Canada: Fighting Back Against Excessive Closing Costs

Last Updated: June 30 2016
Article by Megan Mackey

If your condominium corporation is less than two years old, you might wish to forward this newsletter to your unit owners and facilitate a discussion among those owners who bought directly from the builder about the costs they were charged on closing.

First purchasers of condominium units are sometimes shocked by the extra costs that are charged at closing. Agreements of purchase and sale often allow condominium developers to recover a variety of costs directly from purchasers. Often these extra costs are collected for things that one might assume were part of the purchase price. For example, developers could collect the cost of installing hydro meters, traffic lights, new sidewalks or even fencing by adding these additional construction costs to the purchase price at closing. Developers can recover construction costs and other expenses by hiding these costs in the "fine print". These extra costs are referred to in the agreements of purchase and sale as "adjustments".

Adjustments are charged on top of the purchase price that buyers agreed to pay for their units. These charges can typically exceed $10,000 on the purchase of a modestly priced condominium unit. Adjustments have the effect of increasing the purchase price and result in purchasers paying more for their condominium units than anticipated at the time of purchase. This practice is legal and commonplace.

It is easy for developers to use these charges as a way to recover costs at closing; perhaps a little too easy. Developers of larger condominium projects can collect hundreds of thousands of dollars by adding these "adjustments" to every purchase. Developers can and have abused the system. While it is impossible to estimate the amount of monies purchasers have paid as "adjustments", it is reasonable to suspect that this is a lucrative source of revenue for developers.

When challenged on these questionable charges, developers may remove them or insist on payment. In the latter situation, purchasers are often forced to pay questionable or improper "adjustments" because failure to do so may result in the purchaser being threatened with the legal consequences of breaching a purchase agreement. Sometimes the only way for purchasers to dispute these adjustments is to pay the money and sue the developer after closing.

Winning with Miller Thomson

Recently we acted for a group of purchasers who believed the adjustments charged by their developer were improper. Purchasers each paid $2,466.58 as an "adjustment" on closing for the installation of a meter to measure the water consumption in their residential units. While the agreements of purchase and sale permitted the developer to recover the cost of installing individual water meters, these meters were not installed. We estimate that the developer collected close to half a million dollars for meters that had never been installed.

In order to recover the charges for water meters, we commenced a number of small claims court actions against the developer on behalf of this group. The lawsuits were heard together in a single trial. The judge found that the water meter charges were improper because the developer had not installed them. The developer was ordered to reimburse each purchaser who participated in the lawsuit for the water meter "adjustment" that appeared on their statements of adjustments.

We note that a lawsuit to recover $2,500 is not cost-effective. Our clients were able to maintain their lawsuit because a number of purchasers came together to sue the developer, which permitted them to share the legal costs. If you believe that your developer may have claimed adjustments that were not permitted by your agreement of purchase and sale, you should speak to your neighbours and, if it seems appropriate to do so, organise a town hall meeting to discuss a group legal action. In litigation, there is often strength in numbers.

Under the current Condominium Act, collecting adjustments is perfectly legal as long as the adjustments were disclosed in the purchase agreement. Purchasers should not however be complacent and assume every adjustment is valid. If you have purchased a unit directly from the builder, we recommend that you review your statement of adjustments carefully in order to see if there are any charges which seem inappropriate or do not make sense. Lawsuits such as the one we were involved with are usually initiated by one diligent purchaser.

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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