Class-Action Lawsuits for Condominium Developers
As Southern Ontario cities continue to grow and the province and municipalities encourage intensification of housing development, developers look upward with mid- and high-rise condominium developments. While the housing market has witnessed a strong demand for mid- to high-rise condominiums, developers cannot afford to build on speculation and need buyers to pay sizeable deposits and commit to purchasing their respective units before the project breaks ground. Banks will simply not finance such projects unless the committed sales are in the 70-80% range. While open houses at sales centres offer a solution, buyers are ultimately purchasing the units sight-unseen, relying upon the purchase agreement and disclosure documents to properly and accurately describe in detail the unit and common element dimensions, and the fit and amenities that are part and parcel of the development. When the buyer ultimately moves into the unit following construction, there is a requirement that the dimensions, fit, finish and amenities will be consistent with the purchase agreement and disclosure statement. This is often the case, but if this requirement is not met by the developer, there can be serious legal repercussions.
Failure by developers to deliver on their promises, or to fix problems or compensate unit owners for any deficiencies can escalate into lawsuits brought by upset buyers. When a legal action is brought by a buyer, other similarly affected buyers in the same condominium project may choose to pursue similar legal recourse. In the past, developers would typically handle such issues dealing with an individual buyer. However, recently, there has been a proliferation of class-action lawsuits brought on by disgruntled condominium purchasers which has become a wake-up call for developers.
Class action lawsuits have been a part of the legal landscape in Ontario for over 20 years, when Ontario’s Class Actions Proceedings Act came into effect. As this body of law develops, lawyers and clients are becoming more inventive in their application. For example, a unit owner and his or her lawyer seeking to bring a class action lawsuit will undoubtedly advertise to all unit owners in a building when dealing with an issue that affects all owners, inviting them to join in a class action lawsuit in a single legal action against the developer. Where a single lawsuit may be frustrating to a developer, a class action suit could potentially be crippling. Consider a lawsuit against a developer by a single buyer seeking damages of $10,000 for a problem that is common to the entire development. If every unit owner in a building of 200 units were to join together in a class action lawsuit, this hypothetical $10,000 could balloon to $2,000,000. A number of such class action suits have been reported over the past few years in Southern Ontario.
Last fall, a class action lawsuit was filed against a condominium developer for installing improper water valves in one of their buildings – the showers in every condominium unit had spikes and drops in water temperature whenever a neighbouring unit flushed a toilet or started a washing machine. One of the unit owners attempted to fix the problem, at a cost of $4,000, and took action against the developer for not reimbursing him. Eventually other owners became involved, and the situation snowballed into a $29 million class action lawsuit. Similarly, in the past five years, several condominium buildings have become the subject of class-action lawsuits as a result of glass falling off of the structures post-construction. Plaintiffs in this case included not only residents, but individuals who were injured by the falling glass. Finally, last year, Toronto condominium residents realized that their new condominium building did not have the “easy underground access” to the subway line that they were promised. Once the residents moved in, and realized that there was no such access, a $30 million class action lawsuit was launched against the developer. There are countless potential situations that could lead to a class action lawsuit, including improper or missing amenities, structural matters, leaking or faulty windows and incorrect unit measurements.
As a developer, the key to avoiding class action lawsuits is detailed preparation on two levels: first, having condominium descriptions and disclosure statements that accurately describe the product ultimately constructed and delivered to the buyers. Second, it is crucial that the fit, finish and amenities of the condominium units and common areas are consistent with the disclosure statement. As seen in the case above, something as simple as neglecting to install pressure balancing devices for showers or sinks when promised can have severe repercussions. Ultimately, proper preparation at every stage ensures that the developer does not favour short-term profitability at the risk of long-term prosperity. For more information on this topic or anything related to land use and development, please contact Mark Schumacher, Seth Jutzi or David Sunday.
Article written by
Mark Schumacher and Nigel Smith, Law Student. Mark is a partner at SorbaraLaw, practising in commercial and residential real estate development including condominiums and complete subdivisions, as well as secured financing for these transactions..