Most buyers of pre-construction condominiums understand that there are a number of uncertainties that go with these purchases. The unit may not be as visualized by the purchaser, as the purchase transaction is based on floor plans, specification sheets and artist renderings, rather than an in-unit inspection, as is the case with re-sale units. The occupancy date and the closing date are not fixed dates – the dates originally contemplated are often postponed by the developer and frequently more than once.
One of the biggest uncertainties is whether the condominium project will even be constructed. It has been recently reported in the media that two large condominium developments in Vaughan have been cancelled by the developers more than a year and 2 years, respectively, after the purchase agreements were entered into. In both cases the developers cancelled the purchase agreements on the basis that they were not able to secure satisfactory financing for the project.
The Tarion Addendum which is attached to all purchase agreements for pre-construction condominiums allows developers to make purchase agreements conditional. Included in the list of permitted conditions are:
- receipt of approvals from governmental authorities for site plan and other development agreements and changes to zoning by-laws;
- confirmation by the vendor that sales of the condo units have exceeded a specified threshold by a specified date; and
- confirmation by the vendor that financing for the project on terms satisfactory to the vendor has been arranged by a specified date.
The two developers in Vaughan notified all of the purchasers that the purchase agreements were being terminated in accordance with provisions contained in the agreements which allowed the developer to unilaterally cancel the project, and the deposits paid were returned in full to the purchasers.
Not surprisingly most of the purchasers were not happy with what had transpired, even though they were repaid their deposits. Those purchasers who were planning to make the condominium their place of residence now had to make other plans to find another home. However, what was most disconcerting was that because the selling price of condo units in the Greater Toronto Area has been steadily escalating recently, many purchasers now found themselves in the position that they could not buy another comparable unit for the same price as was originally negotiated. They were now priced out of the market, as they could not afford to buy a unit at the current market rates.
Consumer advocates are calling for amendments to be made to the Tarion warranty program to build in more protections for buyers to avoid situations like these. While the Ontario New Home Warranties Plan Act is consumer protection legislation, many consumers feel that it is too developer-friendly and does not offer enough protections for buyers who have minimal bargaining power to negotiate changes to developers’ standard purchase agreements.
Meanwhile, some of the buyers of one of the cancelled projects have brought a court application to have their purchase agreements declared void so that they can sue the developer for their lost profits. If those buyers are successful in their lawsuits that will send a chill to condo developers. They need the flexibility to terminate purchase agreements as there are many conditions that need to be satisfied before a developer can proceed with a development, many of which are outside the developer’s control.