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Disclosure Statements: Say it Right and Say it Clearly

When purchasing a condominium unit, it is absolutely vital that you know what exactly it is you are getting yourself into. Accordingly, the Act imposes specific disclosure obligations onto declarants attempting to sell a unit. This is done through section 72 of the Condo Act.

In the same vein, section 74 of the Act provides that if there is a “material change” in the information contained in the disclosure statement, the developer must “clearly identify” them.

What does this mean? And what can happen if the disclosure is not so clear? The Ontario Court of Appeal ruled on this issue recently.

What the Act Says

Before getting to how the Court ruled, the exact language from the Act is reproduced below:

74 (1) Whenever there is a material change in the information contained or required to be contained in a disclosure statement delivered to a purchaser under subsection 72 (1) or a revised disclosure statement or a notice delivered to a purchaser under this section, the declarant shall deliver a revised disclosure statement or a notice to the purchaser.

(3) The revised disclosure statement or notice required under subsection (1) shall clearly identify all changes that in the reasonable belief of the declarant may be material changes and summarize the particulars of them.

The Act also defines a “material change”. I am paraphrasing here but it is something that, objectively viewed, a reasonable buyer would have seen as sufficiently important to their decision to purchase a unit that they wouldn’t have bought it had the change been disclosed. There are several exceptions to this. You can find them, along with the exact language, at section 74(2) of the Act.

Having gotten the nitty-gritty of the law out of the way, we can move along to the Court Appeal decision.

When is Disclosure  Insufficient

As noted above, according to the Act, if a material change to the information in disclosure statement occurs, purchasers must be updated. The Act requires developers to “clearly identify” these changes. The Court of Appeal recently ruled on what this means, and what consequences follow if a developer fails to abide by it.

In TSCC No 2051 v Georgian Clairlea Inc., 2019 ONCA 43, there was a dispute between the corporation and the developer with respect to several mortgages. Note that the developer in this case actually assigned the mortgages to another entity. However, for simplicity’s sake, I will continue to refer to this entity as “the developer”.

One of the mortgages in this case related to HVAC equipment. Originally, the developer intended to have a third party supply, and then lease it, to purchasers of the units. Later though, the developer decided to purchase the equipment, and sell it to the condominium corporation. The developer-controlled board agreed to give the developer a mortgage for these units. The other mortgage was for several parking and storage units. The developer conveyed these unsold units to the Corporation in exchange for a vendor take-back mortgage.

The Court of Appeal found that the applicable disclosure documents were insufficient because, among other reasons, they were so confusing.

Ultimately, the court failed to see how any reader of the disclosure would have any idea what they were purchasing. In addition, it was “replete with grammatical errors and missing words that exacerbated the problem.”

The Court also took issue with the disclosure statement’s cover letter, which directed the purchasers to look to the budget statement to see the mortgage payments owing. However, the budget didn’t actually show any.

In addition, the budget statement contained a note telling purchasers that there were “no services the declarant provides, or expenses the declarant pays, that are reasonably expected to become a common expense.” The Court found that this could be misleading to purchasers.

The Court also found that the mortgages and disclosure were oppressive. They breached the purchasers’ reasonable expectations that they would not be paying a mortgage for items they thought they had already bought. Accordingly, it reduced the principal amount owing on the mortgages.

Takeaways

So what can we take away from all of this?

Firstly, a developer’s revised disclosure documents must be readable and free from unnecessary complexity. Although, this lesson applies to any document that will be relied on by others. I will go ahead and admit that perhaps we lawyers could learn a thing or two from this as well.

There is also a lesson here regarding the dangers of ambiguous language that could disguise the truth.

To read the full decision, click on this link.

As always, thanks for reading! In light of today’s subject matter, I have tried to make it as readable and free from unnecessary complexity as possible.