“North Toronto Condo Developer Faces $30M Lawsuit”

I’m not gonna lie, folks – I was emailed this article by eleven different people since it hit page A1 on Monday.

Part of that is because these people know I’m a consumer advocate, and I take a firm stance against pre-construction condos and many of Toronto’s condo developers, and part of that is because Torontonians are just fed up, and they’re finally understanding what goes on in today’s condo construction industry.

FINALLY!  A developer is going to be held accountable for damning actions that have major financial ramifications to buyers who were the victim of a “bait-and-switch.”

The Toronto Star article fully explains…

LawsuitImage

“North York Condo Developer Faces $30M Lawsuit”
By: Sue Pigg
The Toronto Star

Wendy Ji believes in getting what you pay for, so she’s spearheading a $30- million class-action lawsuit against a Toronto condo developer, claiming they failed to deliver on their promises.

Ji, 26, says she bought her two-bedroom unit in Emerald City Condominiums at Don Mills Rd. and Sheppard Ave. E. back in 2010 for one key reason: Developer Elad Canada Inc. said the 36-storey tower, when built, would have “easy underground access” to the Sheppard subway line and nearby Fairview Mall.

When Ji was finally handed the keys to her brand new unit in February she discovered a problem: There was no tunnel.

She could only get into the Don Mills subway station by walking outside, or to Fairview Mall by walking across busy Sheppard Ave. or through TTC pathways that ended in outdoor mall parking lots.

The lawyer for condo developer Elad disputes the claim saying, “there was never any representation that there would be underground access” from the condo building to the subway or directly to Fairview Mall: Both are easy to reach by walking out the lobby doors and six metres to the subway entrance right out front.

“The station isn’t far. It’s not going to kill me to walk there. But it’s the failure of the promise and the fact we paid a premium for that building because it was supposed to have underground access,” said Ji in an interview.

She bought the $460,000 condo with backing from her parents who were taken with a promotional virtual video — “they must have watched it 10 or 15 times” — showing a subway train pulling into a station with stairs marked Emerald City. She, like other residents, is seeking a 10 to 15 per cent rebate, saying the lack of direct access has devalued their units.

“Most people would just accept it and keep complaining, but this just pushed my buttons and, I thought, we have to speak up for ourselves.”

The lawsuit, citing misrepresentation and breach of contract, was filed last week and involves owners of some 60 condos in the 464-unit Emerald City Phase I.

It is just the latest evidence that folks who’ve bought preconstruction units from blueprints — years before they are actually built — may be reaching a tipping point, just as tens of thousands more new units are soon to come to completion.

Instead of just griping to friends and in online forums about what can end up being shoddy workmanship, faulty finishes, falling glass and even ceilings lower than promised in developers’ marketing materials, they are fighting back.

And they’ve found a couple of high-powered allies in lawyers Theodore Charney and Harvey Strosberg, the latter considered “the multimillion-dollar lawyer” because of his track record as one of the most successful class-action litigators in Canada.

Ji approached the two when she found out, via Google, that they’d launched three similar suits last fall on behalf of owners and renters in newly built condos over falling glass.

They’re also suing developers of a 10-year-old CityPlace building where balcony railings had to be replaced, shutting down outdoor access for some owners for two years.

Elad vice-president of development and marketing, Netanel Ben Or, did not respond to emails from the Star about the Emerald City lawsuit.

“From what we know so far, there doesn’t seem to be any merit to these allegations,” said Alan D’Silva, a lawyer with Stikeman Elliott LLP who was just retained by Emerald City on Friday to handle the suit.

He disputed part of the statement of claim that says residents’ only underground option now to get to Fairview Mall is by paying fares of $3 each way to use TTC pathways: “It’s not right and it’s not accurate.”

Real estate lawyer Bob Aaron, long a critic of condo sales agreements that are heavily weighted in favour of developers, says these class-action cases could shed new light on what he calls “weasel clauses” that often leave buyers at a disadvantage in complex preconstruction condo deals that are often penned two to four years before the condo is built.

