Appeal Court Ruling In Condominium Rescission Case Relevant To Franchise Law

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Author: Gleb Matushansky, Student-at-Law, Law Works P.C.          
Editorial Committee: Law Works P.C.
Editor: Ben Hanuka 

Overview

On March 31, 2017, the Ontario Court of Appeal released its decision in Harvey v Talon International Inc. (2017 ONCA 267).  The appeal dealt with (i) the required contents of a notice of rescission under the Condominium Act, 1998 (SO 1998, c 19) (the “Condominium Act”), and (ii) whether the two-year limitation period for a notice of rescission under the Act is trumped by the more extended limitation period under the Real Property Limitations Act (RSO 1990, c L.15) (the “RPLA”).

The Court of Appeal applied a relatively low threshold to what counts as a valid notice of rescission under the Condominium Act.  As well, it applied the longer limitation period under the RPLA, rather than the two-year limitation period under the Condominium Act.

Facts

Talon International Inc. (“Talon”) was the developer of a condominium tower known as Trump Tower in Toronto.  Harvey and Yim purchased suites in Trump Tower from Talon.  Harvey bought his suite in 2005, and Yim purchased hers in 2007.

Several years later, in February 2012, Talon provided to Harvey and Yim a new binding agreement – a hotel unit maintenance agreement.  After reviewing the new agreement, Harvey and Yim sent notice to Talon asking for a refund of their original purchase deposits.  They claimed that the new agreement contained materially different terms and projected expenses from those in the original condominium disclosure document.

Harvey pursued his application within the two-year limitation period in the Condominium Act.  Yim brought her application only three years after she sent her notice of rescission.

Under the Act, Talon had ten days to challenge each of the notices, or else refund the deposits.  Talon did not challenge either notice.

Analysis

• What constitutes a valid notice of rescission

Epstein JA reviewed the meaning of the statutory words “notice of rescission” in the Condominium Act.  She conducted the review on a correctness standard of review because it was a question of law.  As such, the question of whether the notices provided by Harvey and Yim met the requirements of the Condominium Act was one of mixed fact and law.  Epstein JA held that since the application judge considered all the evidence she was required to, her determination about the validity of the notices was entitled to deference.

Since the Condominium Act is a statutory consumer protection mechanism, a broad and flexible approach is necessary to determine whether a given notice of rescission is adequate.  Epstein JA made reference to the interpretation of the right of rescission under the Arthur Wishart Act (Franchise Disclosure), 2000, SO 2000, c 3 (the “Wishart Act“), a comparable consumer protection legislation.  The provisions governing notices of rescission under section 6(3) of the Wishart Act are similar to those in the Condominium Act.

The Court of Appeal held that a notice of rescission under the Condominium Act does not need to include the words “rescind” or “rescission”, or even refer to the Condominium Act, or indeed include any specific language.  The notice need only indicate that the purchaser is exercising its right to “rescind” or “unmake” the purchase and the grounds for the demand.

Where the notice achieves this, a developer can then decide whether to contest the notices.

The Court of Appeal held that the notices of Yim and Harvey to Talon were proper notices of rescission and dismissed the appeals.  The notices included demands for a return of deposits, a remedy consistent with rescission, rather than repudiation, despite using the word ‘termination’.  As well, the notices referred to the materially different terms contained in the new agreement as a basis for undoing the transaction.

• The limitation period under the Condominium Act and the RPLA

Whether Yim’s application was statute-barred was a question of law.  She launched her application more than two years after Talon failed to return the deposit.  The issue before the court was whether the application for the return of the deposit fell under the Limitation Act, 2002, in which case it would have been brought out of time, or by the RPLA, in which case it would have been within the statutory limitation period.

Since Yim’s claim was for “money laid out in the purchase of land”, it was a deposit for the condominium unit.  As such, it fit within the definition of “land” under the RPLA.  Therefore, the ten-year limitation period RPLA applied, and the action was brought within the allowable time.

Epstein JA noted that had Yim’s claim been for damages, for example breach of contract, the application would have been statute-barred, claims for damages do not fit within the definition of “land” in the RPLA.  This would have been the result even if the claim was incidentally related to real property.

Summary and Comments

Epstein JA drew a connection between the Condominium Act and the Wishart Act, by considering the parallels in dealing with rescission as consumer protection legislation and interpreting them generously.

It should be noted that in other respects the Condominium Act and the Wishart Act contain different requirements, such as the requirement to set out losses in a notice of rescission under the Wishart Act, and the absence of a statutory obligation to challenge the notice of rescission under the Wishart Act.

For more information about Law Works’ expertise and how we may be able to help you, please contact Ben Hanuka at https://www.lawworks.ca/book-a-consultation or by phone at (855) 978-5293.

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