Developer-imposed purchase agreements challenged

Bob Aaron in Legal

It has become common practice in Toronto for some developers to require condominium purchasers in each building to contribute to the costs of guest suites, superintendent’s units, carwash bays, car share units and similar amenities.

Typically, the total price for these units is between $250,000 and $500,000 per project, and the cost is amortized over 10 or 15 years with interest at 4 per cent above the 10-year Canada Bond rate.

Instead of the charges for these facilities being buried in the purchase price of each condominium unit, they are added to the monthly common expenses for a decade or more after closing. As a result, over a period of years, each condominium buyer can expect to pay a total of perhaps $1,000 to $1,500 in addition to the purchase price. The cost varies with the price of the units and the applicable interest rate.

Although the added charges are set out in the small print of the condominium disclosure statements, they are not referred to in the purchase agreements, and in my experience, never mentioned in sales offices.

This practice may soon end in the wake of a decision of Justice Julie A. Thorburn last year, in a case involving condominium developer Lexington on the Green Inc., and the unit owners of Toronto Standard Condominium Corp. 1930.

Lexington on the Green is a project on Lawrence Ave. W., in the Weston Village area. The registered condominium declaration required the condominium corporation (consisting of the new unit owners) to purchase from the developer a management unit, plus one parking space and a locker for $240,000.

This purchase obligation was also set out in the disclosure statement given to each buyer.

Acting under this requirement in May 2008, the developer-controlled board of directors passed a bylaw requiring the condominium corporation to buy the units, and the board signed a purchase and sale agreement with the developer.

Seven months later, a “turnover” meeting was held, and the new owners elected a board of directors to replace the developer’s board.

In March of last year, the new board passed a resolution to terminate the purchase and sale agreement and end its obligation to buy the management unit. When the developer was notified, it applied to the Superior Court to determine whether the purchase agreement was binding.

Section 112 of the Condominium Act states that a condominium board may terminate an agreement “for the provision of facilities to the corporation on other than a non-profit basis” if the agreement was entered into before the turnover meeting and the election of the new board.

The Act also says that if any provision in a condominium declaration is inconsistent with the legislation, the Act prevails and the declaration is deemed to be amended accordingly.

Justice Thorburn heard the arguments of both sides and dismissed the developer’s application. She ruled that the unit owners did not have to buy the resident manager’s unit.

The judge concluded that the Ontario legislature intended to allow a board of directors to terminate an agreement for the provision of facilities or units in cases like this one if the termination is made within 12 months of the turnover meeting to the new board.

The parties were back in court in December. They agreed on an order to amend the condominium declaration to delete parts of the declaration requiring the corporation to buy the management unit, and to allow the unit owners to use the suite for the purposes permitted by the legislation. The unit owners were awarded costs of $7,250.

Thousands of condominium units are now under construction in the GTA, and the disclosure statements in a great many of them contain similar requirements to buy various units with payments spread out over many years.

Based on the Lexington on the Green case, it can be expected that incoming condominium boards across the GTA, and those elected within the past year, will be terminating these developer-imposed purchase requirements.

The cost savings to unit owners will be in the millions of dollars.

Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto and a board member of the Tarion Warranty Corp.  Bob specializes in the areas of real estate, corporate and commercial law, estates and wills and landlord/tenant law. His Title Page column appears Saturdays in The Toronto Star and weekly on Move Smartly.  E-mail

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