Interesting decision on material change from 40% increase in monthly fees

A new case sheds some light on the requirements for notice of a material change. Section 74 of the Act requires the developer to notify purchasers of material changes in any information contained or required to be contained in a disclosure statement.

In 2009 the purchasers agreed to buy a unit in the Trump Hotel from the developer. The closing date was to be in 2010. An amendment was agreed upon that extended the closing date to March 31, 2012 at the latest. In early 2012 the developer’s lawyer provided the closing documents to the purchasers’ lawyer. The purchasers’ lawyer noticed that the common expenses for the unit had increased from $1,775 per month in the original documents to $2,472 per month in the closing documents. The purchasers’ lawyer wrote to the developer’s lawyer about the difference and argued that it constituted a material change that required the developer to provide notice or a revised disclosure statement. The purchasers terminated the agreement, but the developer refused to return the deposit.

The purchasers commenced a proceeding against the developer. The purchasers argued that the developer’s lawyer had set a closing date, extended it and the developer failed to close by the closing date in the agreement. The developer argued that it had not extended the closing date. The purchasers sought an order requiring the developer to pay back the deposits paid, being $228,250. The developer sought a declaration that the deposits were forfeited.

The court found that the developer’s lawyer had authority under the agreement to extend the closing date and had done so by his communications to the purchasers’ lawyer. The court also found that the purchasers relied upon the communications of the developer’s lawyer to their detriment.

The most interesting portion of the case (for me at least) was that the developer argued that the purchasers should have invoked section 74 of the Act to rescind the agreement, and since they did not they were in breach of contract for failing to close. However, the court noted that the triggering event for rescission in section 74 of the Act is delivery of a revised disclosure statement or notice. The developer argued that the statement of adjustments provided to the purchasers’ lawyer by its lawyer prior to the proposed closing date was sufficient. The court disagreed and found that the purchasers were entitled to rescission since the triggering event (i.e. a revised disclosure statement or a notice of a material change) never occurred, which means the time period for rescinding the agreement had not begun.

The purchasers were entitled to their deposits back plus interest. Costs have not been decided.

This case is important for any developers, purchasers, and their lawyers since there are specific requirements for notice of a material change under section 74 that must be followed. A simple letter from the developer’s lawyer to the purchasers or their lawyer may not suffice.