Changes needed to combat condo cancellations

Changes needed to combat condo cancellations

Posted by: Condominium Group - Megan Mackey , June 19, 2019

Legislative changes may be needed to stem the recent tide of cancellations of condo building constructions, says Toronto condominium lawyer Megan Mackey.

The Toronto Star reports that pre-construction buyers have been stunned by a spate of cancelled projects in the Greater Toronto Area (GTA), sometimes years after they paid their deposits.

Condo analytics firm Urbanation recorded 4,202 cancelled units in the GTA in 2018, almost triple the level for 2017, when there were 1,678. Even that marked a significant jump from 2016 when the number of cancelled units was just 379.

And with 2019 set to continue the trend, Mackey, partner with Shibley Righton LLP, tells AdvocateDaily.com she’s worried the situation is shaking consumer confidence in the sector as a whole.

“I just hate reading about these cancellations, and I’d like to see some changes to the whole procedure so that it stops happening,” she says. “It’s incredibly frustrating for consumers because when you buy something as major as a home, you don’t expect someone to turn around and call it off like it’s some sort of hotel booking.”

Although prospective buyers typically get their deposits back following a cancellation, investors are unlikely to receive any interest on their down payment, says Mackey, who is also a civil litigator. They also lose out on the equity that would have built up in their property in the meantime. That can amount to a significant sum in a market as hot as the GTA.

“You don’t get as much for the same money as you would have a few years ago because the cost of condos in this market has increased a lot in that time,” she says.

According to the Star story, Tarion, the province’s builder regulator, has begun a standard review into the cancellation of an east-end Toronto project with 119 units, which the developer blamed on construction costs, delays and financing issues.

“Tarion has been trying to address it, but there’s a limit to what they can do,” Mackey says, explaining that the current restrictions on when a project can be cancelled are fairly limited and open to interpretation.

The Star quotes an Ontario government spokesperson who claimed Tarion’s recent restructuring to reduce the conflict between consumer and builder interests would boost buyer protection.

Meanwhile, a Tarion spokesperson pointed out that the agency has the power to sanction dishonest builders by reducing the number of homes they can build annually, or revoking their registration altogether.

“The unique circumstances of each cancellation are what dictates how much time is required for Tarion to do its due diligence,” Tarion spokesperson Melanie Kearns told the newspaper.

Mackey warns that “there are no easy answers” in the quest to reduce the incentive to cancel in a hot property market.

“I feel like it could be solved if developers weren’t allowed to pre-sell condo units at such an early stage,” she says. “Lots of developers cite increasing costs, and financing trouble because of the price they’ve pre-sold units. If they’re forced to wait until later in the process to begin pre-sales, maybe the prices would be more in line with construction costs, and you’d have fewer cancellations.”

Until reforms are enacted, Mackey says pre-construction condo buyers need to increase their due diligence to account for this emerging risk factor.

“Know your builder,” she says. “If it’s a company with a long track record and no cancellations, you might prefer them over a newer builder that seems a bit more stretched financially.

“It’s hard to predict but if you want a new condo as opposed to a resale, one of the downsides is that there does seem to be a significant risk that a certain number will be cancelled.”