Law360 Canada (September 15, 2026, 11:28 AM EDT) --
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| Ray Mikkola |
The prospect of upcoming new residential condominium closings is causing significant anxiety to both purchasers and developers. The issue: current market conditions have created the unusual situation in which the market value of proposed units has fallen.
To comply with their contractual obligations set out in lengthy purchase agreements, purchasers may now be required to pay as much as 30 per cent above the market value of the condominium unit at closing, and in some cases, depending on the date of execution of the purchase agreement, even more. Completing purchases in many cases has been foreclosed by the decision of banks not to lend the required amount of closing funds, as the amount of the advance is and was always based on the current market value of the unit being pledged as security at closing for the mortgage loan.
The situation can be contrasted with the headlines only a few years ago, when we were undoubtedly in a seller’s market. In those heady days, it was condominium developers (called “declarants” because the creation of a condominium occurred by “declaring” the development as a condominium under the
Condominium Act) acting as sellers who terminated or were threatening to terminate purchase agreements and return deposit monies to purchasers, with interest, because it turned out that they had promised to deliver a condominium unit for a price that could no longer be achieved due to the rising cost of building materials, municipal development charges and labour, among other inputs.
Declarants needed to borrow more money to commence building units than would be collected from purchasers on closing. Lenders to declarants would, in any event, of course not lend monies to build a development that would be underwater from the outset, so declarants exercised termination clauses inserted in purchase agreements for precisely this circumstance. Purchasers were left with a return of their deposits that had been made months or even years prior, but the rising residential housing market had now left them far behind in acquiring an alternative product.
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Premier Doug Ford, in response to the predictable public outcry, vowed to crack down on what he characterized as bad faith terminations. The province considered fining declarants, temporarily prohibiting them from acting as builders in any future developments, and generally limiting termination rights by developers even if such termination rights had been expressly included in purchase agreements. To developers, Ford said, “You signed a contract. You better build that damn house.” (See “
Premier slams Ontario developer that raised condo prices by $100,000 after cancelling sale deals.”)
He called for “independent reviews” of the purported good faith exercise by a developer of a termination clause. Others suggested that homes should need to be “bought back” from purchasers at fair market value prices prevailing at the date of purchase agreement termination, presumably by making a fair market value (upward) adjustment to purchasers’ deposits to be repaid to purchasers. It appeared that the province would be taking steps to limit declarants’ rights to exercise contractual termination rights in the name of society’s interest that parties to a contract should be held to their bargain. A few months later, real estate prices, particularly for residential condominium units, had reached their zenith and were headed downwards.
Part of the problem for such so-called “new build” purchases, particularly with proposed residential condominium units, is that there can generally be a very significant delay between the execution of a purchase agreement and the delivery of the property to the purchaser. The reasons for the delay are numerous. They include the requirement to deliver a sufficient number of pre-sales to satisfy a lender to advance funds on a construction mortgage, delays at the municipal level in approving developments and issuing building permits to commence construction and finalizing contracts with numerous contractors involved in the construction process (particularly given the shortage of labour). Lenders to condominium developers lend on the expectation that construction will proceed based on stipulated costs and times.
Lenders may hire a “quantity surveyor” to ensure that the amount advanced has been paid to achieve construction up to the appropriate stage, and that the balance of the loan will be sufficient to pay for the work yet to be completed. It can be very difficult for a lender to recover its loan, even when secured by a first mortgage, on a property with a building and related improvements that are half constructed. In those circumstances, advisers and contractors have sometimes not been paid in a timely manner or at all. Title is frequently festooned with dozens of construction liens and certificates of action that claim priority in some cases over the lender’s mortgage.
That significant delay between signing the purchase agreement and closing also means that there is ample opportunity for purchasers to get caught out when the market falls. Much of the danger for purchasers arises from the following factors:
1. Purchasers generally have an incomplete understanding of their obligations under the purchase agreement. The declarant’s form of purchase agreement is lengthy and exceedingly complex. Declarants are required to provide a disclosure statement, and to append Tarion schedules that contain consumer protections that supersede the balance of the purchase contract, but they provide no real relief from reductions in unit values in a down market. The Tarion schedules are particularly complex. The Court of Appeal has described them as “a trap for the unwary, particularly for the unwary lay person,” “not ‘consumer protective’ by any stretch of the imagination,” and “convoluted and confusingly long” at least in respect of closing extensions (see Ingarra v. 301099 Ontario Limited (Previn Court Homes), 2020 ONCA 103).
2. Declarants sometimes go to market at a very early stage, including prior to obtaining development approvals. This means that the development may be delayed (and in some cases, modified or refused) in the course of obtaining such development approvals.
3. Investor purchasers (including those who are not acquiring properties for their own occupancy, but rather to “flip” to assignees for an expected profit) have apparently played a significant role in driving up prices of new residential condominium units. Investor purchasers were also more likely to purchase multiple units, thereby exacerbating their losses associated with a fall in the market over the long period between execution of the purchase agreement and closing.
Not surprisingly, the standard form of purchase agreement does not generally include a purchaser’s right to terminate beyond the mandatory 10-day statutory “cooling off” period. The purchaser’s entitlement to terminate a residential new-build condominium purchase agreement is generally dependent only on the declarant failing to achieve occupancy by the Outside Occupancy Date stipulated in the Tarion schedule.
What is a purchaser to do? Part two of this series explores the possibilities.
Ray Mikkola is a partner with the firm of Pallett Valo LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the author’s firm, its clients, Law360 Canada, LexisNexis Canada or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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