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High Bar to Establish Developer Breached Contract for Pre-Sale Condo Allowing Purchaser to Walk Away

September 26, 2023

During this period of rising interest rates and high inflation, some purchasers of pre-sale (also known as pre-construction) condominiums may be experiencing buyer’s remorse as their closing date approaches. In many cases, purchasers signed contracts of purchase and sale years ago when economic conditions were different. Some purchasers may be tempted to not close by arguing the developer breached the contract in some way. The Supreme Court of British Columbia’s (Court) decision in Wang v. Tianco Investment Group Inc. serves as a cautionary tale for such purchasers. It also provides comfort to developers that the bar remains high to establish that a developer breached a contract significantly enough to allow a purchaser to walk away from the deal.

In the decision, the plaintiff (Purchaser) signed a contract of purchase and sale (Agreement) to purchase a pre‑sale condominium in Vancouver from the defendant (Developer). The Purchaser refused to complete on the closing date, so the Developer retained the deposit. The Purchaser then sued for the return of the deposit, arguing that the Developer “repudiated” the Agreement by (a) failing to deliver sufficient evidence of a satisfactory financing commitment, which is a requirement under the Real Estate Development Marketing Act (REDMA); (b) changing the building design from what was shown in the marketing materials, and (c) finishing the unit with a different colour scheme from the Purchaser’s selection.

If a repudiation occurs and the innocent party wishes to be discharged from the contract, the Court stated, it may accept the repudiation by clearly and unequivocally communicating that to the breaching party. Alternatively, the innocent party can choose to not accept the repudiation and keep the contract alive. However, not every breach of contract is a repudiation. The Court confirmed that a repudiatory breach “must be of a serious nature visavis the contents, obligations and purposes of the contract” where the “conduct of the party who has broken the contract is such that the other party is entitled to conclude that the party breaching the contract no longer intends to be bound by its provisions.” In other words, the breach “must be such as to deprive the injured party of a substantial part of the benefit to which he is entitled under the contract.” If a breach does not rise to the level of repudiation, then an innocent party’s remedy is typically damages or enforcement of the contract.

The Court rejected the Purchaser’s arguments that the Developer repudiated the contract. It found that:

  • Failing to deliver sufficient evidence of a satisfactory financing commitment could not constitute repudiation because the development was completed and occupied, so such failure was “at most a mere breach” and “cannot reasonably be said to be a repudiation of the entire agreement or an indication on the part of the developer that it has no intention of fulfilling the agreement.” Notably, there was no suggestion in the decision that the Developer failed to comply with REDMA or Policy Statement 6, or that the Purchaser’s right to terminate the contract and receive its deposit back under that Policy Statement was engaged. Rather, it appears the Purchaser questioned the sufficiency of the financing arrangements.

  • Regarding the design changes, the Agreement contained terms expressly disclaiming pre‑contractual representations, including marketing materials, and gave the Developer discretion to amend the final strata plan from the one attached to the disclosure statement. Such terms are common in pre‑sale contracts. So, there was no breach, let alone repudiation. The Court commented that a design change “is a risk that comes with pre‑sale purchases.”

  • Applying the wrong colour scheme to the Purchaser’s unit was best characterized as a deficiency that did not deprive the Purchaser of “substantially the whole benefit of the contract.” The Court observed that deficiencies were addressed in the Agreement, are common in new construction projects, and “do not amount to a repudiation of a contract of purchase and sale.” Notably, the Developer offered to fix the deficiency at its own expense, but the Purchaser never responded to that offer.

  • Failing to close the Purchaser’s sale, the Developer sold the unit to a different purchaser at a higher price. The Court saw this as confirmation that “none of the alleged repudiations, therefore, detrimentally impacted the fair market value of the unit such that [the Purchaser] was deprived of all of the benefit from owning it.”

This decision is a reminder that not every breach of contract will be material enough to allow an innocent party to treat the contract at an end, and courts will enforce pre-sale contracts for purchase and sale, even where a purchaser is alleging breach of contract by the developer.

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