Happy Friday, folks!

Nothing says “9:15am coffee” quite like reading the third-part of a blog series on TRB, right?

I’ll be honest: when I set out to write this blog, it was only intended to be one part.  But then as I started to write, started to research, and began to accumulate articles from the last decade about shady developers and condominium cancellations, I realized this topic necessitated a two-part blog.

As you now realize, there was simply too much to say in only two posts, and thus the topic spawned a third (Part 1 and Part 2).

When we left off on Wednesday, I think we were somewhere around 2018.

Condominium cancellations were rampant in the pre-construction industry and people were starting to get pissed.

I mean, people were always pissed.  But whereas with previous condo cancellations, only the owners made noise, now you had the media making noise for them.

Two more articles appeared in the media that fall:

“Luxury Condo Development Cancelled, More Than 1,000 Buyers In Limbo”
CTV News
September 18th, 2018

This referred to the “Iconica Condos” in Vaughan which was cancelled and deposits were returned to buyers.

But the article noted that the municipality was never told:

A spokesperson for the mayor of Vaughan said that the city was not formally notified of the cancellation of the project.

“To have heard about it through the media is extremely unfortunate, and we are now looking into the matter. I am concerned about the people who had purchased a condo here in Vaughan where they could grow and build their lives in our community. This is disappointing and a poor way to do business in our City.”

–

A little more than one week later, this article ran in the Toronto Star:

“This Condo Developer Collected Millions In Deposits — And Hasn’t Built Anything”
Toronto Star
September 27th, 2018

I love this part from the article:

On the opening day of sales for the glitzy new condo project in downtown Ajax, the lineup of hopeful buyers spilled out of the sales office onto the sidewalk, wrapped around the building and extended hundreds of metres.

Inside, the office was cramped like a concert venue. Sales agents struggled to find flat surfaces on which to sign contracts, as investors and first-time home buyers clamoured to get in on the ground floor of one of the region’s most anticipated new developments.

The frenzy continued for three straight weekends and Central Park Ajax was sold out in less than a month.

Two-and-a-half years later, ground has yet to be broken, the project is mired in litigation and frustrated purchasers are asking for their deposits back.

–

Of all the articles I’ve shown you in these three blog posts, this excerpt might do the best job of demonstrating how a mad frenzy of speculation and FOMO can eventually lead to a level of disappointment that one could have seen coming.

2019 saw even more cancellations:

“Toronto Developer Seeking Creditor Protection Leaves Condo Buyers In Limbo”
The Globe and Mail
January 23rd, 2019

“Developer Cancels Danforth Condo ‘Due To Unforeseen Circumstances”
Toronto Star
March 20th, 2019

“Step Condos Joins Growing List Of Cancelled Toronto Projects”
The Star
April 12th, 2019

“Toronto Condo Company Cancels Building After Buyers Balk On Contract Extension”
The Globe and Mail
July 9th, 2019

“Presold Scarborough Condo Project The Academy Returning Deposits”
The Globe and Mail
September 25th, 2019

Cancellations were becoming an epidemic.  And this was before the pandemic, so pardon the play on words, but what else could you call it?

I’m going to skip through 2020 and most of 2021, just because I think we’ve made the point here, but I have fourteen links I could post, just so you know.

So when was the turning point, you might ask?

I’d say November of 2021 when this happened:

“Ontario Condo Developer Suddenly Cancels Years-Long Sales Deal — Unless Buyers Pay $100K More”
CBC
November 19th, 2021

Note the word “unless.”

That’s an ultimatum, is it not?

Perhaps this is semantics.  Perhaps you could defend the developer and say, “They would build the condo, if buyers paid $100,000 more, so they’re simply giving buyers the option!”

But it stank to high hell.

From the article:

The foundation has been poured for Soraya Palma’s first home and she’s paid most of the deposit. But the 29-year-old says she now has no choice but to walk away from the Barrie, Ont., development.

Last Wednesday, she received a letter that left her speechless. 

Pace Developments informed her it’s cancelling their agreement from March 7, 2020, and returning Palma’s deposit even as construction on the walk-up condos continues. That is, unless she agrees to pay an additional $100,000 on top of the original $512,000 purchase price.

–

You might be focused on the fact that the buyer was asked to pay $100,000 more than the $512,000 purchase price, and perhaps that’s worth noting, first and foremost.

But what am I looking at?

The foundation has been poured.

This is the problem that I have with cancellations!  The foundation has been poured – the developer is going to build this condo, but the question remains: for whom?

Just like UrbanCorp did in 2015 with KingsClub, developers like this are using the “sold out” label of the project, along with the deposits, to obtain construction financing.  They start construction, they pour a foundation, or maybe even build half the damn condo, but they can still “cancel” the project and re-sell it for more money to other buyers.

