A Declarant needs to provide Clear and Current Disclosure Information to Purchasers

In Toronto Standard Condominium Corporation No. 2051 v Georgian Clairlea Inc. (“Georgian”) the Ontario Court of Appeal affirmed the findings of the motion judge with respect to a declarant’s disclosure obligations as set out in the Condominium Act, 1998 (“Act”).

Subsection 72(1) of the Act provides that “the declarant shall deliver to every person who purchases a unit or a proposed unit from the declarant a copy of the current disclosure statement made by the declarant for the corporation of which the unit or proposed unit forms part” (emphasis added). The obligation to provide the current disclosure statement demonstrates that the Act intends for the declarant’s disclosure obligations to continue as the project changes between inception and final closing.
This intention of continuous disclosure is further codified in Subsection 74(1) of the Act where it is prescribed that a declarant is required to provide a purchaser of a unit or proposed unit with a revised disclosure statement or notice with respect to a “material change in the information contained in or required to be contained in a disclosure statement.

The disclosure issue in Georgian arose because of 2 vendor take back (“VTB”) mortgages given by the newly formed condominium corporation to the declarant while the declarant maintained control of the board of directors of the condominium corporation.

A VTB mortgage was provided in the amount of :

• $2,228,100.00 for HVAC equipment the declarant had previously disclosed would be leased by a third party to purchasers; and

• $1,026,000.00 for 32 parking units, 16 storage units, and 2 combination parking and storage units the declarant was unable to sell to purchasers.

Neither VTB mortgage appeared in the budget statement for the first year after registration of the condominium plan as no payment was due under either VTB mortgage for a period of 1 year.

During a motion for summary judgement, it was found by the motion judge that the 2 VTB mortgages were “material changes” as defined in Subsection 74(2) of the Act and that the re-disclosure/notice of these VTB mortgages was insufficient to satisfy the declarant’s disclosure obligations set out in the Act. The motion judge went on to conclude that the conduct of the declarant was oppressive to the interests of the purchasers. The Ontario Court of Appeal affirmed the motion judge’s decision.

Of interest in Georgian is the consideration of Subsection 74(3) of the Act by the motion judge. It is widely known that the Act and the disclosure obligations set out in the Act are meant to protect purchasers from the high-handed conduct of a declarant. As such, Subsection 74(3) of the Act requires “a revised disclosure statement or notice…clearly identify all changes that in the reasonable belief of the declarant may be material changes and summarize the particulars of them” (emphasis added).

It was argued by the mortgagee of the VTB mortgages (the declarant is now in bankruptcy) that the purchasers could have discovered the details of the mortgages in the disclosure documentation provided. However, the motion judge found that disclosure will not satisfy the obligations of the declarant set out in the Act where such disclosure is not “clear, coherent or consistent, or where such disclosure does not provide full and accurate disclosure”.

To that end, the motion judge considered the disclosure of each VTB mortgage separately and concluded the disclosure documents were confusing and failed to clearly identify the material changes. The Court of Appeal agreed with the conclusions of the motion judge.

For declarants, Georgian serves as an important reminder to fully and accurately disclose information in any document relating to a new condominium project. If a declarant intends to lease or sell a unit to the condominium corporation (pending the enactment of proposed Section 26.1 of the Act) it is our opinion it is not appropriate to exclude the costs associated with such lease or sale from the first year after registration budget without clearly disclosing that costs will be incurred in the second year of operations. It is of utmost importance that the collective disclosure documents clearly reflect the current intentions of the declarant.

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