a family for the purpose of enforcing a single family or one family residency restriction.

The facts in Nipissing Condominium Corporation No. 4 v Kilfoyl 2010 ONCA 217 (“Kilfoyl”) are quite straightforward, despite the potentially far reaching implications of the decision.  The condominium corporation applied to the court for a compliance order to enforce the declaration’s residency requirements.

The declaration, as noted above, stipulated that each unit could be occupied as a one family residence only.  The Respondent resident, on whom the case centers, rented his units to unrelated persons.  The Respondent argued that it was unreasonable to restrict occupancy based on familial relations, and that such a restriction amounted to a violation of the Human Rights Code (“the Code”), as a unit owner leasing his unit would be forced to reject or accept lessees based on their family status.

The Ontario Court of Appeal enforced the motion judge’s decision which found that this section of the Declaration did not breach the Code, and that the Respondent w498as obliged to respect the condominium’s declaration.  The court further found the condominium was justified in enforcing its unique definition of one family residence.

It is noteworthy to mention that this case was brought before the Ontario Human Rights Tribunal, who deferred to the Ontario Court of Appeal and also found no breach of the Code, see Kilfoyl v. Nipissing Condominium Corporation No. 4, 2010 HRTO 1036.

The Kilfoyl decision was relied on in Chan v Toronto Standard Condominium Corp. No. 1834, (“Chan”) which was also affirmed by the Ontario Court of Appeal.  In Chan, the court found that the unit owner Chan breached the condominium declaration provisions which limited the use of the units to “single family” occupancy by allowing multiple unrelated tenants to reside in one unit, similar in nature to a rooming or boarding house.  The court stressed the unique nature of the condominium community, which they outlined as distinct from the classic freehold ownership wherein owners are at liberty to deal with their property as they choose.

The declaration in question in Chan, unlike the declaration in Kilfoyl, does not contain a definition of “single family”, despite the term being present in the declaration.  The trial judge accepted the condominium corporation’s argument that the above definition present in the Nipissing declaration should be applied.  The definition was imposed on the resident Chan who was found to be in breach of the residency requirement.  The court in Chan made no mention of the fact the Kilfoyl declaration contained a very detailed and unique definition of “family”.

Our concern is this: if the unique definition of “family” which is found in the Nippissing Declaration is somehow deemed to be included in every declaration that makes reference to restrictions to one or single family residential use, this could lead to the exclusion of a wide range of relationships which do not fit neatly into “a social unit consisting of parent(s) and their children, whether natural or adopted and includes other
relatives if living with the family group”.  It is not likely this result was intended by the drafters of condominium declarations who restricted the use of residential units to a one family or single family occupancy.

For example, unmarried couples or friends who chose to reside together for economic or convenience purposes- should they or any other person be obligated to disclose whatever unknown personal details constitute them a “family unit”?

Despite the non-transient, non-student nature of these groups, they would be precluded from residing in developments which impose one family residency restrictions on their unit owners due to the simple fact they are not related.

This concern is seemingly becoming a reality following Ballingall v Carleton Condominium Corporation No. 111 (“Ballingall”) in which the trial judge stated [at paragraph 2] that following the Chan and Kilfoyl decisions, the legal landscape had changed.  The judge went on to say,

Since late 2011, the law has been clear that, in the absence of a definition in the condominium’s governing documents, use as a “single family residence” does not include rentals to multiple, unrelated, tenants- even if they are living there as a family…”

Consequences for Condominium Developers and Corporations

This imposition of the definition places a heavy burden on condominium corporations who do not wish to conform to this restrictive definition to amend their declarations, or risk non-compliance with their own documentation.

We advise developers of condominiums to make it clear in their declarations who exactly they intend to include and exclude through the imposition of residency requirements.  However, this advice does not help existing condominiums whose declarations include “boilerplate” clauses which restrict residency to one or single family use.  The existence of these clauses, in conjunction with recent case law, may result in over-zealous unit owners or directors attempting to force out occupants who are not related as parents or children of one another through court applications.

We are also concerned that none of the cases subsequent to Kilfoyl have made any mention of the unique definition of a one family dwelling in the Kilfoyl declaration.  This raises the question as to whether the courts were aware in Chan and Ballingall that there is no new definition in Kilfoyl as to what makes up a family or a one family dwelling, rather the court in Kilfoyl simply supported and upheld the unique definition in the declaration of Nippissing Condominium Corporation No. 4.

In our submission the Kilfoyl case has become an authority for a premise that is not supported by a careful reading of the case and the declaration that was before the courts.  We view these decisions as opening a Pandora’s Box of problems if applied to condominium declarations that restrict occupancy to one or single family use, but do not contain a similar definition of the term as present in the Kilfoyl declaration.