Unlike most previous condominium cancellations, this one didn’t simply move through the news cycle.

This time, somebody with power took notice:

“Premier Slams Ontario Developer That Raised Condo Prices By $100,000 After Cancelling Sales Deals”
CBC News
November 22nd, 2021

Say what you want about Doug Ford or politicians in general, but the Premier of Ontario noticed, and didn’t like what he saw:

Premier Doug Ford on Monday criticized an Ontario developer that cancelled dozens of years-old sales deals with buyers of under-construction condo units — unless they agreed to pay more.

“Nothing burns me up more than that — some developer just trying to make extra money off the backs of hard-working people. Unacceptable,” Ford said when asked at a news conference in Orillia, Ont., about the actions of Pace Developments, based in Richmond Hill.

“You signed a contract. You better … build that damn house.”

–

History will show that this was the turning point.

And guess what happened the following year?

Something we’d never seen before!

This:

Court Supports Home Buyers After Purchase Deals Cancelled
Toronto Star
January 5th, 2022

From the article:

On June 23, 2021, Green Urban advised all buyers that because it had not received the required approvals from the town of Tillsonburg or the County of Oxford, the contracts were being terminated.

Green Urban did, however, offer the same properties for sale at a 25 per cent increase in price. Of the 26 units in the project, 18 purchasers agreed to pay the increased price.

The other eight buyers, including Berthault, took the builder to court asking for what is known as a certificate of pending litigation (CPL). It is, basically, a lien on the title — which effectively prevents any sale or mortgaging of the land.

The case was heard before Justice Paul Nicholson in September, 2021. The issue he had to decide was whether the title could be blocked by a CPL while the arbitration process was underway.

The judge examined the behaviour of the parties and noted that “during the building process the cost of materials rose markedly.” The builder realized that “by good fortune” it had failed to meet some of the early termination conditions, such that it could terminate the agreements.

Characterizing both the purchasers and builder as “innocent” in this scenario, the judge noted that the equities favoured the buyers.

In November, he ordered that a CPL be issued against the properties, effectively preventing the builder from reselling the homes, and that the buyers initiate the arbitration process within 20 days of the court order.

The Berthault case presents a roadmap for the many Ontario home buyers who have had their agreements terminated.

–

Two months later, we got an announcement that I think we all knew was coming.

It only took a decade, but the government finally decided to act:

“Province Promises Crackdown On Condo-Cancelling Developers”
Toronto Star
March 24th, 2022

From the article:

The Ontario government is planning new regulations, including fines and licence suspensions, to deter “unethical” home and condo developers from cancelling projects and purchase agreements, leaving buyers in the lurch.

Government and Consumer Services Minister, Ross Romano, said, on Thursday, he was imposing tough new measures to target “the most unethical behaviour of developers,” specifically those that cancel agreements to try and resell units at a higher price.

–

That was in March.

How long did it take to see these new powers available to the government, through the New Home Construction Licensing Act and the More Homes for Everyone Act, result in identifiable and significant action?

Only five months.

One of the more interesting parts about the following story is who broke it, and when.

You might not be familiar with Storeys, which is a real estate news website that’s not as well known as, say, BlogTO, but is a site I frequent.

Penelope Graham, a writer with Storeys, was the first person to break this news on September 8th, before the Toronto star and the Globe & Mail, and Storeys is where I read this first:

“Regulator Proposes Shutting Down GTA Developer For Unethical Behaviour”
Storeys
September 8th, 2022

From the article:

A developer that has come under past scrutiny for canceling pre-construction purchase agreements has found itself the first target of the province’s crackdown on bad actor builders.

Adi Development Group, a Burlington-based condo builder, is the first-ever recipient of a Notice of Proposal to revoke a licence from the The Home Construction Regulatory Authority (HCRA), the regulatory entity that oversees the new construction industry.

In a public filing, the HCRA’s Registrar is calling for the revocation of building licences of six of the umbrella group’s nine entities for violations under the New Home Construction Licencing Act (NHCLA).

–

This was massive news!

And I read the whole Notice of Proposal, which is hyperlinked above.

This is the most important part of this three-part blog series, so take note.

From the Notice of Proposal:

Between 2015 and 2020, Lakeshore sold condominium units in a project located at 374 Martha Street, Burlington (“Nautique Project”).

On March 23, 2022, Lakeshore notified 174 purchasers of units in the Nautique Project that it would be terminating their agreements due to a failure to obtain satisfactory construction financing.  Notably, Lakeshore:

a. did not cancel all purchase agreements despite the claim that it could not obtain satisfactory construction financing;

b. confirmed that it only cancelled agreements that did not carry a high enough selling price; and

c. offered to resell the cancelled units to purchasers for substantially higher prices.

