ONTARIO SUPERIOR COURT OF JUSTICE

NEWMARKET COURT FILE NO.: CV-12-109756-00
DATE: 20130425

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

TALON INTERNATIONAL INC.

Applicant

– and –

HENRY JUNG and LONG OCEAN HOLDING LTD.

Respondents

M.A. Klaiman, for the Applicant

T. Corsianos, for the Respondents

HEARD: April 11, 2013

REASONS FOR DECISION ON APPLICATION

R. MacKINNON J.

Overview

[1] The applicant is the developer of Trump International & Tower Toronto. That project includes both a commercial hotel condominium and a residential condominium. The respondents in 2005 purchased two commercial hotel condominium investment units – being units now identified as 1510 and 2004. A disclosure statement in accordance with the Condominium Act was provided to them at that time. The commercial hotel structure is completed and registered under the Act.

[2] On May 5, 2012 a further disclosure statement and summary were delivered to these commercial hotel purchasers who then gave notice that their agreements to purchase both units were rescinded.

[3] The applicant seeks declarations that the respondents are bound by the 2005 agreements of purchase and sale, that the notices of rescission are void and that the project changes as delivered in its notices otherwise do not, individually or cumulatively, constitute material change under the Condominium Act.

[4] The respondents seek orders dismissing the application and refunding to them all deposits they have paid. They also claim the return of the paid net common expenses for interim occupancy changes and accrued statutory interest.

Time Limits

[5] The respondents took delivery of both units on February 29, 2012. On May 1, 2012 the current disclosure statement and summary was delivered to them. Their rescission notification letters are dated June 1 (pursuant to s.73 of the Act) and June 4, 2012 (pursuant to section 74(7) of the Act).

[6] If, as here, a vendor delivers a revised disclosure statement, a purchaser has two options. He may, within ten days after receiving the revised disclosure statement, make application to the Superior Court under s.74(5) of the Act for a determination as to whether the changes constitute a material change or he may deliver a notice of rescission under s.74(6) and (7) of the Act. These purchasers delivered notices of rescission.

[7] Section 74(6) of the Act provides that:

(6) If a change or a series of changes set out in a revised disclosure statement or a notice delivered to a purchaser constitutes a material change or if a material change occurs that the declarant does not disclose in a revised disclosure statement or notice as required by subsection (1), the purchaser may, before accepting a deed to the unit being purchased that is in registerable form, rescind the agreement of purchase and sale within 10 days of the latest of,

(a) the date on which the purchaser receives the revised disclosure statement or the notice, if the declarant delivered a revised disclosure statement or notice to the purchaser;

(b) the date on which the purchaser becomes aware of a material change, if the declarant has not delivered a revised disclosure statement or notice to the purchaser as required by subsection (1) with respect to the change; and

(c) the date on which the Superior Court of Justice makes a determination under subsection (5) or (8) that the change is material, if the purchaser or the declarant, as the case may be, has made an application for the determination.

[8] In this case the declarant vendor brought this application on June 7, 2012 under s.74(8) of the Act. It bears the onus of proof.

[9] The May 2012 disclosure statement was clearly a revised disclosure statement from that initially delivered in 2005. I reject the unsupported and unpersuasive submission of the purchasers to the contrary. I find it was a s.74(3) notice. As such, the purchasers’ rescission notices are statute barred for time limitation unless the vendor satisfies the court either that the revised disclosure statement did not constitute a material change or that, if material change in fact had occurred, it was not disclosed in either the revised disclosure statement or in any notice under s.74(1).

Material Change

[10] Section 74(2) of the Act defines “material change”. The Court of Appeal in Abdool v. Somerset Place Development (1992) 1992 7640 (ON CA), 10 O.R. (3d) 120 determined the materiality of a change to an originally delivered disclosure statement (i.e. – a revised disclosure) by reference to a test similar to that used to determine the materiality of an alleged defect in an original disclosure statement itself. Would a reasonable purchaser regard the change or amendment as sufficiently important to his or her decision to purchase that, had the disclosure statement contained the new or amended information at the time it was delivered, the purchaser would not likely have gone ahead with the transaction but would have rescinded the agreement within the initial ten day period?

[11] The onus of proof is on the applicant developer to prove on an objective basis that a reasonable purchaser would still have entered into these agreements of purchase and sale. A disclosure statement, whether initial or revised, must fully and accurately describe the proposed condominium project features by way of a general description. It can only be expected to summarize the most salient and important features of the condominium documents. A broad and flexible approach is to be utilized in determining whether a particular disclosure statement is so devoid of detail or content or so inclusive and lengthy as to render the agreement of purchase and sale non-binding. The rights of both parties are to be considered. Not every defect contained in a disclosure statement will render an agreement non-binding.

[12] The purchasers allege a number of reasons why they delivered notices of rescission, pointing out that the May 2012 disclosure statement did not identify any changes from the 2005 disclosure and the summary that accompanied it in 2012 identified only some but not all of the changes.

