Purchasers of new condominium units are entitled to receive a
condominium that is built in accordance with the vendor's
representations. Unfortunately, condominium developments do not
always meet purchasers' expectations. Although reputable
developers stand behind their products and work with purchasers to
resolve disputes, some developers try to avoid all liability to
purchasers. In some circumstances, the only way for purchasers and
new condominium boards to ensure the declarant-developer complies
with obligations that fall outside of new home warranty coverage is
to commence legal proceedings.
The corporate structure of a declarant-developer can be
problematic for purchasers bringing a lawsuit. Most declarants are
single purpose companies, incorporated solely to build and sell
condominium units. In the ordinary course of business, once deposit
monies are insured or title to the units is transferred, the
declarant will transfer money received from purchasers to investors
and those financing construction. After registration of the
condominium, once most of the units are transferred, declarant
corporations are usually empty shell corporations whose only assets
may be a small number of unsold condominium units. This can be
problematic because lawsuits are only worthwhile if the target
defendant has assets available to satisfy a judgment.
We are frequently asked how condominium corporations can prevent
the developer from disposing of remaining unsold condominium units
pending resolution of a dispute. Condominium corporations view the
developer's sale of the remaining condominium units as
something that would frustrate their ability to recover damages
from the developer.
Unfortunately, condominium corporations do not have the ability
to "tie up" a developer's assets pending resolution
of a dispute. Courts view such requests as attempts to obtain
judgment before trial, which is not permitted. In short, declarants
can continue to market and sell condominium units in the ordinary
course of business, regardless of complaints by purchasers.
Two recent judgments have confirmed that this is the law in
Canada. In 2384125 Ontario Inc. v. The Diamond at Don Mills
Developments Inc., purchasers brought a $7 million lawsuit
against the declarant and vendor of the units alleging
misrepresentation, unjustified increases in the purchase price, and
overcharges on occupancy fees. One unit remained unsold, which had
an estimated value of $500,000. The plaintiff unit owners moved for
a court order preventing the declarant from selling the remaining
condominium unit. Although the court acknowledged that the
defendant was a single purpose company whose last asset was likely
to be sold, the court refused to grant the order sought because
"the law has a strong disinclination to permit execution
A similar decision was rendered in the recent B.C. case of
The Owners, Strata Plan KAS 3267 v. Happy Valley Resort
Ltd. In that matter, owners brought a lawsuit against
the developer and others because the geothermal system required an
alleged $2.5 million in repairs. The declarant's only assets
were condominium units, which were being sold. Again the owners
asked for and were denied an injunction preventing the developer
from disposing of the remaining condominium units, even though the
sale of these units would render the defendants incapable of
satisfying any judgment.
Canadian courts agree that declarant-developers can continue to
sell condominium units despite the existence of allegations that
the project was not built in accordance with representations made
by the developer. Single purpose declarant corporations are
entitled to dispose of remaining condominium units because this is
precisely what those corporations were created to do. In short,
purchasers or condominium corporations looking to collect damages
arising out of their purchase of condominium units cannot rely on
unsold condominium units as an asset to satisfy a judgment against
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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