–

So essentially what happened here is the builder didn’t cancel all of the agreements, but only some of them.  That’s a red flag right there, since, as the Notice of Proposal notes, the builder’s “claim” was that they could not obtain satisfactory financing but they only cancelled some of the agreements.

Previous to this case, developers had cancelled the entire project and then re-sold the units at a higher price to new buyers or the same buyers; it didn’t matter.  But the entire project was cancelled so it could be “re-launched,” effectively as the exact same project but more expensive.

That’s a problem!  It makes the developer look guilty as hell.

However, the next section of the Notice of Proposal shows the following:

Three months later, on June 20, 2022, Lakeshore confirmed that:

a. only 27 purchasers had received their deposit refunds;

b. it would not be making a claim on its deposit insurance; and

c. it would be refunding old deposits after it had received new deposits from the resale of cancelled units at increased prices.

–

Part (c) is what I think makes this developer guilty as sin.

The developer would only return the initial deposits after the new units were sold.

You can’t have your cake and eat it too.

If the initial project was truly “cancelled” – and we know this isn’t really cancelling the project, but just legally terminating the original agreements to resell the same units at a higher price – then the buyers in the initial project would be released, and so too would their deposits.  By holding on to those deposits, and only returning them if/when the new units were sold, the developer can no longer argue that the “initial project” and the “new project” aren’t simply one and the same.

This is so goddam greasy, it makes me sick.

And good for the author Penelope Graham for getting the developer on the record in a follow-up article, where, for some reason, they thought people would like to see their smug faces posing with sunglasses on, standing in front of a crane, looking like clowns:

“Unfairly Singled Out”: Adi Development Group Appeals Proposal to Revoke Building Licence
Storeys
September 12th, 2022

–

“Unfairly singled out,” eh?  I’ve got a synonym for that, it’s called: a great start.

This is a case of, “Everybody’s doing it, so why can’t we?”

Except that, as bad as fifteen years’ worth of condo cancellations have been, previous developers haven’t hand-picked purchase agreements to terminate, while keeping others, and refusing to return deposits for “terminated” deals.

The major newspapers picked up the story as well, in case you’re interested:

“Home Construction Authority Moves To Revoke Burlington Developer’s License”
Toronto Star
September 10th, 2022

“Ontario Regulator Moves To Strip Builder Of Its License”
Globe & Mail
September 14th, 2022

–

And this won’t be the last we’ve heard on the matter

This developer will go through an appeals process, hire a team of lawyers to fight for them, likely get a PR firm on board, and never admit any wrong-doing.

But that’s the problem here: we don’t know what’s actually “wrong.”

Ethically, morally, logically – these aren’t part of the Condominium Act.  They might be part of the new “More Homes For Everyone Act” and “New Home Construction Licensing Act,” but how long did developers have free reign to do whatever they wanted, with no repercussions?

Decades!

I’ve been arguing in favour of change practically since the very day that I started Toronto Realty Blog in June of 2007.

The answer was always, “Oh, David, this is just how it’s done!”

I can’t tell you how many times I’ve heard people say, “You can’t expect a developer to actually follow through with a project and build at a loss.”

Maybe that’s true, and maybe that’s why we used to see the term “Economic Viability Date” prominently on the builder’s forms to note that there is a drop-dead date when the project is or isn’t going forward.

But somewhere along the way, developers realized they could cancel projects simply to re-sell the units for more money, and it didn’t matter if the project had already started and construction was ongoing!

There was no burden of proof necessary.  The developer simply had to say, “This project doesn’t make financial sense for us, we’re cancelling it,” and that was that!  The very next day, the developer could re-sell the units for more money, and nobody would ever know if they really couldn’t obtain financing or if they really couldn’t turn a profit on the project.

Trust me: I’m not advocating in favour of the government getting in everybody’s business, everywhere, all the time.  The last thing I want is another wing of government created from thin air – this one to audit developers who say they’re having financial difficulty.

However, I also can’t believe how this industry has been allowed to run for the last decade-and-a-half.  I know it’s not easy to build a condominium, nor is it easy to run a development business.  I know that we desperately need housing built in this city and in this province, and I fully support individuals or corporations operating in pursuit of profits.

But developers needed to be reigned in.  At least some of them.

Hopefully, this case will act as a warning to some of the developers who have acted poorly in the past, or had planned on acting poorly in the future.

And hopefully, this is a sign that our government can assess a problem, devise a plan of action, and implement a solution when it comes to housing in this city.