More protections needed for pre-construction homebuyers, says Ontario’s warranty program CEO

Thestar.com
September 28, 2018
Tess Kalinowski

The CEO of Ontario’s home warranty program says the recent cancellation of two condo developments in Vaughan suggests it is time the province looks at upgrading protections and transparency for pre-construction homebuyers, including flags on Tarion’s own website that would alert consumers to builders who have cancelled projects.

Howard Bogach said the building industry’s reputation has taken a hit in light of two cancellations involving more than 2,600 condos at the Vaughan Metropolitan Centre, and he warned more condo cancellations could be coming.

“We’ve looked at a series of projects that have been sold for three years where construction hasn’t begun yet,” he said.

That doesn’t mean they won’t be built, but, “I would say these are the vulnerable ones.”

Bogach did not specify the number or the location of those projects. But he advised buyers in those circumstances to contact their builders. If the developer doesn’t respond, Bogach urged consumers to call Tarion directly.

Last week, buyers in the Icona development sold by Gupta Group/Easton’s Group of Hotels received cancellation notices. In April, Liberty Development cancelled its Cosmos towers along the same stretch of Highway 7 near Jane St.

Both companies cited non-specific financial reasons for killing the projects. Apart from letters to their buyers, neither firm has commented on the decision to kill their projects or the disappointment of buyers, who had their deposits tied up for one and two years, respectively, as home prices continued to rise in the GTA.

Although he cautioned against knee-jerk responses, Bogach told the Star on Wednesday that the industry, governments and developers should look at whether the notifications and disclosures on new home projects “could be improved from what we’ve learned in these two instances.”

“Are there more steps we could take,” he said.

A Star investigation published online Thursday revealed that the LeMine Investment Group has failed to break ground on 339 condo units it sold in 2014 at The Academy at 3070 Ellesmere Rd. in Scarborough and another 410 units sold two and a half years ago at Central Park Ajax, a project mired in legal turmoil.

Tarion, which has a builder regulatory function and also considers itself a consumer protection agency, advises buyers to do their research before purchasing a home. But Bogach admitted that while Tarion’s own online builder directory shows whether a builder is registered in Ontario and whether there have been issues addressed by the warranty program, it does not alert consumers to builders who have cancelled projects.

“You know the line, ‘The best indication of future performance is past performance.’ If you look at the directory, you’re not going to see an issue of past performance,” he said

The 10-year-old Tarion Addendum, a standard form with the sales agreement that sets out agreed-upon occupancy, payment schedules and termination conditions, should also be reviewed, he said. That discussion, he stressed, needs to include the province, municipalities and developers and reflect the growing approval times for getting projects built.

“For the vast portion of that 10 years the Tarion Addendum has worked pretty well,” said Bogach, who attributed most cancellations to zoning issues and developer’s failure to meet the banks’ threshold for financing, which usually means a builder needs to sell between 70 and 90 per cent of the proposed units to raise the millions needed to build.

He said he understands consumer skepticism when builders offer only vague financial reasons for terminating a project. But, unless Tarion’s investigation leads it to ask the province to pull that builder’s licence, it won’t reveal the details of the investigation.

Bogach said it is also worth discussing the “salt-in-the-wound issue” of the lack of interest paid to consumers who have their money tied up in development. The Ontario Condominium Act says that refunds on cancelled condos include interest -- but the prescribed rate of two per cent below the Bank of Canada is so low, consumers seldom see any interest accrued.

Meanwhile, frustrated condo buyers who received refunds on their deposits for the Vaughan projects are looking at legal action. A group of 451 buyers in the Cosmos towers have asked a court to declare their contracts void so they can sue Liberty Development for lost appreciation in their homes over the two years the company had their deposits held in trust.

Icona buyers have asked Tarion to investigate whether Gupta had any right to sell condos last year on property that was bound by a restrictive covenant that prohibited anything but a hotel from being built on that land.

Ontario Minister of Government and Consumer Services Todd Smith said last week the government is looking for ways to better protect homebuyers left in the lurch by condo cancellations.

Tarion’s critics have suggested that the organization can’t be impartial on the matter because eight of its board members are homebuilders. Following a review of the new home warranty program by associate chief justice J. Douglas Cunningham, the former Liberal government promised last year it would overhaul the warranty system. But some consumer advocates say it failed to act on the recommendation that the warranty program and builder regulation be held in separate organizations.