Sunday, October 5, 2008

Always review purchase agreements with a lawyer

A recent decision of the Superior Court of Justice highlights the risks of a buyer failing to close a transaction to buy a new home or condominium from a builder.

Back in March 2003, Siavash Valizadeh signed an agreement to buy a Bay St. condominium, which was to be built as part of the Residences of College Park project. The purchase price was $303,400 and deposits totalling $30,340 were paid.

The agreement set a tentative occupancy date of March 15, 2005, but allowed the developer an extension of up to two years. The document also provided that if the purchaser defaulted, the builder at its option could declare the agreement terminated and forfeit the deposit monies.

The final occupancy date was set for Dec. 8, 2006. By that time, Valizadeh and his wife had moved to Montreal, apparently for employment reasons. He came to Toronto to inspect and take possession of the condominium, but claimed numerous deficiencies made it unfit for occupancy.

By August 2007, the condominium was registered and the builder kept pressing for Valizadeh to complete the final closing.

Over the course of almost a year ending in November 2007, Valizadeh retained three separate real estate lawyers in succession and repeatedly requested extensions of the final closing date.

Eventually, the purchaser agreed to pay the builder a $20,000 "reinstatement fee" to keep the deal alive until closing.

When Valizadeh failed to close by Nov. 19, 2007, College Park terminated the transaction and brought legal action to order the agreement at an end, evict the purchaser's tenant, forfeit the deposit money, and to require Valizadeh to pay $150,000 in damages.

The builder's application came before Justice Darla A. Wilson in June.

By this time, Valizadeh had purchased a home in Montreal with a mortgage on it, and as a result was unable to secure a mortgage on the College Park condominium.

Valizadeh's position in court was that he was treated unfairly by the builder's representatives and the agreement was unfair to him.

The judge disagreed. "Valizadeh agreed to purchase a condominium that would not be ready for occupancy for a substantial period of time from the date of the agreement," she wrote. "He chose to enter into the purchase and sale agreement, knowing the occupancy date was not certain.

"He had ample time to review the contents of the agreement with a lawyer after he signed it to familiarize himself with the provisions of it. He must have been aware of his obligations to secure financing for the unit and the change in his personal circumstances is irrelevant. In any event, he was granted numerous extensions by the vendor yet at the end of the day, he was unable to close the transaction because he could not or did not secure the requisite financing."

In ruling against the buyer, the judge wrote that "the (builder's) imposition of an arbitrary `reinstatement fee' of $50,000 reduced to $40,000 then subsequently reduced to $20,000 on a purchaser who was in dire financial straits was inappropriate. It appears that this sum was added on at the whim of the vendor."

The judge ordered that the agreement be terminated, but because the builder could not show any losses, the deposit money (minus court costs) was to be returned to the buyer.

For buyers of new homes and condominiums, there are three lessons to be learned from the case of College Park v. Valizadeh.

The first lesson is that builder purchase agreements should always be reviewed with a real estate lawyer before they become binding.

The second and third lessons are the same as the first. They cannot be repeated often enough.

Bob Aaron is a Toronto real estate lawyer. He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818. Visit the column archives at http://aaron.ca/columns/toronto-star-index.htm for articles on this and other topics.

2 comments:

sia said...

It is really nice to see that free spoken opinion boards such as this one do exist. Although I am not in the liberty of disclosing all legal information about this case, however there are facts that I can speak or write about. It is true that I entered into an agreement with College Park on March 2003. It is also true that I did not check with a lawyer before signing it. The Occupancy date, set by College Park was for December 2006. When the place was inspected on the 8th of December 2006, in the start of cold Canadian Winter season, on a unit placed on 50th floor, I noticed that few of Windows had no lucks meaning they were left half open, and a large bedroom window (due to the shift on the structure concrete of a new building, "claimed by College Park Management") was broken to the extent that cold air and snow was entering the unit. This was in addition to all other shortcomings of the unit from electrical problems to heating issues. It was obvious that I did not see the unit fit for occupancy with a one yr old child that I had. I requested the place to be fixed, College Park management finally claimed the place was ready to occupancy on the April 20th 2007 however they were still charging for occupancy fee of $1900 per month from Dec 2006 to April 2007 (total of $8,800.00) for a period which the place agreed with College Park maintenance team was not fit to be occupied. This was the first issue with College Park, the second matter was that the very same fee was charged in two different places, once requested to be paid on a separate invoice & also was added onto the final sale closing invoice (double dipping for the same invoice). These charges should be considered null, not charged twice. Discussion continued until July 20th 2007 when I received a Final Closing Date order to be on August 23rd 2007, exactly a One Month Notice. The agreement of Purchase and Sale on the Section 2 specified that the Vendor had to provide the Purchaser a 120 day notice in advance for the Final Closing. By providing only a 30 day notice, College Park failed to respect their own written agreement. Finally on Late September 2007, College Park Completely Terminated the agreement in writing to my lawyer. When I asked for extensions, College Park management simply requested additional reinstatement fee of $50,000 dollars and later discounted to $20,000. Note that I had to pay additional penalty fee to get back my rightfully and lawfully given balance of 120 days to arrange my mortgage. Given a proper three months notice, I would have easily be able to secure the needed financing. Although I had moved to Montreal for employment reasons, my having a condo in Montreal had nothing to do with issues in Toronto. Mortgage arrangement is a provincial matter and not a federal one. People can have different houses in different provinces. During the months of September& October 2007, I had managed to arrange three different mortgages but every time College Parks added additional costs and fees to the final balance so that the mortgage would come short. College Parks Financial Manager Mr. Benjamin Regowski stated to the purchaser that " Why would college park allow you to have this unit while it can make profits from it simply by terminating the agreement and taking over the condo". It was clear that College Park did not intend to deliver the unit to the purchaser once the purchaser was late more than one month in getting the mortgage.
On the court date, Justice Wilson made an error in law by not noting the providence of 120 days notice written in the Agreement of Purchase and Sale and not noting the double dipping charges of college parks, and not noting the unreasonable $20,000 charges asked from the purchaser. That is exactly why this case is up for an Appeal Court now and will take few more months before we have the final result on this case. To date I have spent $34,000 on legal fees and College Park has spent $68,000 on legal fees, was this all necessary! About the unit being rented, Yes it was rented but the rent was collected by College Parks from October 2007 to May 2008.
At the end Justice will prevail, if we can keep up with paying the legal fees. This is Canada, a country made on Law and Legislations, that is exactly why with having proper lawyers and following proper legal channels, Justice Will Prevail.