[1] The terms used by respective condominium corporations are not consistent, both “single family residence” and “one family residence” are found in the condominium documents, though in the cases cited in this post the interpretations applied by the courts restrict the meaning to the definition in the Nipissing Condominium Corporation No. 4, cited above.

The Importance of Abutting Land Searches in the Land Titles System

Post by: Carly Haynes

There are two systems of land registration in Ontario, Land Titles and Land Registry. Historically, land in Ontario was registered only under the Land Registry System pursuant to the Registry Act. In this System all land registration documents are submitted to the Land Registrar and are recorded, in the order they are submitted, on the abstract for the geographic area they affect within a Land Registry Office (“LRO”).  Under this System, the documents are registered on title, but the provincial government does not guarantee the effect of such documents or title to properties.  Consequently, in under to satisfy oneself of title under the Registry System, land registration documents must be searched 40 years into the past in order to assess the validity of title.

In the Land Titles System the provincial government has the responsibility for the validity and security of all instruments registered on title. The vast majority of land in Ontario has been converted to the Land Titles Automated System. Title registered and certified under the Land Titles System is guaranteed by the provincial government, and the record is updated each time a land registration document is registered.

Following a recent trend of case law, it has become clear that despite the fshutterstock_73408681act that the provincial government guarantees title of land registered under the Land Titles System, land owners may still be held responsible for administrative errors where said errors were reasonably discoverable.  This highlights the importance of undertaking abutting land searches and title searches, regardless of the acquisition of title insurance.  This raises the questions as to whether title can ever really be absolute.

In 923424 Ontario Limited v 1695850 Ontario Inc. Justice Perell found that a landowner cannot rely on the lack of express notice of a right of way on servient land to extinguish the right of way.  In this case the existence of a right of way was registered on the abstract of the dominant property, but was absent from the abstract of the servient property. The servient landowner in these circumstances argued that as a result of the failure to register the right of way following conversion of the property from the Land Registry System to the Land Titles System, the right of way was extinguished.

All parcel abstracts for land expressly stipulate that the abstracts are subject to paragraph 2 of section 44 (1) of the Land Titles Act, which provides that unless the contrary is expressed on the register, the registered land is subject to certain liabilities including easements.  This section serves as notice that the land may be subject to a right of way. The court found that despite lack of express notice of the right of way registered on the servient property, the landowner had implied notice through the section 44 statement found on the parcel abstract.  As such, had the landowner heeded the section 44 instructions and undertaken an abutting land search, the right of way would have been discovered and costly litigation could have been avoided.

The Takeaway  

This case reinforces the importance of abutting land searches when undertaking a title search prior to property acquisition.  While many title defects may be protected by title insurance, it remains necessary to complete all title searches to protect against unlikely errors and obtain clear title.

Changes to the Condominium Act, 1998: Part 2 – Additional Provisions in the Declaration

Post by: Evan Holt

Part 1 of this series discussed the new mandatory provisions for condominium declarations. Now, in Part 2 of this series, the discussion focuses on additional (optional) provisions that may be included in the declaration.

Section 7 (4) of the Condominium Act describes additional contents that may be contained in condominium declarations. Although this is a rather open ended category, the revisions to the Condominium Act provide detail with respect to the type of provisions that a developer may wish to include.

Section 7 (4) (a) of the Condominium Act currently states that a declaration may contain a statement specifying the common expenses of the corporation.  Bill 106 proposes to amend this section adding that a declaration may contain a statement specifying the common expenses of the corporation and the circumstances that may result in the addition of any amount to the contribution to the common expenses payable for the owner’s unit to indemnify or compensate the corporation for,

(i)            an actual loss, as is prescribed, that the corporation has incurred in the performance of the corporation’s objects and duties, or

(ii)           any other purpose, if any, that is prescribed.

As with the alterations to the mandatory declaration provisions, this subtle change will provide clarity to a purchaser with respect to how and why common expense fees may fluctuate over time should the declarant choose to include a statement specifying common expenses.

In addition, Bill 106 proposes to also add section 7 (4) (f) which states that the regulations will contain additional optional items that will be permitted to be included in condominium declarations.

To view Bill 106 click here

Changes to the Condominium Act, 1998: Part 1 – Mandatory Provisions in the Declaration

Post by: Evan Holt

Bill 106 is proposing a substantial number of changes to the Condominium Act, 1998 (the “Act”). Over the next few weeks we will highlight certain changes and describe the impact these changes may have on condominium developers.  Throughout the discussion, one must remember that the Act is consumer protection legislation meant to address the imbalance of expertise and bargaining power between a developer and unit purchasers. Therefore, many of the proposed changes are efforts to increase the protection of consumers.

