Developers Beware - Strict Compliance with Closing Procedures Required by the BC Court of Appeal

I previously wrote on the legal issues faced by developers of residential condominium projects in British Columbia relating to the Real Estate Marketing Development Act (“REDMA”). The focus on REDMA compliance must not, however, distract a developer from focusing on more basic contractual compliance which can also create enforceability issues.  A case in point is a recent decision of the British Columbia Court of Appeal in Sethna v. 350 Kingsway Development Ltd., 2011 BCCA 434 (“Sethna”).

The trial court found that two purchasers were able to terminate their agreements to purchase condominium units because the developer had not met the original construction completion date.  The execution of a Receipt and Acknowledgment of Disclosure Statement amendments setting a new construction completion date, as well as other actions which were argued to be affirmations of the contract, were held not to be bars to the purchasers’ right to terminate.  The Court of Appeal expressly did not endorse the reasons of the trial judge, writing that there were “real questions as to whether the trial judge properly applied the principles of contractual interpretation to the Receipt and Acknowledgment and applied the correct legal principles to the issue of whether the purchasers’ actions barred them from terminating the purchase agreements”.  The Court of Appeal also expressly stated it was not required to address REDMA as part of the appeal.

Instead, the Court of Appeal upheld the finding that the purchasers were allowed to terminate by focusing on the contractual clause that allowed the developer to issue a Closing Notice setting the date for completion of the condominium purchase.  The Court read the clause as requiring the developer to notify the purchaser of two matters ten days prior to the specified closing date or as part of the Closing Notice; namely, that an Occupancy Permit had been issued and that a separate title to the Strata Lot had been raised in the Land Title Office.  In this case, the Closing Notice did not contain notification of these two other matters and actual notice of these matters was provided less than ten days prior to the completion date.  The Court determined that the developer was required to “comply exactly” with the wording of this clause in order to specify a contractually binding completion date.  In the end, this meant:

“that the developer did not notify the purchasers of those two things ten days prior to the completion date of November 6, 2008 purportedly specified in the Closing Notice, with the result that the Closing Notice was not effective to specify the completion date.  Put another way, the developer was not entitled to issue a closing notice on October 27, 2008 because it had not previously notified, or did not contemporaneously notify, the purchasers of those two things.”

This case is a cautionary note for developers.  A developer must strictly comply with its contractual obligations under an agreement to sell a condominium.  As Sethna shows, “substantial compliance” is not enough to ensure enforceability of that agreement.


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