After a developer attempted to unilaterally terminate a pre-construction agreement of purchase and sale because of delays in approvals and construction, the purchasers of a unit were successful in obtaining a court order for specific performance, which compelled the developer to close the transaction. (Jones v. 2341464 Ontario Inc.)
The agreement dated May 5, 2013 specified that the proposed occupancy date was to be on or before September 1, 2014. The confirmed occupancy date was to be selected by the developer in its sole and unfettered discretion. Section 14(c) of the agreement provided that the developer could unilaterally extend or accelerate the proposed occupancy date by providing written notice to the purchasers. Under section 14(d) of the agreement, If the developer could not meet the confirmed occupancy date, then the developer had the right to extend the confirmed occupancy date or alternatively had the sole option to declare the agreement null and void, in which case the purchasers’ deposit plus interest would be paid to the purchasers.
On May 24, 2013, the parties entered into an addendum to the agreement which:
- specifically deleted paragraphs 14(c) and (d);
- extended the proposed occupancy date to no later than February 1, 2015;
- provided that if occupancy did not occur by February 1, 2015, then the purchasers could withdraw from the transaction without any penalties and would be entitled to the return of the deposit;
- specified that the unit transfer date was to be within six months of the occupancy date; and
- provided that in the event of any discrepancy between the agreement and the addendum, the provisions contained in the addendum would prevail.
The developer incurred delays in obtaining various permits and as a result construction of the project did not start until May, 2016.
In February of 2017 the developer advised the purchasers that there would be changes to the layout of the unit and that there would not be any balconies as shown in the original plans. The purchasers indicated that notwithstanding these changes, they wanted to proceed with the purchase of the unit.
On February 26, 2017 the developer’s representative sent an e-mail to the purchasers purporting to terminate the agreement on the basis of sections 14(c) and (d) of the agreement. Due to the delays in obtaining permits, the developer had incurred significant costs and offered the purchasers the first right of refusal to purchase the unit at an increased price of $875,000. (The purchase price set out in the original agreement was $649,000.)
The purchasers then commenced a court action for specific performance, claiming that the agreement, as amended by the addendum, was still valid and enforceable. The purchasers took the position that with the deletion of sections 14(c) and (d), the developer did not have any right to unilaterally terminate the agreement.
In response, the developer argued that the agreement was no longer valid as it was frustrated due to delays beyond its control and because of the changes in the floor plan. The court rejected this argument as the developer’s ability to perform the contract had not been frustrated – by the time that the developer purported to terminate the agreement, the condominium was almost completed and ready for occupancy. The fact that the developer offered to sell the same unit at a higher price indicated that the developer was able to complete the transaction.
“It is evident that the respondent [i.e. the developer] is attempting to avoid its obligations to complete the sale for the purpose of benefiting from an increase in the value of real estate since the agreement was made.”
The court declared that the agreement was valid and in force and that the purchasers were entitled to an order for specific performance. The purchasers established that the unit, which occupied a full floor in the building was unique, and that as the original agreement had been entered into over four years earlier, they would not be able to obtain a unit with similar features at the same price.
In this case the purchasers were fortunate that the addendum had deleted the developer’s right to unilaterally terminate the agreement and that they were ultimately able to purchase the unit at the price they had originally negotiated.
Other purchasers of pre-construction condos have not been as fortunate. There have been a number of reports in the media recently about developers cancelling condominium projects and terminating all the agreements of purchase and sale. Recently, a developer terminated all of its pre-construction purchase agreements for a project, relying on wording in the agreements that allowed it to cancel “due to an inability to secure satisfactory construction financing.” Although the purchasers will receive a refund of the deposits paid, many are not pleased with the termination. They are concerned that with escalating real estate prices during the approximate two-year period since they signed their agreements, they will now not be able to afford to buy a comparable unit in a comparable project at a comparable price.