Canadian Homebuyers at a Loss as Pre-Sale Projects Get Canceled
Developers are leaving Canadian homebuyers in a state of uncertainty as they cancel pre-sale projects, leaving many customers scrambling to get their deposits back. The real estate market is going through a rough patch, with rising construction costs and interest rates denting developer confidence. In fact, according to a report by the Canadian Home Builders’ Association (CHBA), 22% of developers have fully canceled projects in recent months, while two out of three builders are constructing fewer units.
When it comes to pre-construction purchases, buyers are taking a gamble on what the market will be like years down the road. Aman Bindra of KSW Lawyers in British Columbia warns buyers to be cautious as developers frequently cancel projects, as the market evolves over time. Unfortunately, the cancellation of projects leaves buyers empty-handed, with the return of their deposit often the only compensation they receive.
The rights of buyers differ among provinces since the real estate market is regulated on a provincial level. In Ontario, for example, the obligations of developers are outlined in the Tarion addendum, which allows developers to terminate agreements under certain conditions. These conditions can include failing to secure zoning approval or building permits, or not achieving a specific sales target for the project. Developers can also use the excuse of failing to secure financing for the project, although this may simply be an easy way for them to back out of a project that is no longer as profitable as initially anticipated.
However, real estate lawyer Bob Aaron warns that developers often cancel projects due to changing business cases and relaunch them at a later date with higher listing prices. This may be a common occurrence when home values have risen significantly. On the other hand, in today’s market, where condo values are depressed, buyers may consider themselves fortunate if a developer cancels their unit since the value may have dropped below the original purchase price.
In British Columbia, pre-sale builders are regulated by the Real Estate Development Marketing Act (REDMA). However, case law in the province shows that the reason for cancellation doesn’t significantly impact determining who is right or wrong in the case of project cancellations.
Buyers should review the builder’s disclosure statement and purchase and sale agreement to understand their remedies. In many cases, buyers should also analyze the original purchase agreements in addition to the assignment agreement when taking over an original buyer’s pre-sale.
Typically, buyers pay a deposit for pre-sale homes, with the full amount due at completion. In Ontario, the deposit is usually placed in a third-party trust, allowing buyers to expect a refund of the deposit, potentially with accumulated interest, if the project is canceled. However, in most cases in British Columbia, buyers are only entitled to the return of their deposit and are not eligible for any additional compensation.
In the event of project delays, developers may choose to extend the closing date multiple times, with no compensation for buyers. However, buyers can choose to cancel the contract within a specific period and receive a full refund of their deposit. Ontario buyers have 30 days to do so, while British Columbia buyers have seven days.
While compensation may be available for delays caused by factors beyond a developer’s control, such as a strike among construction workers, buyers may receive delayed occupation compensation. However, this compensation may not adequately compensate buyers for lengthy delays.
To avoid surprises if a project fails to reach completion, prospective buyers are urged to have their purchase agreement reviewed by a lawyer. Despite the risks, the appeal of timing the market and selecting personal finishes on a unit can outweigh the uncertainties faced by buyers in today’s building environment.
As the market faces challenges due to rising costs and changing conditions, Canadian homebuyers must navigate the risk of project cancellations during the pre-sale phase. It is crucial for buyers to be informed about their rights, review agreements thoroughly, and seek legal advice to protect their interests and investments in this evolving landscape.
