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Case Comment re: Onni (Victoria Hill) v. Shahi (Jan, 2015)

 

The Supreme Court of British Columbia released its decision in Onni Development (Victoria Hill Hine) Corp.v. Shahi, 2015 BCSC 100 on January 23, 2015.  The case concerns a developer’s right to retain the deposit of a purchaser, and sue the purchaser for additional damages, following the purchaser’s failure to pay certain deposits due under her purchase contract.  The reasons for judgment emphasize the importance for developers of carefully complying with the default provisions in purchasers’ contracts.

Background

On September 21, 2007, the purchaser signed a pre-sale contract to purchase a strata lot from the developer of a condominium project in New Westminster, and paid the first deposit due under the contract.  Subsequently, the purchaser was unable to obtain money from overseas to assist her in paying the second and final deposits, and failed to pay either deposit.  In early 2008, following the purchaser’s failure to pay the second deposit, the developer’s lawyers sent a letter to the purchaser advising that her failure to pay constituted a default under the contract and that the developer was entitled to exercise all of its available remedies without further notice to her, including its right to terminate the contract and retain the deposit.  On May 27, 2008, the developer provided a certificate to its lawyers which stated that the purchaser had failed to pay a deposit under the contract and that the developer had elected to cancel the contract (as required under the Real Estate Development Marketing Act (British Columbia) in order for her deposit to be released to the developer).  However, the developer did not, at that time, notify the purchaser that the developer had elected to terminate the contract.

Following a downturn in the real estate market, the developer agreed to sell the same strata lot to a new purchaser for $83,000 less than the original purchaser had agreed to pay.  The sale of the strata lot to the new purchaser completed on June 17, 2010, just over two years after the first deposit was released to the developer.

In December, 2010, the original purchaser sued the developer for the return of the first deposit in Small Claims Court.  Several months after the commencement of this action, the developer sent a letter to the purchaser notifying her that the developer had elected to terminate the contract on the basis that she had failed pay the second deposit due under the contract.

The purchaser was initially successful in her Small Claims action, as the court held that the purchase contract was unconscionable and that the first deposit should therefore be returned to the purchaser.  However, this decision was overturned on appeal, and a new trial was ordered.  The developer subsequently sued the purchaser for damages for her breach of the contract.

Decision

In July, 2014, the new trial was held in the Supreme Court of British Columbia to deal with whether the purchaser was entitled to the return of the first deposit, and whether the developer was entitled to further damages on the basis the purchaser breached the contract.

Return of Deposit:  The court held that the developer was entitled to retain the first deposit.  The court found that the purchase contract was not unconscionable, as there was no inequality of power between the parties and the terms of the contract were not substantially unfair.  The court further noted that the contract expressly provided that the developer could retain the first deposit, at its option, if the purchaser defaulted in her obligations under the contract.  Since the purchaser failed to pay the second deposit and the final deposit when due, the developer was entitled to retain the first deposit.

Damages:  The developer claimed that it suffered damages from the purchaser’s breach of the contract based on the lower purchase price for which it sold the strata lot to the new purchaser.  However, the court dismissed the developer’s claim for further damages due to the developer’s failure to terminate the contract following the purchaser’s breach.  The Court held that the developer had repudiated the contract by selling the strata lot to the new purchaser before it notified the original purchaser that it was terminating the contract, and therefore lost the right claim damages.

This decision emphasizes that developers should strictly comply with the default provisions in purchasers’ contracts in order to ensure that developers’ rights and remedies are preserved following a default by a purchaser.  In this case, the terms of the contract required the developer to give the purchaser written notice in order to terminate the contract, and the developer failed to do so until after the strata lot had been transferred to the new purchaser.  In particular, the court held that neither the letter from the developer to the purchaser advising of her default and stating that the developer may pursue any of its available remedies, including its right to terminate the contract, nor the certificate to the developer’s lawyers stating that the developer had elected to terminate the contract, was sufficient to terminate the contract.


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