“There are so many disclaimers (in sales agreements) that the developer can build something entirely different and then say, ‘Don’t come to us (complaining) about any changes.’ ”

Henry Chien Lin created a website, condoeh.com, to connect with other Emerald City buyers, such as Ji, when he says he discovered a number of problems with the penthouse unit he bought with his wife and 15-year-old daughter. Ceilings were lower than promised in marketing materials for the premium units. What was supposed to have been a glass exterior wall in his daughter’s bedroom, he says, was divided in half by a four-foot stretch of concrete.

But it’s Elad’s failure to disclose the lack of direct underground access to the subway, touted in marketing materials and sales contracts, according to the statement of claim, that upset Lin most: He saw it as a safety feature for his daughter if she eventually commutes to classes at the University of Toronto.

“This is our home. We’re not investors. We paid a whole lot of extra money (largely because of the promise of direct subway access) and we actually received a whole lot less,” said Lin.

After Ji realized there was no underground connection, she had her real estate lawyer send a letter to Elad on March 29, asking for a rebate. Ji had scoured MLS listings and found similar units, without subway access, were selling for 10 to 15 per cent less.

“With respect to the direct access to the Sheppard subway, there is direct access through the front lobby and across six metres of city property, over which the condominium enjoys an access easement,” said Elad lawyer Leor Margulies in response, a reference to the above-ground subway entrance.

“There was never any representation that there would be underground access or other forms of access to the subway.”

In fact, a promotional brochure for Emerald City says “the lower level lobby is connected directly to the subway, allowing you the convenience of going anywhere you like on the TTC without having to go outside,” according to the statement of claim.

A YouTube virtual tour shows a subway train pulling up to stairs marked “Emerald City” and TTC signs hanging in the condo’s lower lobby.

The lawsuit alleges that Elad is in breach of contract for making representations that were “inaccurate or untrue” and then continuing to make the representations and failing to notify purchasers and prospective purchasers once the representations were or became inaccurate.

One major developer, who spoke on condition his name not be used, said it’s not unusual for plans to change as buildings go from blueprints to reality. Accommodating mechanical systems, for instance, can change the look and ceiling heights of some units or floors.

“Communication is probably the best way to handle any issues that happen from time to time. It’s all about letting the purchaser know the minute there is a change and working out fair compensation if you can’t deliver.”

 


 

What the HELL have I been saying for the past six years?

DO…….NOT…..BUY…..PRE…….CONSTRUCTION……CONDOS!

It’s that simple.

I started this crusade in 2008, very shortly after I started Toronto Realty Blog.

The condominium construction industry in Toronto is like no other on the planet.

Yes, consumers are to blame for being stupid enough to buy into this nonsense, but consumer protection legislation is apparent all over the world.  It’s illegal not to use a seatbelt, after all…

But the Condominium Act (1997) is completely out of date, and developers have figured out every single loophole in the document, and lawyers for developers have figured out how to structure the Agreement of Purchase & Sale so that they can make changes to just about every facet of the development, with the exception of a few items in your individual unit.

The sad truth is – this lawsuit will have a hard time going forward.

In theory, in reality, and logically – this developer screwed these buyers, and should be held accountable.

But legally, these buyers agreed to the terms and conditions of the Agreement of Purchase & Sale.

Here’s a typical clause that addresses this:

The purchaser acknowledges and agrees that the Vendor may, from time to time in its sole discretion, due to site conditions or constraints, or for marketing considerations, or for other legitimate reason, including without limitation any request or requirement of any of the governmental authorities or any request or requirement of the Vendor’s architect or other design consultants:

(i) change the Property’s municipal address or numbering of the Unit

(ii) change, vary or modify the plans and specifications pertaining to the Unit or the Condominium, or any portion thereof (including architectural, structural, engineering, landscaping, grading, mechanical, site servicing, and/or other plans and specifications) from the plans and specifications existing at the inception of the project, or existing at the time that the Purchaser has entered into this Agreement, or as same may be illustrated in any sales brochure(s), model(s), in the sales office or otherwise, including without limitation, making any change to the total number of dwelling, parking, bicycle/storage and/or other ancillary units intended to be created within the Condominium, and/or any change to the total number of levels or floors within the Condominium, as well as any changes or alterations to the design, style, size, and or configuration of any dwelling or other ancillary units within the condominium.

