Some Ontario builders are giving pre-construction homebuyers 2 choices — pay more or forget it
Developers say unavoidable delays, increased construction costs have forced them to cancel sales agreements
Dozens of would-be homebuyers who've invested in pre-construction units across southern Ontario say developers are trying to charge them more money in a move that, for some, hurts their chances of ever owning a home.
Citing insurmountable delays and construction costs related to the pandemic, several developers have cancelled sales agreements, then offered the same buyers a chance to pay tens of thousands of dollars more for the same units, the potential purchasers told CBC News.
Some who decided to walk away with their deposits said developers then relisted the units at higher prices.
After CBC News reported last month that Pace Developments cancelled several years-long agreements in Barrie, buyers reached out about similar situations in the Ontario municipalities of Guelph, Richmond Hill, Collingwood and Georgina, near Newmarket.
In Tillsonburg, Ont., about 60 kilometres southeast of London, 11 buyers are fighting to buy their units for the original agreed-upon price by taking developer Green Urban People to court.
Newlyweds waiting to move in
Among them are newlyweds Lucas Berthault and Erin Gardner, who've been living separately with their parents and are hoping to move into their fully built townhouse next year.
They made the purchase in the fall of 2020 after watching houses in their area sell for as much as 50 per cent over asking, Berthault said.
"We were like, 'You know what? Let's go into a new build,'" he said. "You don't have a bidding war. All you have to do is be patient."
They paid a $38,000 deposit for a unit from Green Urban People priced at $379,000, according to court documents filed with the Ontario Superior Court of Justice. Up until May, they were repeatedly reassured by a sales representative that it would continue.
But in June, the developer sent a letter to buyers saying due to permit delays with the township, it had terminated their agreements. However, the letter said, they could enter a new sales agreement if they paid an additional 25 per cent more — in Berthault and Gardner's case, that was $95,000.
"It was like hope was lost," said Berthault. "It just felt like a greedy move."
Oxford County, which includes Tillsonburg, disputes the developer's claims. Senior planner Eric Gilbert said the county has been processing applications "expeditiously" throughout the pandemic and all of Green Urban's files were approved within normal time frames.
Berthault and the other buyers are asking the court to order the developer to honour its original sales agreements.
The case will likely go to arbitration next year, Berthault said.
In a response filed with the court, the company's president, Amer Cengic, said he denies all the allegations.
"Green Urban could have insisted on selling the units for fair market value," Cengic said in the legal document. "However, I did not want the buyers to feel as though they were being taken advantage of."
The buyers managed a small win a couple of weeks ago, when a judge ordered a freeze on the units in question, so Green Urban People couldn't sell them before a decision was made, Berthault said.
Although he won't make the final ruling, Justice Spencer Nicholas noted "deficiencies" in the sale agreements, pointing out the developer didn't list each early termination condition.
"Clearly it is a triable issue," he wrote in his decision.
Buyers benefit from missing appendix
Meanwhile, some buyers of Pace Developments' Urban North Townhomes in Barrie, Ont., have found a gap in their paperwork: The developer didn't include an appendix with early-termination conditions in some of the original sales agreements and therefore won't be cancelling them, a letter sent to those buyers said.
"Just the pressure from the CBC stories, as well as Premier Ford going on record to say, you better build that damn house … later that afternoon, they sent us a note and said some of that documentation is missing," said buyer Todd Arkell. "We're happy with the outcome."
Pace Developments did not respond to a request for comment.
After CBC's story about the Barrie project, Ontario Premier Doug Ford vowed his government would make changes to stop it from happening.
His office declined to comment further, while Minister Ross Romano, who oversees government and consumer services, declined to be interviewed.
"We are continuing to look at making changes that further protect condo-buyers," said the minister's press secretary Jennifer Lipkus. "And as Premier Ford clearly stated, we won't tolerate bad actors who take advantage of hard-working Ontarians."
Lawyer says trend linked to rising prices
Toronto real estate lawyer Blair Drummie is representing clients in similar situations and says the cancelled-agreement trend has emerged in response to surging construction costs and housing prices.
"Before the pandemic, nothing like this existed," said Drummie. "There would be no developer who would ever think to go to their customer and say, 'We need more money.'"
While developers do not have the right to increase prices, they are usually allowed to cancel agreements, Drummie said. But the practice undermines the trust of prospective buyers.
"In an instance like this, perhaps the government could look at some consumer protections," Drummie said. "I don't think it's very fair for the person who's put their life savings into this and is making the biggest purchase they've made in their lives, and suddenly they're looking at another $80,000."
'It breaks my confidence'
A similar situation played out in a housing development in Collingwood, Ont., in the Georgian Bay area. But the developer, DiCenzo Homes, says the town is responsible, because it temporarily froze development in April over concerns about capacity at its water treatment plant.
By then, red flags were already going up for buyer Sajid Quershi, as he was seeing lumber and housing prices increase.
The average residential sales price in the western Georgian Bay region has increased from about $650,000 in 2020 to more than $900,000 this year, according to the Canadian Real Estate Association.
"We actually started thinking: We don't think these guys are going to go through with it," said Qureshi, who lives in Toronto.
He and his wife had put down a $50,000 deposit on a $500,000 pre-construction townhouse in Collingwood in November 2020.
Exemptions for builders
In May, Collingwood began holding meetings with local developers, and by the end of the month it had set up an exemption process and encouraged builders to apply so they could continue construction on new homes, said Summer Valentine, the town's planning and building director.
"An exemption process was made available to ensure that projects that would be shovel-ready in 2021 could move forward," she said in an email on Monday.
DiCenzo Homes applied for an exemption on June 16 for its planned Waterstone development, the town said.
But a week later, the developer emailed Qureshi and other buyers to say it was cancelling sales agreements and would return deposits. In the letter, DiCenzo stated it had received "no assurance" from the town of Collingwood that it would be allowed to build in the coming years.
The company president, Anthony DiCenzo, told CBC the town left no option other than to cancel.
"What happened in Collingwood — and that decision to terminate the buyers' agreements — was a result of the passing by the town of the interim control bylaw which prevented the project from proceeding, not due to the choice of the builder," he said in an email.
The company was surprised when the town allowed it to proceed with construction, Dicenzo said, and relaunched sales of the units at a higher price to reflect the current market value and increased costs for labour and materials.
Weeks after cancelling its sales agreements, DiCenzo Homes had permission to proceed; in the fall, it told Qureshi he could repurchase the unit if he agreed to pay $100,000 more.
His answer was no.
"This is something that should be unacceptable, especially when in the midst of a housing crisis — and this isn't the only developer doing it," Qureshi said.
"It breaks my confidence in buying with any kind of Ontario developers, because these guys aren't existing in a vacuum."
- A previous version of this story said Toronto real estate lawyer Blair Drummie said developers had the right to change prices. In fact, he said they have the right to cancel agreements.Dec 13, 2021 3:31 PM ET