(a) Cost Shifting

(i) No mention was made in the Summary of changes to Schedule D of the declaration. In the 2005 disclosure, the column entitled “Percentage contribution to common expenses and percentage interest in common elements” disclosed symmetry between the size of a unit (expressed as a percentage of the total) and the amount by which that unit owner would be required to contribute to the common expenses (again expressed as a percentage of the total). The purchasers argue that, in 2005, all unit owners were created equally in considering what they were required to pay on account of common expenses but that no 2012 symmetry now prevails. For example, they assert that in the 2005 disclosure statement, the Spa unit (whose ownership remained with the vendor), both owned 0.72796 percent of the common elements and contributed 0.72796 percent of the common expenses. Since common monthly expenses were then calculated at $688,850.42, the purchasers argue that the vendor was then responsible for paying common expenses of $5,000 per month. The purchasers agree that, had that initial principal of symmetry had been preserved in the 2012 disclosure, the vendor would have been responsible for paying 6.36579 percent of the common expenses which were then budgeted at $851,479.58 monthly and the vendor would have been responsible for $54,203.40 of that amount. By contrast, however, they argue that the 2012 disclosure provides that the vendor’s responsibility to contribute to the common expenses is now 0.5802 percent, or $4,940.28 per month. The purchasers accordingly allege that the result is that all unit holders except the vendor will now be required to subsidize the vendor’s ownership of the spa unit to the extent of $591,157.44 annually.

(ii) However, it is clear that, in the vendor’s current disclosure statement, contribution to expenses is now characterized as a fee payable from the common expenses. The original disclosure budgeted $250,000 for these charges. The current disclosure budget is about $412,000. That increase is within the six percent yearly increase disclosed in the original disclosure document. The applicant vendor will be retaining the Spa unit and restaurant. In the original disclosure statement those facilities along with the bar and other similar units were budgeted to pay 30 cents per square foot per month for the common element expense contribution. Unit holders were to pay $2.60 per foot per month as originally disclosed. The same rate is specified in the current budget statement. Hotel guests continue to have the use of basic swimming pool and fitness services. The original disclosure also contemplated the hotel condominium would contribute to the costs and operations of the Spa from its common expenses.

(iii) The Office Unit did not exist in the 2005 Disclosure Statement. If symmetry were preserved, the purchaser argues that the vendor would now be required to contribute 4.53865 percent of the total common expenses. The 2012 disclosure now requires the vendor to contribute 0.41366 percent. The purchasers allege that the other commercial hotel unit owners will now be required subsidize the vendor in the amount of $421,481.40 annually.

(iv) The restaurant/bar unit owned by the vendor will now receive a subsidy from the other commercial hotel unit owners of $233,175.24 annually. However, the original disclosure provided for the vendor to designate the restaurant and bar areas as units in the condominium and to lease or licence an operator to manage them. It is clear that the budget statement contained in the original 2005 disclosure contemplated that rental charges from the banquet and meeting rooms would be significant. The applicant swore and I find that, given that the applicant owns the adjacent kitchen space, it made sense for it to operate the banquet premises and provide staffing for banquet facilities at its expense. Rental income generated from these operations will still flow to the hotel condominium as originally contemplated and will represent the same type of income that was budgeted in the original disclosure documents.

[13] On all the purchasers’ allegations of cost shifting, I am persuaded by the vendor and find that there has been no material change in the current disclosure, that there is no material change in the investment value to the unit holders, that there is no material change that objectively would have impacted a purchaser of a unit, and that there is no loss of a purchaser’s investment value as a result of any of the foregoing. Joel Rosen swore as an expert that there has been no change in the value of the commercial investment as a result of the changes between the original disclosure statement and the current disclosure statement. There is no evidence to the contrary. In addition, Mr. Rosen swore, and I find, that the changes in the May 2012 disclosure do not represent any form of depreciation in the income that the purchasers of these commercial units might have expected to receive. I am satisfied that a reasonable purchaser of these commercial units would not regard any of these changes or amendments as sufficiently important to his decision to purchase. Had the initial disclosure statement contained the new or amended information, I am satisfied that a reasonable purchaser would likely have gone ahead with the transaction in any event. This reason fails.