(iii) change, vary, or modify the number, size and location of any windows, columns and/or bulkheads within or adjacent to the Unit, from the number, size and/or location of same as displayed or illustrated in any sales brochures, models, or floor plans previously delivered or shown to the Purchaser, including the insertion or placement of any windows, columns, or bulkheads in one or more locations within the Unit, (regardless of the impact thereof), as well as the removal of same, and that the Purchaser shall have absolutely no claim or cause of action whatsoever against the Vendor or its sales representatives (whether based or founded in contract, tort, or in equity) for any such changes, deletions, alterations, or modifications, nor shall the Purchaser be entitled to any abatement or reduction in the Purchase Price whatsoever as a consequence thereof.

And that’s just ONE clause that I found in my archives.

Imagine what the developer might have included if he/she knew they never intended to build subway access from the condo?

Let me sum this up in two words:

buy resale

Pre-construction condos are only bought in 2014 by four groups of people:

1) Overseas investors who are using Canadian real estate as a piggy-bank, rather than put their money in their communist banks, and who have no problem leaving the condo empty, and losing money.

2) Young people who are duped by unscrupulous agents who chase 6% commissions.

3) So-called “investors” who are about eight-years too late to the party.

4) Actual “users,” who intend to move into the condo in two, three, four, or five years, whenever it’s ready, who own and live in a home today, and represent the only type of pre-construction condo-buyer who likely won’t be greatly affected by all that plagues the industry today.

But one thing is certain: we’ll all be watching this lawsuit to see what happens.  If they find in favour of the plaintiffs, we might ACTUALLY see change in the condo construction and sales industries in Toronto…

31 Comments

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  1. Adam says:

    Moral of the story:
    Read over your contract more than once.
    There is nothing wrong with buying a condo on spec as long as you take the time to read the fine print and discuss any potential red flags with the sales representative.

    1. ScottyP says:

      Unfortunately, that article is six months old….

      1. Kyle says:

        It will be a part of Wynn’s new budget, if it doesn’t get defeated

        http://www.theglobeandmail.com/news/national/ontario-2014-budget/article18364365/

        1. ScottyP says:

          It’s election time!

          1. Kyle says:

            Oh well, i guess we’ll just have to keep waiting again.

  2. Cliff says:

    Good to see a developer be held accountable. Developers have been able to do any and everything to bait and switch buyers. They could promise anything they want in writing but put in a whole bunch of loophole legal stuff to screw the purchaser. Why has the condo act not been changed in 20 years? Pre construction is the worst investment. It’s terrible, yet people rush to buy. I do not understand it. A developer can put a steaming pile of dung in your living room and you would have to deal with it. Tarion again, works for the developers. Makes no sense how the government allows this.

  3. Kyle says:

    I actually think the class action suit has decent odds of getting some sort of a settlement, probably won’t be 10% definitely won’t be 15%. But i wouldn’t be surprised to see $5 – $10K per actual affected owner.

    One thing that’s encouraging to see is that the internet seems to be an equalizing force in the battle against sketchy developers, seems to be a good tool for unifying, mobilizing and informing owners, who otherwise might just be complacent. I think it’s about time condo owners start using the internet to organize, not just within their building but across buildings and hopefully across the city. The deck is stacked so far in the favour of developers and management companies, and i think the biggest reason is the lack of organization among condo owners. Considering the demographic of a lot of condo owners in this city (i thought it was suppose to be the young tech savvy crowd buying these things), i’m actually surprised there aren’t more internet sites, devoted to tracking, ranking, discussing or forming groups, etc to keep tabs on the developers and management companies, the issues that affect condos, like legal/illegal hotels operating out of condos, or condo board matters . The data and demand is out there, someone just needs to create the forum.

