Legal Blog

Reserve

The condominium reserve fund is a wonderful thing – when there is money in it. When there is none, problems occur. One type of problem is illustrated in Boschetti v. Sanzo [2003] O.J. No. 5227 (S.C.J.).

Warranty

The vendor warranted in her May 1, 1992 agreement of purchase and sale that there would be no outstanding work orders registered against the condominium property at the June 22, 1992 closing and, if there were, these work orders would be complied with at the vendor’s expense.

The agreement had the usual clause allowing the purchasers until a stated time to make objections regarding work orders. Within that time, which the reasons for decision never specified, the purchasers’ lawyer requisitioned evidence that there were no work orders. The answer from the vendor’s lawyer was “Satisfy yourself.”

Six days before closing, the vendor’s lawyer received what was then an estoppel certificate. It disclosed that the reserve fund had negative $72,851 and that the condominium contemplated repairs of approximately $135,000 to comply with municipal bylaws.

State of Disrepair

On September 10, 1991, the condominium had notified the unit owners that there would be a 7% increase in the common expenses because there were no funds for capital replacements. In the September 30, 1991 year end statements, a note indicated that the condominium had spent $573,000 on repairs needed to comply with municipal work orders and that another $154,000 of repairs were scheduled for completion in 1993.

The purchasers wanted none of this situation. Neither did the purchasers’ prospective mortgagee. Accordingly, the purchasers’ lawyer wrote to the vendor’s lawyer informing him that the purchasers could not close because their mortgagee balked and, in any case, the purchasers did not wish to close because of the disrepair of the condominium and the negative balance in the reserve fund. The vendor resold the property 15 months later and kept the purchasers’ deposit of $5,000. The purchasers sued for the return of the deposit and the vendor counterclaimed for her damages of approximately $20,000. You can see that big bucks were at stake.

Work Orders

The vendor relied on the case of Jasinski v. Trinchini [1994] O.J. No. 576 (O.C.G.D.). In that case, the vendors warranted that there were work orders, but that these work orders would be complied with before closing. The repairs to comply with the work orders were not completed before closing. The repair cost was large, but was to be dealt with from money in the reserve fund and a special assessment that the vendors had paid before closing. Under these circumstances, the judge held that there was not only substantial compliance with the warranty, but also there was total compliance.

The trial judge in our case distinguished the Jasinski case because in the facts before him:

1.   The repairs were to be paid from maintenance fees, not a special assessment that the vendor had already paid;

2.   The vendor warranted that there were no work orders;

3.   The reserve fund was negative before the repairs;

4.   The maintenance fees had already been increased by 7%;

5.   The original work order was issued in 1988 and the requisite repairs for those work orders were not scheduled for final completion until 1993; there would likely be additional deficiencies; and

6.   The purchasers were not facing some minor administrative inconvenience; instead, they would be buying a unit in a building in which the common elements were in a continuing state of disrepair.

The judge held that the purchasers did not get what they bargained for and that it would be unfair to the purchasers to require them to close and sue for damages. The judge declared the agreement to be terminated and ordered the return of the deposit.

Query

We are a touch confused on three aspects.

First, the judge assumed that the first requisition regarding work orders was timely. However, that requisition would not have been in time because a generic requisition (i.e. one that does not specifically state the actual problem) is no requisition at all.

Second, why is this case being tried in December 2003? The cause of action arose in June 1992. Even if the purchasers had commenced their action at the last moment before the expiry of the limitation period, it would still have taken five years to get to trial.

Third, could the parties not have settled this case? Unless there is an offer to settle, the purchasers will only get partial indemnity costs. In any case, given the amount at stake, the purchasers are unlikely to be awarded a large amount for costs. No one won this dispute.