Buyer made an offer to purchase a condo from Seller which was conditional on the purchaser obtaining a Status Certificate. This Certificate included a statement that the condo corporation had no knowledge of any circumstances that may result in an increase in the common expenses for the unit, except possibly for security costs. The Buyer then relied on this information and waived the Status Certificate condition on March 17th. The sale was to close in mid June (3 months later).
Between mid March and mid June, a number of events took place concerning the condominium corporation. The condominium corporation sued the developer for lack of co-operation by the developer to allow the condo corporation to do an audit. As well, it became apparent to the condo corporation that there was a shortfall in the budget for the first year of operation and there was a potential increase in the common element fees. At the end of March, the condo corporation issued a notice of special assessment for just over $600.00 with respect to security costs and the budget shortfall. In the first week of May, the condo corporation issued a notice that the monthly maintenance fees would increase from $200.00 a month to $330.00 a month based on the new budget for the next year.
The Buyer became aware of the increase in the common area expenses a short time before the closing date and asked her real estate agent and lawyer to find out what was going on. On the advice of her lawyer she obtained a second Status Certificate before closing. The new Status Certificate showed the increase in the common expenses to $330.00 a month and that there was a potential for further special assessments, including substantial repairs as a result of the audit carried out by the condominium corporation representatives.
The Buyer refused to close the transaction. The Seller sued for forfeiture of the $10,000.00 deposit. The Court awarded the forfeiture of the deposit to the Seller. There was no basis for the Buyer to refuse to close, notwithstanding the changes in the circumstances relating to the condominium corporation.
The Seller also sued the condominium corporation and its property management company for an additional $10,000.00. The basis for the Seller’s claim was misrepresentations in the first Status Certificate. The Court found that any duty that the condominium corporation may have had was owed to the Buyer as required by Section 76(6) of the Condominium Act, and not to the Seller. Even if there was a duty owed to the Seller, there was no reliance by the Seller on the Status Certificate. Section 76 of the Condominium Act states that there must be reliance on the Certificate.
The Buyer in the listing agreement stated that the common element fees included the heating and air conditioning costs for the condominium unit. This was wrong, and the heating and air conditioning costs for the unit were paid for by the Seller separately, since there was a separate HVAC system for each condominium unit.
The Buyer was provided with a Status Certificate but did not review it with his lawyer, since his lawyer was away. The Buyer waived the Status Certificate condition.
The additional HVAC expense was $250.00 per month that the Buyer would have to pay. The Buyer calculated this expense was $3,000.00 a year and based on a 50 year life expectancy of the building claimed $150,000.00 from the Seller. The Buyer also asked for the replacement cost of the HVAC system of $19,000.00, since that would have to be done at least once in the 50-year life of the building. The Buyer was an experienced purchaser and had been the owner of another condominium and on the board of directors. Twenty-eight months after purchasing the condominium unit the Buyer sold it for $125,000.00 more than the million dollar purchase price from the Seller.
The Judge found that the Seller had negligently misrepresented that the HVAC costs for the unit were included in the common elements expense payable monthly. The Buyer was entitled to damages but the damages were reduced since the Buyer had an obligation to verify the information regarding the HVAC costs, the Buyer had professional representation and was not an inexperienced purchaser. Furthermore, the Buyer “failed to conduct the full and detailed search of the condominium documents that he was offered an opportunity to conduct…and…. waived the very conditions that he wants to rely on to obtain damages.”
The Judge said the losses were questionable since he sold the unit at a profit. As well the claims for replacement of the HVAC and many years of additional monthly costs were unrealistic since the Buyer only owned the condo unit for 28 months. The Buyer was awarded costs of $250.00 per month for 1 ½ years for a total of $5,500.00.
The Status Certificate was a factor that the Judge took into account in reducing the amount of damages of the Buyer. The lesson to be learned, of course, is that once the Status Certificate has been provided, the Buyer ignores the Status Certificate at his own risk and if the condition is waived relating to the Status Certificate, the Buyer may be limited in the amount of damages that they can later claim from the Seller.
When representing a Buyer, you may want to consider putting an additional clause in the offer to purchase the condominium.
The Status Certificate is a statement about the condominium corporation and the condominium unit as of the date of the Certificate. Any changes in that information after the Certificate date may not allow the Purchaser to terminate the agreement of purchase and sale once it has been accepted and the Status Certificate condition waived.
In the case of Bilorosek v. Vaitkus, a Status Certificate was given dated March 14, 2002 and based on that Certificate, the Buyer waived the Status Certificate condition in the Agreement. The transaction was to close in the middle of June. Between the middle of March and the middle of June a number of events occurred concerning the Condominium Corporation. Because of a shortfall in the budget for the first year, there was going to be an increase in the common element fees and a notice of special assessment was issued. As well, a notice was issued to the unit owners that the monthly maintenance fee was going to increase from just under $200.00 a month to over $330.00 a month for the next year. The Condominium Corporation sued the developer so that it could do an audit of the information provided by the developer. The Buyer refused to close on the closing date and was sued for the deposit to be returned, and the Buyer lost the deposit of $10,000.00.
To protect against changes in the circumstances of the Condominium Corporation between the waiver of the Status Certificate condition and the closing date, the following clause could be used. This clause may not be appropriate in all circumstances, and would likely be a clause that should be considered if there is a fair amount of time between the waiver of the Status Certificate condition and the closing date. It also might be appropriate if there is a resale of a relatively new condominium that may have changes happening fairly quickly with respect to common element expenses.
The condominium clause that you may want to insert could read as follows:
Unless the Buyer gives notice in writing to the Seller on or before four (4) days before the closing date, that this condition is fulfilled, this offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction.
This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller within the time period stated herein.”
There are some drawbacks to this proposed clause. There is an additional $100.00 cost to get this Second Status Certificate. As well, the agreement is going to be conditional right up to four (4) days before closing, which may make for some difficult decisions for the purchaser if they have no other place to live and are intending to move into the condominium on or immediately after the day of closing.
When a Buyer is purchasing a condominium from a developer, it is not binding on the buyer until they receive a current “disclosure statement” from the developer. The Buyer has ten (10) days to rescind the agreement after receiving the disclosure statement. The disclosure statement is not a Status Certificate.
The disclosure statement must contain statements indicating information such as the following. This is not an exhaustive list of what has to be included in the disclosure statement, only examples.
If there is a material change in the disclosure statement, then the developer has to deliver a revised disclosure statement within a reasonable time after the change takes place, and at the latest within ten days before the deed is delivered to the buyer, i.e. closing. The buyer has a right to rescind the agreement within ten days of receiving the revised disclosure statement.
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