A recent decision in Ritchie et al. v. Castlepoint Greybrook Sterling Inc., 2020 ONSC 3840, dismissed a class action lawsuit seeking damages on behalf of purchasers under purchase agreements to a cancelled development on the basis of an exclusion clause in the agreement.  The plaintiffs (purchasers) alleged that the vendor (defendant) terminated the purchase sale agreement because financing could not be obtained, claiming that the vendor failed to meet its contractual obligation to take commercially reasonable measures to secure the financing.

Most new build agreements include terms and conditions in the agreement that limit the recovery on termination of a purchase sale agreement to typically deposits plus interest. Clauses excluding damages and costs, including loss of bargain and loss of profit, are common terms in such agreements.

Justice Perell applied the test for exclusion clauses. First, the court must determine whether the exclusion clause applies to the circumstances of the case. Second, if it does apply, the court must consider whether there was any unconscionability. Lastly, the Court can consider whether to not enforce the otherwise valid exclusion because of some overriding public policy consideration.

The plaintiffs’ main argument was that interpreting the exclusion clause to encompass breaches of the purchase agreement is inconsistent with the contractual obligation to use commercially reasonable efforts to obtain financing and complete construction under the Tarion addendum, which obligations cannot be contracted out of.

However, Justice Perell agreed with the vendor’s position that the exclusion clause applies even where there has been a breach of the obligation to take commercially reasonable efforts. He found that other than mandating the return of deposits plus interest, the Tarion Addendum expressly allows parties to enter other termination agreements and does not preclude a developer from limiting its liability to exclude damages.

As a result, this has prompted the introduction by Tarion, for projects going to market after January 1, 2020, of the requirement that agreements of purchase and sale include an information sheet at the front of the purchase agreement that outlines some of the key potential risks of buying a residential pre-construction new build. These may include potential early termination conditions, such as reaching a minimum sales threshold for the project to proceed, the developer securing necessary financing for construction and completion of the project, and obtaining the required approvals from the municipality. 

Call Kesarwani Law Office today and let us review your agreement of purchase and sale. We conduct diligent reviews with your best interest in mind, to ensure you understand what to expect with your agreement.

We are real estate lawyers in Toronto located at 2121 Lakeshore Blvd. We service across the GTA, including Mississauga, Brampton, Vaughan, and Oakville.

Contact Jasdeep Dhillon at 647-349-8300 or jasdeep@legal-solutions.ca

Please do not construe this as legal advice and contact a real estate lawyer regarding all your real estate matters.

Kesarwani Law Office

2121 Lakeshore Blvd

Toronto, ON M8V 4E9