(b) Path

[14] The 2012 Summary makes no mention of the fact that the project will no longer have access to Toronto’s Path System. Path is downtown Toronto’s underground walkway linking 28 kilometers of shopping, services and entertainment. It facilitates pedestrian linkage to public transit and its underground location provides pedestrians with safe transit in all seasons. More than 50 buildings/office towers are connected. It also provides links to some of Toronto’s major tourist and entertainment attractions such as the Hockey Hall of Fame, Roy Thomson Hall, Air Canada Centre, Rogers Centre, CN Tower, and City Hall. The 2005 Disclosure specified connection to Path. The application evidence is not only that Path has not been connected to the project, but there is no evidence that it will ever be so. The developer hopes to be able to reach an agreement to access Path, but the current situation is that no such access is available. The developer argues this is a subjective complaint by the respondent purchasers and there is no evidence that the value of their investment will be reduced by it or that they will have any lost income from it. Objectively viewed, the failure to provide pedestrian access to Path as originally disclosed, is troubling. However, Mr. Levitan, for the developer, testified by affidavit that there were two parts to the tunnel connection. The first was tunnel construction by the applicant to connect to Path which was completed. The second part involved work by the National Club which owns the building to the south of the project premises. National Club has not yet connected its portion to Path. Accordingly, the connection of this project to Path is not completed. No evidence was provided by the purchasers that the value of their investments has been affected by this change. They subjectively complain that this change is material. Joel Rosen is an expert, I find, in the areas of valuations, appraisals, strategic planning, hotel development and operation and asset management. He is a frequent lecturer at universities and speaker at conferences on hotel investment and development, strategic planning and operational management. He has appeared and testified as an expert witness before boards and in courts. He was not cross-examined on his qualifications. He swore on this application, after a full review of the budget comparison of all of the 2005 and 2012 disclosure information, that there was no change in the investment value in the units due to any or all of the changes, and that the 2012 disclosure statement did not represent any form of depreciation in the income of the purchasers might have expected to receive. I so find. In spite of what I have called a troubling failure of the applicant vendor to provide pedestrian access to Path, I am marginally persuaded by the vendor that a reasonable purchaser of this commercial unit would not have regarded the 2012 information as sufficiently important to his decision to purchase, had that information been contained in the initial disclosure. This reason fails.

(c) Kitchen

[15] The 2012 Summary failed to disclose that the reconfigured condominium suites would no longer have a kitchen. However, there are kitchen-like facilities disclosed in both 2005 and in 2012. I find that the demonstrated minor changes are not objectively material at all. I am satisfied that the change from the described “Trump Standard” specified in 2005 to the “Operating Standard” referenced in 2012 would not have been significant to a commercial unit purchaser, objectively viewed. A reasonable purchaser would not regard either of these changes as sufficiently important to his consideration such that he would not likely have gone ahead with the transaction in any event. This reason fails.

(d) Other Units

[16] A number of ownership changes are now disclosed in the 2012 statement (parking units, storage units, vitrine units, office units and four additional restaurant units). The purchasers argue that the vendor has now “usurped” something which previously it did not have. I disagree. The 2005 disclosure statement clearly contemplated changes in the ownership structure of the condominium. There was no “usurping”. Objectively viewed, these subjective changes are not significant or material. A reasonable purchaser would not have regarded the information as being so important that he or she would not likely have completed the transaction. I keep in mind that s.112 of the Act provides in any event for a termination of any agreement for the provision of goods and services or provision of facilities to the corporation 12 months following the election of a new board of the condominium corporation. This reason fails.

(e) Building Height

[17] The 2005 disclosure specified a building height of 70 stories, while the current disclosure now sets the height at 60 stories. At first blush, that would appear to be a significant change. However, on closer examination, the 2005 disclosure referenced 21 commercial hotel floors holding approximately 265 hotel units. The 2012 disclosure now specifies 19 hotel floors holding approximately 261 units. The change from 70 to 60 stories was actually being accomplished by change to the number of residential condominium floors – not to the hotel condominium floors. The purchasers argue that, in making their decision to purchase, they were significantly influenced by the sheer number of floors. They argue this court should consider their subjective considerations in determining the materiality of the new disclosure information. They assert that the significance to them of the 70 stories lies in the fact that such a height would have made this project the tallest mixed use building in Canada. Objectively viewed, I disagree. I am persuaded by the applicant/vendor and find that the hotel portion of the building did not materially change from the original disclosure document. The original disclosure granted the developer right to increase or decrease the number of floors. It also contemplated that the number of hotel units could increase or decrease. The building was constructed was ultimately approved by the municipality and the Ontario Municipal Board on the basis that it would be a 60 storey building and was constructed as such. A reasonable purchaser would not regard that change as sufficiently important to his or her decision to purchase that, had the disclosure statement contained the amended information at the time it was delivered in 2005, the purchaser would not likely have gone ahead with the transaction but would have rescinded the agreement within the ten day period. The materiality test is objective. Materiality must be measured at the time that the development is completed for occupancy. This ground fails. This reason fails.

Conclusion

[18] I find that none of the project changes as delivered in the vendor’s notices or otherwise, considered individually or cumulatively, constitute material change under the Act. I have already held that there is no remaining entitlement to the purchasers to rescind as of right. Since I have also found there is no material change, there is no remaining purchaser entitlement to rescind the agreements at all.

[19] Accordingly,

(a) I declare that the respondents are bound by the terms of agreements of purchase and sale entered into between the applicant and the respondents for units now numbered as 2004 and 1510, said agreements dated June 22, 2005 and August 23, 2005, as amended;

(b) I declare that the notices of rescission delivered by the respondents to the applicant with respect to the subject units are void and of no effect;

(c) I determine that the changes on which the notices of rescission were based do not constitute material change as defined by the Act; and

(d) I declare that any changes delivered do not constitute material change as defined by the Act.

[20] If the parties cannot agree on the issue of costs of this application, they may, within 20 days of the release of these reasons, serve and file written submissions of no more than four pages single spaced together with Bills of Costs. The responding party on costs may serve and file materials of the same length within a further ten days. Reply materials may be delivered within five days thereafter. All costs materials shall be forwarded to me in care of my secretary at Barrie.

R. MacKINNON J.

Released: April 25, 2013