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A group of unhappy condominium owners has commenced a class action against the
developer of their Thornhill condominium project, claiming that the common
expenses shown in the sales materials were significantly understated.
Between 1999 and 2002, Cantertrot Investments (an H&R project) was marketing condominium
units in The Residence of Beauclaire, on New Westminster Dr., in Thornhill.
Before entering into the agreements, purchasers received a flyer
indicating that maintenance fees for the units were "estimated at $0.32 per
square foot," including utilities, visitor parking, concierge and one locker.
Before signing agreements, the purchasers also received a disclosure
statement as required under the Condominium Act. The statement indicated that
$413,000 were the "total funds required" to be contributed by all owners in the
form of common expenses during the first year following registration of the
condominium.
Based on the proposed budget and the draft condominium declaration,
monthly common expenses for units in the project would range from $171.42 to
$421.65, depending on unit size.
The condominium declaration was registered on June 28, 2002 and, by law,
the developer was responsible for any shortfall between the proposed budget and
the actual budget for the first year of operation.
A year later, the new board of directors reviewed the finances of the
building and had no choice but to approve a budget showing increases of more
than 62 per cent in common expenses for the second year of operation.
Even after the increase, the new budget implemented a deficit of $48,000,
which was funded by a special assessment of about $15 per unit each month for
four years.
In 2004, a group of the original purchasers retained Samuel Marr and
Vadim Kats, of the Toronto law firm, Landy Marr LLP
(http://www.landymarr.com),
to launch an intended class
action against the developer, its principals and the real estate brokers
involved in marketing the condominium units.
In order to start a class action in Ontario, a judge must be satisfied
that certain tests are met and the legal proceedings would be more efficient if
handled under one umbrella rather than having dozens of individual plaintiffs
each commence their own lawsuits.
After months of legal manoeuvring by both sides, Superior Court Justice
Maurice C. Cullity recently certified the action as a class proceeding, allowing
it to proceed with two plaintiffs Solly Lewis and Hersl Kalif representing
themselves and those with similar interests.
Irvin Schein and Stephen C. Nadler, of Toronto's Minden Gross, are
representing the developer, and have applied for permission to appeal Cullity's
certification order.
The allegations in the claim of the plaintiffs are that, as a result of
the alleged understatement of common expenses, the original buyers from
Cantertrot suffered increased maintenance fees after the condominium's first
year, loss of the services that had to be cut back to keep the budget in line,
and diminished property values.
The plaintiffs' case against the developer and its principals is based on
alleged negligence, misrepresentation, breach of the Condominium Act, oppression
and other legal grounds.
They claim that the marketing materials and disclosure statements were
"inaccurate, false, deceptive and misleading."
In their claim, the plaintiffs allege that before the purchasers closed
their transactions, and before the registration of the declaration, the
developer was warned in writing by the property manger "that unless drastic
adjustments are made, the second-year budget will likely be doubled."
The defendants, of course, dispute the allegations.
The trial of the case if it gets that far is a long way off, and none
of the plaintiffs' claims have yet been proven in court.
Materials filed in court last year on one of several appearances before
Cullity show that 120 plaintiff unit owners are claiming damages of $10,572 to
$12,643 for smaller units, and $26,004 to $31,101 for larger units.
The damages are based on two expert reports, and have yet to be tested at
trial.
The total loss claimed by the class members is in a range of $2.1 million
to $2.5 million.
Experts retained by the defendants, on the other hand, have estimated
that the total losses of the buyers would be between zero and $52,300.
Obviously one class action, where the issues and facts are all similar,
is preferable to the enormous costs of 120 separate Superior Court actions,
where some of the damages might fall within the $10,000 Small Claims Court
jurisdiction.
Unless the matter is settled earlier, a trial of the action could well be
two or more years into the future.
For condominium builders and owners, it will be a fascinating case to
watch as it unfolds.
Bob Aaron is a Toronto real estate lawyer. He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.
Visit the Toronto Star column archives at http://www.aaron.ca/columns for articles on this and other topics or his main webpage at www.aaron.ca.
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