    1. Hawk says:

      Hi Kyle;
      There have been several attempts to use the Internet to organize condo owners, or at least inform them of the potential downside to condo life (condomadness.info as an example) but condo owners are extremely difficult to organize.

      They do not want problems in their buildings identified and most young owners do not plan to stay more than 3 or 4 years so they have no long-term attachment to the building. Absentee investors don’t know the problems and they don’t much care as long as they get their monthly rent.

      The second issue is that as soon as their problem is behind them, the owners have no interest in anyone else’s problems.

      1. Kyle says:

        Good observations Hawk. Yeah i could totally see what you’re talking about, which is what i think makes it so easy for developers, management companies and unscrupulous board members to hose them. Standing alone, a single condo owner doesn’t stand a chance at putting up any kind of resistance. They have zero information about what goes on in their own building or other buildings, other than what periodically comes to them from their board (often ignored), sites that are sponsored by developers or through the occasional news story. On the other hand, the developers and management companies have a direct view of what is going on in buildings all across the city (actual expenses, all the details of the contracts and rfps from vendors and contractors, etc).

        Anyhow, i don’t own a condo or have any interest in “the battle”, other than curiosity as to why no one has or seems to be actively trying to tackle a problem that clearly exists, and which will only get more pressing as more condos are built.

        1. Alex says:

          I would love for such a site to exist, but the trick would be that owners would only ever badmouth a developer or specific condo AFTER they’ve already sold it and moved on. No one wants to kill their investment, so the only information you can get would probably be 5 years old or more. I’ve started keeping track of developer names that I hear in the news (either good or bad) to get an idea of what ones are reputable and what ones aren’t. To get an idea of a particular condo I usually go to renters forums, since they have no financial stake and love bringing up all the flaws in their apartment/condo. Some particularly good sites for information on condos I’ve found are:

          myhood.ca – not a lot of condo reviews on here (but a great way to find out if a condo has a lot of rentals in it), but there are a few that are helpful
          thedirt.co – not a lot of info here either, relatively new
          rateyourcondo.ca – the most helpful one I’ve found, generally reviews from former owners who’ve sold and moved on.

          1. Cliff says:

            The dirt is a start, but not enough people are on it. Too many owners afraid of hurting their investment. I don’t blame em either. You’re all on your own.

          2. AndrewB says:

            The flipside could happen though too. I for example, could make an account on rateyourcondo and get others to do so too and write glowing reviews about my building even if there are issues, to prevent negative perceptions. Hypothetically anyone could do this.

            Also you have to think about the perceptions of people. How many people go out of their way to make accounts at websites, etc to write positive reviews about things? Most will do so for only negative experiences as a means of venting so I’m always weary to read something that overwhelmingly negative and question if one’s emotions skew their reviews. All it leads to is imbalanced representation.

  4. GeorgyBoy says:

    The most amazing thing about this is the fact that a 26 year old bought a 460k condo. WoW

    1. AndrewB says:

      Mommy and daddy helped as the article stated. Besides the point, there are plenty of mid 20 something’s that own real estate that aren’t in over their heads and financially know what they’re doing.

  5. Paully says:

    The lack of direct subway access probably has not affected the value of the condo as much as the neighbourhood around it. Maybe she should sue all the neighbours too?

    One thing is for sure, if the condo market really turns south, we are going to see a lot more lawsuits like this one, as ticked-off specu-vestors try to blame someone else for their own unfortunate decision-making two, three, and four years ago.

    Of course, since she lives in Emerald City, all she really has to do is click her heels together three times, while repeating: “there’s no place like home…”

    Problem solved!

    1. Appraiser says:

      It’s just hilarious watching the doomers and bears waiting breathlessly, year after year after year, for the market to “turn south.”

