Open The Floodgates!

There’s a reason why this saying has become commonplace in today’s society, and when it comes to a legal precedent, all it takes is one summary judgment that breaks new ground before the flood of subsequent legal proceedings follow.

When it comes to the Toronto condominium industry, eventually, one day, a developer is going to be successfully sued for failing to provide what was “promised” to condo buyers during pre-sales.

And when that day comes, the floodgates will open, lawsuits will pile in, and it might change the way the entire pre-construction condominium industry works in our city…

floodgates

Accountability is important in every industry, is it not?

Whether you’re a Realtor who loses a deposit cheque, or a babysitter who lets a child fall out of a tree-house, we should all be accountable in our chosen field, should we not?

For the last decade, you could argue that condominium developers in Toronto have not been “accountable” for their actions, or better put – their decisions when it comes to deviations from the original plans for a condominium that was pre-sold to buyers.

You could also argue, quite successfully, that those buyers signed legal documents, that outlined that changes, modifications, deviations, substitutions, and alterations could be made to the condominium, at the developer’s discretion.

While I’m frustrated with the way developers routinely screw buyers in Toronto, I’m also frustrated with the lack of research, planning, and investigation that those very buyers put into the projects.

Both parties are equally to blame, and while every car has a seat-belt, you can’t force a driver to put that seat-belt on.  You can make it illegal not to wear one, and you can make a car that annoyingly beeps for 30-seconds until the driver puts the seat-belt on, but you simply can’t force somebody to wear the damn thing.

So can we blame naive, uninformed buyers from buying pre-construction condos, signing legal documents, and then complaining later when things didn’t go their way?

Or do we look for a higher standard from developers, and accountability for their actions?

People will say that the Agreement signed between the buyer and the developer is “iron clad,” and that “the developers’ lawyers are better paid than the individual buyer’s lawyer,” but at some point, these supposedly iron-clad agreements are going to be challenged.

For the last decade in Ontario, every frustrated pre-construction condo buyer that finds fault with their unit, the building, or something in between, at some point will say “I’m going to sue the developer,” only to back down because of the costs involved, as well as lack of any legal precedent or grounds for a suit.

I’ve always maintained that once a class-action lawsuit is successful, the floodgates will open, and if lawyers see that success is possible, they might actually take on the cases!

Despite the best efforts of many frustrated condo buyers, even in situations where somebody at XYZ Condo was able to get 100+ people together to try and retain a class-action lawyer, often that lawyer doesn’t want the case (because there is no case…) or because those 100 condo buyers balk at the idea of a retainer.

This is why every frustrated condo buyer who says “I’m going to sue” ends up eating humble pie, and learning his or her lesson.

Last week, there was an article in the Toronto Star about a $6.5 Million lawsuit against Freed Developments, brought on by owners at 650 King Street and 95 Bathurst Street, and while I personally don’t think the suit will go anywhere, it’s going to be interesting to see how this plays out.

I’m not privy to the details, so I don’t know if the litigants’ lawyer, David Shiller, who is representing 200+ owners in the building, was paid a retainer, or will be given a portion of a settlement, but if it’s the latter and not the former, then perhaps there’s at least one Toronto litigation lawyer that believes these cases against condominium developers have merit.

The lawsuit at 650 King Street has to do with a “bait-and-switch” regarding the design firm that was supposed to be involved with the project, but in the end, was not.

The project was sold to pre-construction condo buyers with the promise that award-winning designer Munge Leung would be attached, and that the project would be “drenched in designer details.”

In the end, Munge Leung was nowhere near the project, except in the initial flyers, brochures, and sales material.

Residents of the building are now suing the developer, Freed Developments Inc., saying that the units and common areas “were built, designed and furnished without luxurious and high-end style finishes and furniture and in a materially different and inferior manner” than the developer had promised. (From The Star).

So on the one hand, I’m sensitive to the situation and what the residents are going through, but on the other hand, I want to yell at them, “What the F#$@ did you think was going to happen?”

This is nothing new, folks.

There’s nothing to stop a developer from selling condominium units with the “promise” of a rooftop pool only to build no pool whatsoever.

Read your Agreement!