sia said...

It is really nice to see that free spoken opinion boards such as this one do exist. Although I am not in the liberty of disclosing all legal information about this case, however there are facts that I can speak or write about. It is true that I entered into an agreement with College Park on March 2003. It is also true that I did not check with a lawyer before signing it. The Occupancy date, set by College Park was for December 2006. When the place was inspected on the 8th of December 2006, in the start of cold Canadian Winter season, on a unit placed on 50th floor, I noticed that few of Windows had no lucks meaning they were left half open, and a large bedroom window (due to the shift on the structure concrete of a new building, "claimed by College Park Management") was broken to the extent that cold air and snow was entering the unit. This was in addition to all other shortcomings of the unit from electrical problems to heating issues. It was obvious that I did not see the unit fit for occupancy with a one yr old child that I had. I requested the place to be fixed, College Park management finally claimed the place was ready to occupancy on the April 20th 2007 however they were still charging for occupancy fee of $1900 per month from Dec 2006 to April 2007 (total of $8,800.00) for a period which the place agreed with College Park maintenance team was not fit to be occupied. This was the first issue with College Park, the second matter was that the very same fee was charged in two different places, once requested to be paid on a separate invoice & also was added onto the final sale closing invoice (double dipping for the same invoice). These charges should be considered null, not charged twice. Discussion continued until July 20th 2007 when I received a Final Closing Date order to be on August 23rd 2007, exactly a One Month Notice. The agreement of Purchase and Sale on the Section 2 specified that the Vendor had to provide the Purchaser a 120 day notice in advance for the Final Closing. By providing only a 30 day notice, College Park failed to respect their own written agreement. Finally on Late September 2007, College Park Completely Terminated the agreement in writing to my lawyer. When I asked for extensions, College Park management simply requested additional reinstatement fee of $50,000 dollars and later discounted to $20,000. Note that I had to pay additional penalty fee to get back my rightfully and lawfully given balance of 120 days to arrange my mortgage. Given a proper three months notice, I would have easily be able to secure the needed financing. Although I had moved to Montreal for employment reasons, my having a condo in Montreal had nothing to do with issues in Toronto. Mortgage arrangement is a provincial matter and not a federal one. People can have different houses in different provinces. During the months of September& October 2007, I had managed to arrange three different mortgages but every time College Parks added additional costs and fees to the final balance so that the mortgage would come short. College Parks Financial Manager Mr. Benjamin Regowski stated to the purchaser that " Why would college park allow you to have this unit while it can make profits from it simply by terminating the agreement and taking over the condo". It was clear that College Park did not intend to deliver the unit to the purchaser once the purchaser was late more than one month in getting the mortgage.
On the court date, Justice Wilson made an error in law by not noting the providence of 120 days notice written in the Agreement of Purchase and Sale and not noting the double dipping charges of college parks, and not noting the unreasonable $20,000 charges asked from the purchaser. That is exactly why this case is up for an Appeal Court now and will take few more months before we have the final result on this case. To date I have spent $34,000 on legal fees and College Park has spent $68,000 on legal fees, was this all necessary! About the unit being rented, Yes it was rented but the rent was collected by College Parks from October 2007 to May 2008.
At the end Justice will prevail, if we can keep up with paying the legal fees. This is Canada, a country made on Law and Legislations, that is exactly why with having proper lawyers and following proper legal channels, Justice Will Prevail.