written by: HARRY HERSKOWITZ

In the past two columns, I've endeavoured to highlight the condominium declarant's disclosure obligations to purchasers of new condominium units arising under The Condominium Act 1998 (the "New Act"), and the corresponding right of a unit purchaser to rescind or revoke the agreement of purchase and sale within 10 days of the later of the purchaser's receipt of the disclosure statement and the purchaser's receipt of the executed agreement of purchase and sale. We also discussed an additional statutory right of rescission that arises in favour of a purchaser of a new condominium unit whenever a declarant makes a material change to the condominium project or to the documents and information comprising or accompanying the disclosure statement. Since writing these columns, two "horror stories" involving different condominiums and the issue of disclosure have been brought to my attention, and rather than continue with a discussion of some of the new statutory obligations of the declarant under the New Act, I would like to focus on these two stories and examine precisely what the disclosure obligations are in each case.

The first story involves a young couple who bought a retrofit condominium unit, namely a dwelling unit in a building that was physically converted and upgraded from a previous commercial, industrial or office use, to that of a present residential condominium. Unfortunately, the purchasers were not aware of the presence of asbestos within their unit or within other portions of the condominium building, until they applied for mortgage approval and were refused a mortgage as a result of same. Ultimately, they were not able to complete the transaction, and not only had their deposit forfeited, but may still be sued by the declarant for their failure to close. Such conversions, particularly with respect to industrial warehouses into chique residential "loft" condominiums, are quite popular in downtown Toronto, but the single biggest concern regarding such projects is the fact that converted condominiums do not presently qualify for the deposit protections and statutory warranties (against construction deficiencies) that are provided by the Ontario New Home Warranty Program. Pursuant to the New Act, the declarant is obliged to disclose whether the condominium property is or may be subject to the Ontario New Home Warranties Plan Act, and whether the building on the condominium property has been converted from a previous use. In addition, if the declarant has made an application to convert the property to condominium from rented residential premises, then the disclosure statement must contain a summary of the building/engineering reports required by the municipal or regional condominium approval authority, if any, and the agreements affecting the building which the authority has imposed as a condition of granting its approval (i.e. an agreement pertaining to the repair or restoration of the building, or an agreement giving existing tenants an option to purchase the units in which they reside, etc.).

While there is no explicit requirement under the New Act to disclose the presence of asbestos, there may nevertheless be a common law obligation to disclose same if, in fact:

1) the existence of asbestos in the converted building was not patent or capable of easy detection on a cursory examination of the property, and would not have been readily discoverable had the purchaser exercised reasonable vigilance; and
2) the existence of asbestos in its present condition or state does (or will likely) impose a significant immediate or potential health risk or safety hazard to the unit occupants or building inhabitants (akin to toxic mould in buildings), thereby rendering the premises dangerous or unfit for habitation, or substantially interferes with the residential use and enjoyment of the condominium premises.

If both factors are true, then the presence of asbestos in this converted condominium would constitute a latent defect, and the declarant/vendor would have an obligation, at law, to disclose this fact to all unit purchasers in the project, not just prior to the completion of the transaction, but at the time of entering into the agreement of purchase and sale. It is my understanding, however, that the mere presence of asbestos may not necessarily mean that there is a potential health risk or hazard, particularly if appropriate steps have been taken to ensure that the asbestos is completely wrapped and sealed, and is not physically capable of being exposed to the surrounding open environment regardless of any subsequent molecular deterioration of the asbestos. Moreover, I'm not quite sure how the mortgage lender became aware of the presence of asbestos in the building, unless he or she had reviewed the agreement of purchase and sale or the disclosure statement which addressed the issue of asbestos specifically. For this and a myriad of other reasons, it is critically important that every purchaser of a new condominium unit (whether in a conversion project or otherwise) seek appropriate legal advice from an experienced real estate lawyer (knowledgeable in condominium law), well before the expiry of the statutory 10 day rescission period, in order to ensure that the agreement of purchase and sale and disclosure statement have been carefully reviewed, and so that the purchaser will be made aware of (and be adequately protected from) all such potential risks.

The second story involves a purchaser of a luxury waterfront condominium unit in a project located near a sewage treatment plant, and because of the foul odour that permeated therefrom, the purchaser could not open the windows to his unit or walk around the neighbourhood without disgust and discomfort. Is the builder required to disclose serious and obvious negative features, such as smells emanating from a nearby sewage plant? As previously mentioned, there is a common law duty to disclose latent defects with respect to any property being sold, in those circumstances where the defects pose an immediate or potential health and safety risk. Moreover, as I discussed in the previous two columns, the New Act mandates the disclosure of numerous items and specific information, but nothing that expressly relates to the odoriferous concerns unfortunately experienced by the purchaser in this story. A number of years ago, the Ontario Court of Justice (General Division) had to deal with a similar situation in the case of Ceolaro v. York Humber Ltd. in which a residential highrise condominium had been developed immediately adjacent to the site of a former sewage treatment plant. Environmental concerns over methane gas migrating from the adjacent site into the condominium building were adequately addressed, through the auspices of a methane gas venting system installed on the adjacent property. In that case, the court held that there was no basis on which to impose a duty upon the developer to disclose to the unit purchasers the foregoing facts relating to the history of the abutting site, nor with respect to the methane gas control system, since it did not pose a health or safety risk to the condominium residents, but merely an inconvenience. This case answers the earlier question posed, by confirming that absent any requirement for specific disclosure about potential smells or noise concerns from nearby premises or activities (imposed by the relevant governmental authorities as part of the rezoning or site plan approval process in respect of the condominium project), there is no duty on a condominium declarant to disclose the fact that foul smells may emanate from nearby properties, nor for that matter, noise from traffic traveling on nearby busy streets, since in both cases, the smells and the noise do not pose a serious health or safety risk to residents within enclosed areas, and are likely patently detectable or readily discoverable by all prospective unit purchasers exercising reasonable vigilance (ie. by making appropriate inquiries, or simply by making several visits to the site on different occasions and at different times).

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