And is the situation at 650 King Street the worst we’ve ever seen?

No.  God no.

Not even close.

Every development in the city of Toronto will change something from what was originally promised, but those “somethings” can be insignificant, or they can be absolutely life-altering.

Remember Emerald City Condominiums?

And remember the story that broke a year ago, about the $30 Million lawsuit filed against Elad Canada Inc?

This is probably the biggest misrepresentation I’ve ever seen in the history of pre-construction condominiums in Toronto.

Elad Canada promised buyers at Emerald City Condominiums that they would have direct, underground access to the Sheppard Avenue TTC subway stop, as well as Fairview Mall.

And guess what?

They just……..changed their minds!

It’s amazing, really.  The balls on these developers, who sell one thing, and deliver another, with absolutely no repercussions.  Until now, perhaps?

That article above is dated April 27th, 2014, and I spoke to the author of the article today who told me there hasn’t been any updates, as far as she knows.

So what do we make of that lawsuit then?

Was it just an article in the newspaper – a headline, and nothing more?  Or is there substance to that massive $30 Million lawsuit?  Will the lawsuit ever see a courtroom?  Or will a developer get off the hook, yet again?

And what’s to stop a developer from planning, from the very beginning, to advertise a rooftop pool and spa, with absolutely no intention of building it, and every intention of changing the plans once all the units are sold?

Isn’t that fraud?  Isn’t that gross misrepresentation?

The law is just one giant grey area, with skilled legal minds arguing both sides, based on both legal precedents and decisions, and written law.  So when it comes to these condominium lawsuits, it follows that who is right or wrong, or what is a despicable act by a developer versus something minor, will vary depending on who is arguing.

Does the $6.5 Million lawsuit against Freed Developments have less merit than the $30 Million lawsuit against Elad Canada, because it’s a smaller dollar figure?

Or does the lawsuit against Freed have less merit because it’s about something intangible, such as the “name” of the designer attached to the building, compared to the missing subway access at Emerald City Condominiums?

As with the law, we’re really going to have to judge everything on a case-by-case basis.

All “broken promises” by the developer cannot be seen as equal evils, and while these broken promises, or deviations from the original condo plans, are all unfair, some are simply far more unfair than others.

And one thing you can be sure of as these lawsuits progress, is that one condo owner will most likely never be successful, and the only way that a developer will ever be successfully sued is by way of class-action.

Consider the individual condo-buyer who purchases a unit in pre-construction – say a 2-bed, 2-bath, of about 900 square feet, with a 450 square foot terrace.  Now consider that when he or she goes to close on the unit, and that 450 square foot terrace has been turned into a Juliette balcony, with zero actual outdoor space, the developer will claim that he had all the right in the world to alter the “common elements” of the building, since that’s exactly what a balcony or terrace is.

That individual condo-buyer will never be successful in a lawsuit because there just isn’t enough money in it for a lawyer.  The condo-buyer can’t afford the retainer, and the lawyer likely won’t see enough reason to take on the case.

Ignore the fact that this example, which has been brought to litigation before, will provide no claim for the condo-buyer, since that outdoor space is common elements, and can be changed.  There’s no question that there’s a massive difference in value between the unit with a 450 square foot terrace and the unit with just a Juliette balcony, but it’s in the contract – the developer can change the common elements.

So what then if this happens to ten condo owners, instead of one?  Is it worth taking to court then?

Or what if it happens to fifty condo owners in one building?  Even though it’s in the contract, and the developer reserves the right to change the common elements, can fifty people claim that their unit is worth $50,000 less without that terrace, and sue for $2,500,000?

Is it worth it?

How long would it take to successfully sue?

This is why few people sue developers, and why even if they start a legal proceeding, it rarely ever gets off the ground.

And you might argue – in this grey area of opinion, that a missing 450 square foot terrace is something tangible, whereas a “brand name designer” not having his or her name attached to the project is not.

But this arguing over what is significant and what is tangible, becomes somewhat moot if developers are not held accountable for their actions in the end.

So what is going to become of this $6.5 Million lawsuit against Freed Developments?  And what has happened in the last year since the $30 Million lawsuit was filed against Elad Canada?

