May 01, 1997

Substantial Instead of Minor Changes to the Condominium Plan; Disclosure Statement - Failure to File Amendment, Material False Statement in the Budget #269

May 01, 1997

Substantial Instead of Minor Changes to the Condominium Plan; Disclosure Statement - Failure to File Amendment, Material False Statement in the Budget #269

By Gerry Neely

Since many developers are now pre-selling before there is a hole in the ground, their presentations to prospective buyers can only be based upon models, plans and sales brochures portraying the merits of the condominium a prospective buyer may occupy. Inevitably some alterations to the plans are required as construction proceeds. A developer who contracts with a buyer to complete the development substantially in accordance with the plans, illustrations and descriptions, needs flexibility to make these changes. The result is a clause in the contract, which in general permits modifications thought by the developer and the architect to be desirable and reasonable.

The point at which changes by the developer cease to be minor and amount to substantial changes, was the subject of a case which came before the B.C. Court of Appeal in late 1996. A number of buyers refused to complete their purchases of the completed condominium development because of the changes made by the developer. Those changes included: hot water heating to electric baseboard, substitutions of concrete guardrails for glass rails, changes to the lobby and the landscaping and the elimination of five windows in each suite, windows which gave light and views to the east and west sides of a condominium unit.

The developer gave a number of reasons for justifying these changes, including safety, privacy, increased flexibility in the furniture layout and in the efficient use of the kitchen.

Both the trial judge and the Court of Appeal agreed that the changes were not minor and the units were not substantially built in accordance with the plans. The changes amounted to a fundamental breach, which entitled the buyers to rescind the contracts and to obtain repayment of their deposits.1

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What consequences flow from the underestimation by a developer of a condominium project of the initial monthly expenses, compounded by the failure to file an amendment to the disclosure statement, when it should have been evident that the developer’s budgeted figures were false at the time a sale took place?

The disclosure statement was filed in October of 1993 and given unamended to buyers who bought in June of 1995. The disclosure statement indicated a monthly assessment of $129.57 per month, while the evidence at trial was that the monthly maintenance fee in 1995 was approximately $200.

A developer’s obligation under Section 56 of the Real Estate Act, is to file an amendment if any change occurs which has the effect of making a statement in the disclosure statement false or misleading. Not every change requires amendment, only those which if left unchanged would result in a material false statement being made in the disclosure statement.

The judge concluded that the budgeted monthly assessment was a material false statement, upon which the buyers had relied in deciding to purchase their unit, which entitled them to damages.

The buyers had stated that they intended to live in the house for a period of four years and damages of $3,000 were awarded to cover the difference between the stated and actual monthly assessments over that period. An additional $2,000 was given as slight compensation for the possibility that the higher maintenance fee would make it more difficult to sell the condominium.

Section 59 of the Real Estate Act makes a director of the developer company personally liable for a material false statement contained in the disclosure statement. Therefore, damages were awarded against both the developer company and its directors.2

  1. Lau v. 1755 Holdings Ltd., 6 R.P.R. (3d) 152.
  2. Hass v. Tungnan Enterprises Ltd., S.C.B.C., January 24th, 1997.

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