The Government of Ontario plans to have Bill 106 enacted by the end of 2015 and proclaimed by the end of 2016. However, extensive regulations that will provide further instructions, limitations and clarity to the Act are yet to be drafted and may not be of force and effect for some time after the enactment of Bill 106.035

The registration of a declaration is a required step in the creation of a condominium corporation. The declaration is a governing document of a condominium corporation and the requirements for its contents are set out in section 7 of the Act. The declaration must contain certain provisions.

As noted above, an extensive body of regulations will further the purpose of the Act. An important note with respect to changes in section 7 of the Condominium Act, 1998 is that it will be subject to any prescribed regulations as passed by the Government of Ontario.

A notable change with respect to the mandatory provisions to be included in the declaration of a condominium corporation are the addition of subsection 7 (2) (d1).

Subsection 7 (2) (d1) requires that a declaration contain a statement explaining how common interests and common expenses in the condominium are determined. These interests are usually determined by the number or size of units within the condominium corporation. We have generally included such a provision in the past, however, the inclusion of such a provision will be mandatory. A declaration must then provide purchasers with a clear understanding of how common interests and common expenses will be determined in the condominium declaration.

The proposed change to the mandatory provisions to be included in the declaration do not appear to be onerous on a developer. A developer does not acquire additional risk as a result of the changes and the consumer gains a greater level of understanding with respect to how common interest and common expense percentages are determined.

Part 2 of this discussion will speak to changes with respect to optional provision in the declaration.

To view Bill 106 click here.

To view the Condominium Act, 1998 click here.

Taking the Bite Out of Zoning

Post by: Evan Holt199

A property is often acquired for the purpose of continuing the existing use of the property, redeveloping an existing building(s) for a new purpose or developing a vacant site. In any of these cases, it is prudent to make the agreement of purchase and sale conditional on confirming the property zoning permits the existing or proposed use. It is also prudent to obtain competent legal and planning advice early on in the process.

The recent Ontario Superior Court decision of Meron v 2182804 Ontario Ltd., illustrates the impact zoning regulations may have on the use of a building and how an unconditioned offer can prejudice a buyer. The case also highlights the need to do more than rely on general oral statements made by a property seller or preliminary municipal responses when deciding whether to proceed with a transaction.

In the Meron case, the buyer brought an action for return of deposit and damages from the property owner for breach of the purchase agreement. The buyer’s action was dismissed. The seller’s counter claim against the buyer for failing to close the transaction was successful.

The purchase price of the property was $3.5 million. The seller required the offer to purchase to be free of conditions. The agreement was drafted by the buyer’s agent.

The buyer alleged a representative of the seller made the following representations before the agreement was signed:

  • that the property could be used as a restaurant and there would be no issues with the City of Toronto providing approval for such use; and
  • if for any reason the property could not be used as a restaurant, the representative of the defendant (or possibly the representative personally) would return the deposit and purchase the property back from the buyer.

The seller denied making either representation.

Before the agreement was signed, the buyer was informed by the City Planning Department there would be no problem with respect to zoning and the proposed restaurant.

The agreement had no warranties or representations with respect to zoning of the property.

Before closing the buyer was advised by the City that the building only allowed for a 2,000 square foot restaurant and not the proposed 4,000 square foot restaurant. It became clear the buyer would not be able to proceed with the proposed 4,000 square foot restaurant. The transaction did not close. The mortgagee of the property then exercised its power of sale and sold the property.

The buyer submitted it relied on the seller’s oral representation about returning the deposit and repurchasing the property if the proposed restaurant was not approved.  The buyer argued this gave rise to a collateral agreement to the agreement of purchase and sale.

The Court found that the seller may have made a general representation that the property could be used as a restaurant but there had been no representation as to the permitted size of such restaurant

As stated above, the buyer checked with the City before signing the offer to purchase to determine if the zoning would allow for a restaurant. The City provided information that appeared to satisfy the inquiry of the buyer . It was found the buyer relied on the information provided by the City and not the assurance made by the representative of the seller with respect to zoning.

The buyer did not consult a lawyer before presenting the agreement.

The Court was not persuaded the seller had promised to return the deposit and repurchase the property if the proposed restaurant was not permitted.

The Court found the alleged representations lacked clarity in any event and refused to find the existence of any collateral agreement as alleged.

The seller brought a counter claim against the buyer for damages resulting from the failure of the buyer  to close the transaction.

The take away

This case illustrates how important it is for a buyer to not rely solely on oral representations about a property’s zoning compliance from anyone, be it the seller or the municipality.

