Ontario Court Of Appeal Adds Good Faith Requirement For Rescission Under The Condominium Act – Real Estate


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Chang Jiu Chen, the Appellant in the December 20th
2022 decision of Chen v Brookfield Residential (Ontario)
Limited
1, signed an agreement of purchase
and sale for a condominium unit in 2017. Nearly one year later, the
property was re-appraised at a lower value and the Appellant could
not complete the purchase2. A month prior to the
scheduled closing date, the Appellant moved for rescission claiming
that the condominium’s parkette and its entry and exit gates
were not completed on time. The Appellant argued that such failure
constituted a material change and met the test for
rescission3. Although the Court held that the lack of a
completed parkette and entry/exit gates were not a
“material” change under the Condominium
Act
4, it also took the opportunity to
discuss the role of good faith when a party seeks to rescind a
condominium agreement of purchase and sale.

Rescission is a court process by which a party can withdraw from
contractual obligations without penalty, provided certain
conditions are met. The Condominium Act (the
“Act”) specifically allows for rescission where there has
been a “material change” and mandates that all material
changes be made known to condominium purchasers through a revised
disclosure statement 5. When a “material
change” does occur, a purchaser can rescind the agreement of
purchase and sale under section 74 of the Act within ten days of
the latest of three occurrences laid out in section 74(6):

” (a) the date on which the purchaser receives the revised
disclosure statement or the notice, if the declarant delivered a
revised disclosure statement or notice to the purchaser;

(b) the date on which the purchaser becomes aware of a material
change, if the declarant has not delivered a revised disclosure
statement or notice to the purchaser as required by subsection (1)
with respect to the change; and

(c) the date on which the Superior Court of Justice makes a
determination under subsection (5) or (8) that the change is
material, if the purchaser or the declarant, as the case may be,
has made an application for the
determination.”6

Practically, section 74 means that condominium purchasers who
are notified of a material change have the option to cancel their
purchase and regain their deposit with interest7.

While these sections of the Condominium Act do not
discuss a “good faith” requirement, the Court of Appeal
mentions that the Appellant had not acted in good faith when
seeking rescission and that the Appellant was using the rescission
mechanism as an excuse for their inability to fulfill the
purchase8. The Court’s focus on the Appellant’s
lack of good faith implies that good faith should be taken into
consideration when applying section 74. The Court also specifically
pointed out they did not share the Appellant’s concerns in
recognizing such a requirement, stating that:

“[26] We do not share the appellant’s concern that
recognizing a good faith requirement will enable sellers to ignore
notices of rescission under the Act by claiming they are not being
made in good faith. Sellers who do so run the risk of incurring
liability for any resulting damages suffered by the
purchasers.”9

The Court also said that allowing bad faith notices of
rescission would create “absurd results” such as
weakening otherwise valid contracts and allowing purchasers to
strategically use rescission to intimidate sellers10. It
is apparent that the Court of Appeal believes that rescission under
the Condominium Act contains an element of good faith.

Going forward, condominium buyers should be advised that
attempting to use rescission for an ulterior motive, such as a lack
of financing unrelated to the material change, may result in an
unfavorable decision by the courts.

Footnotes

1. Chen v. Brookfield Residential (Ontario)
Limited
, 2022 ONCA 887 [Chen].

2. Ibid at paras 2, 3.

3. Ibid at paras 3-5.

4. Ibid at para 17.

5. Condominium Act, supra note 1, s
74(1).

6. Ibid, s 74(6).

7. Ibid, s 74(9).

8. Chen, supra note 2, at para
23.

9. Ibid, at para 26.

10. Ibid, at para 24.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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