Builders’ Agreements: Certificates of pending litigation vs. no-registration clause

When buying from a builder, agreements of purchase and sale (APS) are almost always one-sided in their favour. For instance, if purchasers fail to close, they typically forfeit any deposits paid and the builder retains the right to sue them to recover any resultant losses (e.g., if a future sale of the subject property occurs at a lower purchase price). But, what happens if a builder fails to close the deal?

What if the builder is unable to completely pay back the mortgage funds it borrowed to finance the property’s development, and its lenders are now refusing to discharge their registered mortgages from title and allow any purchase transactions to close? Worse still, what if it takes 24 months after a deal was originally scheduled to close to even become aware of this state of affairs? Do purchasers have any recourse if the builder attempts to terminate the transaction under these circumstances?

The usual path forward for purchasers involves registering a caution on title followed by a Certificate of Pending Litigation (CPL). Caution registration prevents the builder from dealing with the subject property for a 60-day period, which then gives the cautioner time to seek a CPL by court order. CPL registration then ties up and prevents any dealings with the property for the duration of the litigation, until the CPL is discharged (also by court order). This is where the no-registration clause in the one-sided builder’s APS comes into play. It presents a significant obstacle to the purchaser’s caution-CPL path, typically stating that:

“The Purchaser covenants and agrees not to register this agreement, a caution, a Certificate of Pending Litigation ... or any instrument against title to the Property, Unit or Condominium prior to the Closing Date...in the event of registration, at its option, the Vendor shall terminate this agreement and make it absolutely null and void …”