Vaughan condo buyers take developer to court over cancelled project
|Toronto Star 09 Sep 2018 at 04:41|
Buyers in a cancelled Vaughan condo project are asking a court to declare their contracts void so they can sue the developer for the appreciation they lost in the two years between when they bought the pre-construction units and when their deposits were returned.
The unusual legal application, filed Aug. 30 on behalf of 451 buyers of Liberty Development’s Cosmos condos, argues that the sales contracts went beyond what’s allowed by Ontario’s building regulator, Tarion, in pre-construction agreements.
A class-action lawsuit can take years to work through the courts, said the buyers’ lawyer Ted Charney. But this legal application will likely be heard within four months, he said, because it is going through the Ontario Superior Court of Justice Commercial List, a specialized court that handles business matters.
If the application succeeds, Charney says it will put developers on notice that they must stay within those contract rules, even in the kind of heated real estate environment that the Toronto area experienced when the Cosmos units went on the market.
The court action comes amid calls for greater consumer protection for home buyers who face having their deposits tied up for years, only to have the money returned after the cost of similar homes has increased.
Liberty Developments sold Cosmos units in the spring of 2016, when the average price of a highrise condo in the GTA hit about $461,000 in April. When Liberty cancelled the project this past April, that average price had soared to almost $740,000, according to the Building and Land Development Association.
Liberty Development is named on the court application, along with three numbered companies that share the same Markham address. The companies have 45 days to respond to the application. Liberty did not respond to the Star’s repeated requests for comment through its media spokesperson.
Eleven projects with 3,992 units have been cancelled since the beginning of 2017, according to Urbanation, a market research company.
Cosmos buyers signed “take-it-or-leave-it” contracts that gave the vendor, one of the numbered companies, “sole, absolute and unfettered discretion,” to cancel the project if it found the financing terms unacceptable, said Charney.
He compared it to someone making an offer on a house conditional on mortgage financing. “Then if (the buyer) want(s) to drop the deal all they have to do is say, ‘I didn t like the mortgage rates or I couldn t get the mortgage I wanted, see you later,’” he said.
Charney is among those who say developers should have a limited period — 90 or 120 days — in which to cancel projects. If they exceed that time limit, he says, they should have to pay buyers the difference in the property’s value.
Liberty has said that it cancelled the project “solely due to the inability to secure satisfactory construction financing.”
It told buyers that the decision was made by vendors. The court application says those vendors are among the numbered companies named on the court application. Darvish Fereydoon is the director and the president of all the companies named on the buyers’ court application.
In April, the company’s spokesperson Danny Roth of Brandon Communications called the Cosmos cancellation an “isolated” event.
The court application notes that Liberty is now planning a new condo project adjacent to the Cosmos site at Vaughan Metropolitan Centre and it is redeveloping the Promenade Mall near Bathurst St. and Clarke Ave. in Vaughan with 1,006 condos in three towers, a hotel and commercial space.
Liberty Development has filed a $1 million defamation suit against Charney, claiming he published “false and defamatory words” about the company on a website designed “to entice hundreds of purchasers to sue Liberty with a false statement as to Liberty’s involvement in the cancellation of the Cosmos condos project.”
Real estate lawyer Bob Aaron, who writes a column for the Star, agrees with Charney that there should be a finite period in which developers can cancel sold projects. The problem is that developers have to pre-sell condos to finance the projects. To change the system there would need to be a period in which sales and financing could be arranged at the same time, he said.
Even though many condos sell to investors who never plan to live in them, the government owes all buyers greater protection.
“Right now there s a loophole in the legislation which allows builders on the flimsiest of excuses to terminate deals when the values of properties have gone up. That does not protect consumers in a rising market,” said Aaron.
Buyers pick up the pieces after condo cancellation
The price, the parking and the proximity to a new subway station at the Vaughan Metropolitan Centre helped the Cosmos condo development sell out in the spring of 2016.
When Liberty Development cancelled the project in April, some purchasers bought other homes. But some say they have been pushed off the property ladder in a tough GTA housing market where their refunded deposit checks simply don’t buy much two years later.
Jay Reddy bought his Cosmos unit as an investment. He planned it as a retirement place for his mom, 70, and dad, 76, who had planned to sell their house.
“For them to live in a four-bedroom house in Vaughan and keep up with everything outside and inside, it was just becoming too much,” Reddy said.
But now, they’re staying.
“They’ll probably just wait and see if it’s worth it to relocate to somewhere in Vaughan condo-wise. My guess is they’ll probably just have to stay there for now,” he said.
“A lot of these condos in Vaughan are just skyrocketing in price. Cosmos was offering parking, the location was better as opposed to further up Jane north of Hwy 7. When we went to the open house, we felt comfortable with what was being offered,” said Reddy, 41.
“Four people that I know of either bought a townhouse or a condo. A lot of them had to go to Etobicoke. A lot of them couldn t stay in Vaughan.”