Livent ruling seen as game changer for auditing duties

Livent ruling seen as game changer for auditing duties

December 31, 2007

Condo buyers need to study their purchase agreements in depth or risk getting bitten by the hidden costs of purchasing a unit, Toronto condominium lawyer John De Vellis tells AdvocateDaily.com.

A recent CBC story revealed some buyers were forced to scramble on short notice to find as much as $30,000 in closing costs for units in a Scarborough building, long after they agreed to purchase them.

According to the story, the developer of 1328 Birchmount Rd. sent out notices of the costs — which included developer charges, lawyer fees and land-transfer tax — just days ahead of closing dates, warning purchasers they could lose deposits or be forced out of their condos for failure to pay.

“Our closing is March 2, I got an email from my lawyer on Feb. 29 with this fee of $27,800,” one resident, Spiros Karagiannis, told the CBC.

“I'm like, 'I don't have the money for that,'” he added.

But De Vellis, a partner with Shibley Righton LLP, says the shocks keep coming long after closing for some.

“There are many hidden costs in purchasing condos that most buyers aren't aware of,” De Vellis explains. “It's a matter of buyer beware. Typically you will get a big disclosure package as part of your agreement, and usually it's all in there, but it just requires a bit of digging.”

For example, De Vellis says developers frequently build in requirements for condo corporations to enter lease agreements with them, or companies associated with them, for items such as fan coil units or geothermal heating systems.

“These are things that you might assume are parts of the common elements, but are in fact being leased from the developer,” De Vellis says.

Smaller buildings in particular feel the effect of high-interest leases when the costs are added into monthly maintenance costs, De Vellis says.

He says these types of arrangements are often missed by consumers because the leases don't kick in until 12 months after the building is transferred to the condo corporation.

“Usually, the buyer will just look at the first-year budget and maintenance fees, where the cost of the lease is not shown, because there's a credit for the first 12 months,” De Vellis says. “Then, in the second year, these hefty payments kick in and that's when people tend to notice.”

Another cost that condo buyers typically don't realize is going into their common fees is the price to purchase the superintendent's suite and guest suites from developers, according to De Vellis.

“A superintendent's suite usually costs around $350,000, and the guest suite a little less. So depending on the size of your building, that could be a significant chunk to add on,” he says.

De Vellis says strictly speaking, the costs are not really hidden, as developers are required to disclose them to potential buyers. However, he says most consumers lack the knowledge to spot them.

“If you're not looking for them, you probably won't see them,” he says.

And he says it's particularly worthwhile for potential buyers to take a forensic approach to their purchase agreements and associated documents, because judges have proven unsympathetic to buyers when their disputes with condo corporations reach court.

“If the complaint relates to agreements that were on title or disclosed, then the courts have not really been sympathetic. The message from the courts is is buyer beware.” De Vellis says.

In cases where equipment is leased to corporations by developers, he says the lease agreements often contain termination provisions should condo corporations wish to take advantage of them.

“Sometimes the corporation can terminate within 12 months of turnover,” De Vellis says. “If the terms of the lease are onerous, you can terminate, but then you have to purchase the equipment or make some other arrangement, which comes at its own cost.”