Condo Loses Battle With Developer Over Clubhouse

A recreational clubhouse serving a condominium in Simcoe County, the title of which was retained by the developer, is not held in a trust by the developer in favour of the condominium, nor does it impact on the developer’s ability to mortgage the clubhouse to third parties, notwithstanding any obligation to convey that was contained in the disclosure statement.

The case, Simcoe Vacant Land Condominium No. 272, the Blue Shores Developments Ltd., involved a claim by the condominium corporation that a mortgage granted by the developer over the clubhouse was void as the disclosure statement stated that the developer would convey the clubhouse free and clear.

The disclosure statement made reference to this obligation, which only crystallized when all of the lands which made up the project were sold.  This would include not only unsold units, but other development lands.  The idea was that the developer wished to contain control over the clubhouse, whilst he still had other units or properties to sell that would benefit from the use of the clubhouse.  In the meantime, there was a licence arrangement which gave full access to the clubhouse by the condominium and its owners and tenants, at certain set fees.

The condominium corporation’s lawyers made reference to a number of earlier cases that allege that certain obligations contained in the disclosure statement created a trust situation or a fiduciary obligation on the part of the declarant.  However, in order to succeed with that argument, the condominium corporation was also required to show that the mortgage lender knew, ought to have known or was negligent in not making inquiries to discover that there was this obligation in the first place.  The mortgage lender’s solicitors did not review the condominium documents as this was a registered condominium and there were no agreements registered on title which reflected this potential obligation of the developer.

The Court then looked at the obligations of Blue Shores and held that there was no contract in place that could be enforced by the condominium corporation with respect to the purchase and closing of the sale of the clubhouse.  Only if and when the conditions contemplated in the disclosure agreement were met, i.e. the sale of all of the units and other project lands, would the developer be obliged to enter into an executory contract with the condominium corporation to transfer title for nominal value.  Until that time occurred, there was no executory contract in place, and therefore no interest in land was created in favour of the condominium corporation that could be enforced against the developer.

As a result, the Court did not have to make a determination as to whether or not, if there had been a signed contract which had not been completed, the mortgage company did have any obligations to make inquiries to discover that this contract existed.  As a result of its determination that in fact there was no interest in land that would attach to the clubhouse, the Court was not required to make any further determinations.

The writer had been called as an expert witness for the mortgage company and had provided evidence on behalf of the mortgage company supporting their position that no interest in land was created as a result of the representations in the disclosure statement.  At best, if there was a breach of these representations because the developer ultimately did not meet its obligations (which had not happened to date), there might be damages payable by the developer to the condominium corporation.  But that, in and of itself, would not create an interest in land and the Court supported that position.

Furthermore, it was my position that the mortgage company and its solicitors were not required to go outside the registered agreements to determine if there were unregistered interests in the property that might have been created pursuant to the disclosure statement, or otherwise.  But, as a result of the other findings of the Court, the Court did not have to address this issue.  It is still my view that no such obligation would exist.  

This case is under appeal.