Condominium conversions present additional risks to purchasers since they are not covered under the Ontario New Home Warranties Plan Act. Under the Warranty, a purchaser’s deposits up to $ 20,000 are covered and the premises are guaranteed to meet certain minimum standards.
The obligation is of course upon the builder to return the deposit or repair the building as required. If the builder fails to do so, then the purchaser has recourse to the Warranty which is administered by Tarion Warranty Corporation (an agency charged with the responsibility for administration of the Act).
However, this is not the case with respect to condominium conversions. The purchaser will be out of luck if there is a problem with the builder.
The Superior Court of Justice considered such a case. The purchaser provided a deposit and negotiated the acquisition of an apartment unit within a complex which was being updated, renovated and converted into a condominium by the builder. The project was delayed and the builder experienced all kinds of problems including substantial cost overruns.
The builder found it necessary to extend the closing on numerous occasions. To some degree that was fine, since the purchaser had plenty of notice. But, a little closer to the promised closing date presented real problems. The purchaser had given notice on her apartment, moved out and was told the premises were still not ready for occupancy. This was after 18 months of extensions.
Now, one provision in the standard form agreement of purchase and sale used by the builder, permitted the builder to extend the closing date as many times as he wanted for 18 full months. Naturally, in retrospect that seems unreasonable, but at the time of the Offer it was not thought likely (in all probability it was not likely even noticed).
The purchaser terminated the agreement and was forced to sue for the return of her deposit and certain other items she had purchased. The purchaser had acquired some upgrades, some appliances and other items. One other rather objectionable clause in the agreement had to be considered. That provision required all extras and additional items to be purchased to be paid for in full at the time they were ordered. And, the provision went on to say that these additional payments were to be treated as deposits.
So, when the purchaser finally terminated the agreement, the builder took the position that the deposits had all been forfeited. This made it necessary for the purchaser to sue and after several years and considerable expense the Court ruled:
· The builder was in breach of contract
· The purchaser was ready, willing and able to close on the closing date specified
· The provision in the agreement allowing the builder to retain the money paid for the extras was unconscionable
All in all, this seems to be a pretty good result for the purchaser. But, the purchaser never got paid. You can’t take a Judgment to the bank.There simply was no money available. The principal of the building company had died. In this case, all other purchasers in the Province of Ontario would have recourse to Tarion, but not here.
There are some lessons to be learned:
· Condominium conversion projects are not covered by a Warranty
· The project and the builder’s reputation should be thoroughly checked
· The agreement should be reviewed by a lawyer before it is signed (afterwards is too late)
· Caution should be exercised about extras
· Numerous extensions are red flags, and the transaction may never get completed
· Lengthly closings suggest that there can be significant changes in the market, including the builder’s costs
This project ran into difficulties. The problems were beyond the control of the builder, and even after pouring thousands of additional monies into the project, there was still not enough money to pay everyone. However, you can well imagine that just about everyone else from the municipality seeking its taxes, to the mortgagees seeking their financing costs, and to the construction crews who filed liens, all of these individuals had some degree of priority for payment. But, not so with the purchaser! So, beware and be careful.
If you are interested in following this case, see Logger vs. Bear Inc. (Justice David S. Crane, December 2006)
“As of January 1, 2018, residential condominium conversion projects qualify for warranty coverage. The warranty applies to projects where the first Agreement of Purchase and Sale is signed on or after this date.
A residential condominium conversion project is when an existing non-residential building (warehouse, church, etc.) is converted into condominiums. In this type of project, pre-existing elements of the building, such as the foundation and frame, are incorporated into the new design and construction of the new building. Buildings that were originally built for residential use – like rental apartment buildings – would not qualify for coverage unless otherwise specifically permitted.
Condominium conversions benefit from the same seven-year warranty coverage as other new homes, with one exception: the pre-existing elements are not covered by the one-year warranty on workmanship and materials. This exception is because the pre-existing elements are often much older and cannot be certified in the same way as the new construction.”
So, some are covered and some are not. The key question would be when was the condominium actually converted? And, are you sure about that date? It often takes several years. Be sure to call Tarion for the correct answer to a Project if you are concerned.
Brian Madigan LL.B., Broker