Treating employees well key to fraud prevention

Treating employees well key to fraud prevention

December 31, 2007

An Ontario Court of Appeal decision raises questions about the conflict between consumer protection legislation and traditional common law principles such as buyer beware, write Toronto condo lawyers Armand Conant and John De Vellis in The Lawyers Weekly.

The Shibley Righton LLP partners discuss the Court of Appeal’s decision in Toronto Standard Condominium Corporation No. 2095 v. West Harbour City (I) Residences Corp., 2014 ONCA 724 (CanLII), which related to an application by a condo corporation challenging the validity of a bylaw and agreement entered into by the developer/declarant, on behalf of a condo corporation, while it controlled the condo’s board of directors.

“The bylaw and agreement stated, among other things, that the corporation’s only recourse for common-element construction deficiencies was through the Tarion warranty process,” write Conant, head of the firm’s condominium law group, and De Vellis, also a member of the condominium law group and co-counsel for the appellant in the West Harbour appeal.

“Therefore, the developer would not be liable for any common-element construction deficiencies not covered by Tarion — for example, a major structural defect uncovered after the expiry of the applicable Tarion warranty period, or claims that exceed the Tarion limits (the amount varies, but it has an maximum limit of $2.5 million),” they write. “Since their advent in the 1960s, condominium corporations have had common law rights against the developer in addition to Tarion warranty rights. These common law rights may now be extinguished by virtue of an exclusionary clause inserted into a disclosure statement.”

The condo corporation argued that the bylaw and agreement were unreasonable and contrary to the Condominium Act, which Conant and De Vellis note is one of only seven consumer protection statutes in Ontario.

“In dismissing the appeal, the appeal court said the agreement and bylaw were disclosed in the disclosure statement and in each agreement of purchase and sale, and that the bylaw was also registered on title ‘for all the world to see,’” they write, adding that the registration on title could not have occurred until after the declaration was registered, which was several years after the 10-day cooling-off period given to purchasers to review their original agreement of purchase and sale.

Conant and De Vellis write in The Lawyers Weekly that the appeal court’s decision is rooted in the principle of caveat emptor, on the basis that the matter was disclosed in the disclosure statement.

“But the informational disadvantage that exists between condominium purchasers and developers is precisely why there is a consumer protection legislative framework in place to protect purchasers of new condominium units,” they write. “Condominium buildings can be large, complex systems with extensive common elements, and any number of construction defects can cause problems that can cause hundreds of thousands, or even millions of dollars to repair.”

In addition, they write that disclosure statements can be lengthy — often running 100+ pages — and few consumers can understand them or have their lawyer review them in full during the 10-day cooling-off period.

“In our view, it is unrealistic to expect that a typical consumer, making a major life purchase from conceptual drawings and a showroom model suite years before the building is built, can appreciate what are common elements, let alone the extent to which this type of agreement prejudices their rights with respect to them,” Conant and De Vellis write in the article.

They write that the government is aware of West Harbour decision and others that have weighed traditional commercial considerations against the consumer-protection intent of the act.

“The question is whether a right balance has been achieved. Disclosure can never be perfect and there is no doubt that at some point, purchasers have to take responsibility for their own actions,” they write. “But has that point been reached under today’s laws, especially in the case where a disclosure statement effects a major shift in risk from the developer to owners?”