Canada's Condominium Magazine
A woman who invested $40,000 in the condominium development called Centrium, which was to be built at Yonge and Finch by a company called Centrust, explained the reason for the terrible predicament that she and about 150 other investors now find themselves dealing with. An immigrant to Canada, she said she thought “everything in Canada was so safe, everything like perfect, we trust them (the developers) so much.” Speaking to Global News she went on, “so we didn’t pay much attention on questioning anything.”
Was she naïve? Perhaps, but so were all those other purchasers who handed over their deposit cheques, confident that they were dealing with a legitimate developer, though Centrust has no other developments to show in the Toronto area, if anywhere.
In fact, the woman should have had nothing to worry about. The system may not be “perfect,” but the legal requirements are in place to protect consumers when they decide to buy a condominium, beginning with the right to cancel a purchase within ten days of receiving the signed documents pertaining to the sale and the disclosure statement. At that point, if the purchaser wants to back out, the developer is obligated to refund his or her deposit. The purchaser can request that the deposit, by the way, be held in trust, and part of it ($20,000 maximum) is insured (on residential units) by the Tarion Warranty Corporation in Ontario.
As for condominium developers, according to the law in Ontario they are obligated to ensure that the condo is completed on time. If the condo closing is “unreasonably delayed,” purchasers can receive compensation. A more complete explanation of the rights and obligations surrounding condos can be found at the Ministry of Government and Consumer Services*.
Fraudsters get around the law
No amount of legal protection is of much use, however, when fraud enters the picture. The developers of the condominium in question have apparently disappeared, and $12 million is unaccounted for, so the assumption of fraud on their part seems entirely reasonable. As Toronto real estate lawyer Bob Aaron told City News, the purchasers can sue the developers, but if there’s no money there, “then it’s gone.”
What else can potential buyers of new condominiums do to protect themselves? Buying a pre-construction condo will always entail a certain “leap of faith,” as authors Brian Persaud and Randy Ramadhin point out in their book Investing in Condominiums. There are risks, one of them being, as the Centrium buyers found out, finding that you’re dealing with a disreputable, even fraudulent developer. So, pay very close attention to the developer’s reputation, the authors urge. “Look for a builder with a reputation for completing projects on time and with high-quality standards. That good reputation should be consistent across many projects.” Also, check out whether the developer is active in trade associations such as the Building Industry and Land Development Association (BILD). This is another sure way to learn whether you’re dealing with a well-established company rather than a shell company.
Further, they say, look for a developer with its own construction team so that the quality of their work can be judged from one project to another. Even that is no guarantee that your condo will be built flawlessly, as “there is no way to see into the future.” But a purchaser can certainly mitigate risks by choosing to buy from a developer with a long-standing, solid reputation for quality and good customer service. Never assume that a developer who puts on a good display at the sales centre and has a smart-looking website is therefore trustworthy. Ultimately it’s the work that counts.
[colorbox title=”Protection for buyers” color=”#333333″]
- When you buy a newly-built condo, you have the right to cancel the purchase within a 10-calendar day cooling-off period. The clock on this 10-day period starts from the time you receive a copy of the fully signed purchase and sale agreement or the disclosure statement (whichever comes later)
- You also have the right to cancel a sales agreement within 10 days after any “material change” (i.e. a significant change) to the disclosure statement
- If you exercise your right to cancel, the developer must refund any deposit plus any interest that may be payable
- If you make a deposit, the developer must make sure that it is held in trust
- A developer can’t terminate your purchase and sale agreement without your consent or a court order
- Like all new home purchases, newly-built condo units are covered by the Ontario New Home Warranties Plan Act, which is overseen by Tarion Warranty Corporation[/colorbox]