Ontario Court determines Anticipatory Breach of Contract in Purchaser’s Failure to Successfully Rescind binding Agreement to Purchase a Condominium Unit from a Builder

Section 74 Notice of Recission Invalid on its Face

By Slonee Malhotra

Last month, the Court of Appeal for Ontario, in Chen v. Brookfield Residential (Ontario) Limited, 2022 ONCA 887, dismissed an appeal related to an anticipatory breach of a contract to buy a condominium in Ontario. In today’s real estate climate of quickly shifting conditions, this case should serve as a cautionary tale that an agreement to enter into a real estate purchase is binding and enforceable, even if it is not favourable. Further, the Court will adhere strictly to the doctrine of anticipatory breach, unless a legitimate case can be made to the contrary that is consistent with the language and intention of the Condominium Act.

The Purchase

In January 2017, the Appellant, Chang Jiu Chen (“Mr. Chen”) entered into a contract to buy a luxury detached single-family home, registered as a Condominium (“the Agreement”), from the Respondent, Brookfield Residential (Ontario) Limited (“Brookfield”).

The closing date was set for December 11^th, 2017. However, between January 2017, when Mr. Chen entered into the Agreement, and December 2017, the market conditions had changed considerably. The home’s value had significantly declined. Mr. Chen then advised Brookfield that he wanted a postponement or a mutual release from the transaction. Later, Mr. Chen advised Brookfield that he wanted to cancel the deal entirely.

On December 7^th, 2017, after making these requests, Mr. Chen provided a written “notice of rescission” (“the Notice”) under s. 74(6) of the Condominium Act, 1998 (“the Act”). A notice of rescission is a purchaser protection in the Act through which a purchaser can cancel an otherwise firm agreement of purchase and sale if there has been a material change in the information that was previously disclosed by the builder. The purchaser has ten days from the date that they are made aware of the material change to rescind under this clause. In this case, Mr. Chen argued that the failure of the builder to complete construction on the gate and parkette amenities, constituted a material change.

On the same day that Mr. Chen provided his written Notice, Brookfield confirmed to Mr. Chen that the Builder was terminating the Agreement on the grounds of anticipatory breach, allowing Brookfield to keep Mr. Chen’s deposit and reserving their right to recover losses. In Ontario, a party to a contract can be released from their obligations under that contract, if the other side commits an anticipatory breach. Simply, an anticipatory breach occurs when a party commits a breach that is so serious it is seen as “repudiating” the contract. The breach must be a “substantial failure of performance” or deprive the other party of “substantially the whole benefit” of the agreement.

If correctly applied, a notice of recission would allow Mr. Chen to cancel the Agreement without forgoing the deposits he had already put down. However, if incorrectly applied, the builder (Brookfield) can use this notice of recission as evidence of an anticipatory breach, which is what they sought to do in this case.

The Application

Once Brookfield had invoked the doctrine of anticipatory breach, and stated their right and intention to keep Mr. Chen’s deposit monies, Mr. Chen then had to apply to the court for a determination on the matter. Under section 74(5) of the Act, a purchaser can apply to the Superior Court of Justice for a determination on whether a material change has occurred. Mr. Chen applied for such determination, in the hopes that the court would uphold his notice of recission based on a material change, and his deposit would be returned. Further, he could seek damages against Brookfield if there was a material change. In response, Brookfield brought a counterclaim seeking a declaration that Mr. Chen was not entitled to rescind the Agreement as there was no material change within the meaning of the Act, and seeking additional damages from Mr. Chen for failing to complete the transaction over and above the deposit monies retained.

In order for the Court to determine whether Mr. Chen had the right to rescind the Agreement under section 74(6) of the Act, they must first determine whether there was a material change in circumstance, as contemplated by the Act. This analysis was quick however, as the gates and parkette were amenities that were statutorily precluded from being considered under the material change analysis. Therefore, Mr. Chen’s notice of recission was invalid on its face

The Motion’s Judge further held that Mr. Chen’s delivery of the notice of rescission cannot be viewed as “reasonable and taken in good faith” when it is considered in the context of the correspondence that preceded it which indicated an inability to close. Prior to delivering his Notice of Rescission, Mr. Chen advised Brookfield that he would not be able to close “due to the low appraisal value” and requested “a cancellation of the deal”. In so doing, Mr. Chen explicitly communicated to Brookfield that he did not intend to perform the contract. The notice of recission was a strategy to evade closing.

Mr. Chen appealed the decision.

The Ontario Court of Appeal upheld the decision of the lower court.

Conclusion

Purchasers should exercise extreme caution in submitting a written Notice of Rescission to ensure that any conduct prior to submitting a Notice is not viewed as an attempt to avoid closing or as a signal that the Purchaser is otherwise unable to close. Ultimately, even though it was a bad deal for him financially, Mr. Chen was unable to prove a statutory basis for not fulfilling his end of the Agreement. Make sure you speak to a lawyer if you are in a similar situation or contemplating your options under a binding agreement.

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