We suggest that for significant transactions, such as the one described in this case, a buyer should retain a competent planning firm to investigate the property and provide a report on significant items such as zoning so that a buyer does not end up with a property that can’t be used for the buyer’s intended purpose.

The buyer should do this before submitting the offer to purchase or, as is more typical, have the agreement of purchase and sale conditional for a reasonable period of time upon being satisfied with the property zoning.

The agreement of purchase and sale language needs to be very clear as to what is desired by the buyer.

Sometimes, as in the Meron case, the seller will not consider a conditional offer. This forces a buyer to clearly confirm the zoning before submitting the offer to purchase, walk away from the property, or take its chances. Unfortunately for the buyer in the Meron case the decision to take its chances did not work out.

A buyer should also have the offer to purchase either prepared or reviewed by a lawyer with the appropriate level of applicable experience . Some realtors do not have the necessary experience or skill to properly draft such an agreement.

To read the full decision click here.

Unresolved Warranty Claims Under The Ontario New Home Warranties Plan Act

Post by: Evan Holt

A recent decision of the Ontario Superior Court of Justice – Blair v Tarion Warranty Corp. (Tarion) –  confirmed that warranty claims under the Ontario New Home Warranties Plan Act (ONHWPA) can only be pursued by the current owner of a home.

The appellant, Blair, took possession of the subject property in February 2010 and complained to Tarion with respect to insufficient heating in the home. Tarion conducted an investigation that was completed in the summer of 2012 and concluded that duct modification needed to be completed.

After the investigation, in November of 2012, Blair installed within her condominium unit, a gas fireplace at a cost of $17,000.00. This installation was completed without the approval of Tarion. Blair claimed the cost of installation but Tarion denied compensation on February 28, 2013.

Blair appealed the refusal of reimbursement to the Tribunal. During the proceedings, Blair disclosed that she had sold the subject property on October 15, 2013. However, Blair stated that as part of the agreement of purchase and sale she had entered a collateral agreement with the purchaser to maintain her claim against Tarion. The Tribunal dismissed the appeal stating that when Blair sold the subject property she lost standing to continue her action against Tarion.

In this appeal, Blair alleged the Tribunal failed to recognize that the collateral agreement assigned the rights of the current owner to Blair.

Blair relied on the decision of the Tribunal in Liddiard v Tarion Warranty Corp., which included the following statement:

Nothing in this decision should be constructed as denying the Applicants the right to approach the current owners of the home and to seek some form of assignment of their claim.

Liddiard v Tarion Warranty Corp. was appealed to the Divisional Court where it was confirmed that a warranty “runs with the home”. The ONHWPA does not extend warranty coverage to previous owners. Additionally, the consumer protection nature of the ONHWPA is best served though fixing buildings and not compensating individual owners.

The court noted that the claim presented by Blair only dealt with the installation of the fire place and not with the insufficient heat provided to the unit. The current owners never assigned the right to pursue a claim with respect to the insufficient heat, such assignment would violate s. 13(6) of the ONHWPA.

In this case, the court concluded that as the purchaser of the subject property from Blair had no right with respect to the fireplace claim against Tarion, and therefore, such a claim could not be assigned. The purchaser acquired the property with the fireplace and benefited from its presence. Thus, when Blair sold the condominium unit she was compensated for the presence of a fireplace.316

Tarion submitted that a previous owner of a home subject to warranty coverage may be compensated for an unresolved warranty claim without contravention of the statutory warranties framework so long as:

  • any warranty claims are pursued by the then owner of the home; and
  • the arrangements still allow for the possibility of the builder or Tarion to remediate any valid defect, as opposed to providing only for the payment of compensation from Tarion.

Tarion goes on to provide 3 examples of how such a resolution could be reached:

  1. the purchase price could be discounted to reflect the uncertainty the purchaser may face with respect to the outstanding claim;
  2. the purchase price of the home is set to reflect the price of the remediated home. The purchaser would pursue the warranty claim and retain any compensation paid. This may also include a risk mitigation clause in which the vendor would be entitled to a portion of the compensation received by the current owner above a certain amount; and
  3. the vendor could provide Tarion with a signed appointment and acknowledgement explicitly stating that the vendor has been appointed an agent for and in the name of the current owner with respect to unresolved warranty claims. Additionally there should be provisions relating to accessing the home, and the authority of the agent. An agreement would need to be in place between the vendor and the current owner so that the vendor could recover any compensation granted to the current owner.

The consumer protection nature of the ONHWPA is for the protection of an owner or subsequent owner within the warranty period of a new home. This decision illustrates that although a previous owner may benefit from a claim brought by the current owner, the rights of the current owner to pursue an outstanding warranty claim may not be assigned.

To read the full decision click here.