      In the mean time a record number of pre-sale condos were sold in March. That’s right – an all-time record! How did the bears react? mostly through a chorus of deafening silence. Ben Rabidoux mentioned it in passing, David Madani went mute and head moron and former MP Barf Turder simply pretends that it never happened.

      1. Schmidtz says:

        Appraiser,

        After reading numerous comments by you, I can say with confidence that everything you say is the opposite of correct.

        Show me that pre sale condos are appreciating in value? They aren’t. Prices are in the toilet. Volumes? PRactice? We talking about practice?

        Smarten up.

        1. Appraiser says:

          Schmidtz,

          You’ll have to do better than that, my friend. Anyone can say anything “with confidence.” Doesn’t mean squat.

          Here’s a hint: Back up your argument with examples, facts and sources. What’s that I hear…more crickets?

          1. Schmidtz says:

            Sure – Pre sale condos are LOSING buyers money. This wasn’t the case 7 years ago.

            Read one of David’s numerous articles, well backed up by statistics, prices and his experiences.

            Here’s a hint: G F Y.

          2. DRichards says:

            So you can make claims without citing sources but he can’t?

        2. Khehra says:

          10:13 am For anyone who’s itnerested I’ve created a tutorial on how to style threaded comments using background images and highlighting any logged-in commenter. It adds the user name to the list of classes churned out by WordPress, and then uses some clever CSS.

      2. Floom says:

        Can’t disagree with you but what will happen in 2016 after the Bank of Canada has raised interest rates 4x (by about 1% in total) and Jim & Susan qualify for a mortgage 10% lower than last year…something will give and it’s likely the market will bifurcate – concrete boxes in the sky vs. single-family homes with land

        1. Appraiser says:

          @ Floom,

          You should change your name to the “Amazing Kreskin.”

          Not only do you “know” that interest rates will rise, but exactly when and by how much. Wow, amazing!

          1. Boris says:

            @ Appraiser.

            You should change your name to “Mr Delusional idiot ready to be tasty stew meat for big Russian party!”

            Because I am going to eat you. And your idiot lies!!

      3. Boris says:

        Appraiser – you must be a shill.

        Where I come from, we boil shills in big pot and make stew for party!

      4. Lem says:

        Appraiser, those are new (as in PRESALE) condos, bought by the clowns David is speaking about here. These are not being bought primarily by end users. We know that. The resale market is the better indicator. Demand is not terrible, though not impressive. Supply on the other hand…

        1. Appraiser says:

          @ Lem,

          I am fully cognizant that they are presale condos, because that’s what I wrote.

          P.S. End users is terrible terminology and is being used incorrectly far too often. The proper descriptions for completed construction are: leased, left vacant, or owner-occupied. Oh, and unless you are privy to data that no one else has, there is no definitive measure of the number of presale condos purchased by investors. Just a ton of anecdotes that ‘pin’ the number down to somewhwere between 10 – 90%.

          1. Boris says:

            If you so confident in pre-sale, start a fund that goes and buys pre sale and you become rich.

            Presale is dogshit and is OVER!

            Shut yap Appraiser.

          2. AndrewB says:

            I don’t think it’s fair to say that pre-sale is completely over.

            There are for sure successful pre-sale condos going up around the city that are in demand areas, that aren’t your bland, nondescript condo on West Queen West, etc. On that same note, there are definitely a lot of crappy condos going up as well that offer less for more money. If new construction were priced properly and in align with resale, then we all probably wouldn’t be having this discussion.

            As well, perhaps not now, but sometime in the future, more condos will need to be built as population increases and more people want to live in the city, but can’t afford the crazy high prices that SFH carry.

            It’s the building craze that gone out of control too quickly, oversupplying with less demand. But eventually demand will pick up likely as supply decreases and less projects are being built.

            At the end of the day, I believe that if someone wants to buy new, all the power to them. Someone had to buy a condo when it was new at one point, for someone else to buy resale.

      5. DRichards says:

        [citation needed]

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