Well eventually, we need a breakthrough.  And then perhaps the floodgates will open.

In 1992, the United States Supreme Court heard a groundbreaking case known as Cipollone v. Liggett Group, Inc. 505 U.S. 504.

In this case, the Court held that the Surgeon General’s warning did not preclude suit by smokers against tobacco companies on several claims.

It was the first time that a case against a tobacco company had been taken all the way to the Supreme Court, and the first time that the tobacco companies were held accountable.

The tobacco companies essentially argued that by putting a warning label on their packages, smokers should not be able to turn around and sue the companies for the use of their dangerous product.

With the Supreme Court’s decision, the floodgates opened, and thousands of suits against tobacco companies have been filed since.

You can cynically argue that most decisions have been taken to appeal, dragged out for years, and the tobacco companies have paid out a pittance compared to what they’ve made over the years, but the point is that eventually, the dam broke, and a new legal precedent had been set.

Many of us in the real estate industry, who have grown tired of condominium developers screwing naive consumers, can’t wait to see the day when the dam breaks, and the floodgates open.

Will it ever happen?

I’m curious to know what you think.  Please have your say below…

20 Comments

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  1. Joel says:

    If no lawyers want to take this on I think it would be wise for each buyer to sue in small claims court. If 100 units were sold, they can due for a maximum of 10k each and don’t need a lawyer. The developers would have massive legal costs in defending and if they lost many if the cases, potentially they could lose money on the building. It’s pretty obvious that the developers only care about money, make it not worth their time and money to change aspects of the condo and they won’t!

  2. Steve says:

    I agree with Amelia ….. don’t buy pre-construction. Effective change will be driven by consumers.

  3. Amelia says:

    Don’t buy pre-construction.

    I agree 100% that the buyer is responsible for their own decisions. Exactly when did did “investors” start refusing to take on risk? Seriously?

  4. condodweller says:

    A couple of points here:
    1. Regarding the buyer, the problem is that most people will only buy one condo and despite the feelings of betrayal, with time they accept the issues and eventually forget about it. If condos were like cars where one purchased one every 3-10 years you can bet there would be changes because it would be a constantly recurring problem which would prompt action. With condos developers will always find new unsuspecting buyers that will drop their pants, grab their ankles and do nothing but complain to friends/family/neighbours for a while and forget about it after a while.

    2. I really don’t understand why the government doesn’t step in to protect consumers as these issues have been going on for a long time now. I wonder if people added amendments to the contracts where the developer would have to refund a proportional amount for every bait and switch item, it would change the behavior. I mean if everyone insisted on getting what was advertised and refused to buy, then they would have no choice but to build what was promised. One of the condo’s I bought my lawyer told me that based on the contract if the developer delivered a broom closet instead of a 500sqft unit I would have no legal recourse. He asked the developer to add an amendment stating that if the unit is significantly smaller than advertised I would be refunded a proportional $ amount. They accepted and it turned out ok. It’s interesting about the terrace being converted into a juliet balcony though. We didn’t think of that, and had the builder pulled something like that I would have been screwed. I wonder if something like that has happened.

    I agree with the above poster that cost would increase if advertised items were legally binding but I’d have no problem with that and I would be a much happier consumer knowing that I received everything I paid for.

    I certainly hope that one of these days a law suit is successful which would bring about change for the better.

    1. Clifford says:

      You know why the government won’t do anything. The government and builders are in bed together.

  5. Wut says:

    The only way to successfully sue is if there was legislation saying you can’t change common elements. It’s not unlike closing dates, in the past the builder could change them as they pleased, now there are rules to how they can be changed and it’s in the contract.

    Perhaps the builder should promise $x in common elements so that even if they can’t deliver what they promised for valid reasons they still have to spend the money somewhere else.

  6. Michael says:

    It’s amazing to me that this is the way the process works, and even more amazing that it hasn’t gone to court in a grand fashion sooner.

    Leed literally could have advertised those buildings as ‘Frank Gehry designed bulding, each unit decorated with priceless Van Gogh paintings, cold-fusion powered utilities, and an array of Victoria’s Secret models as your concierge’, and realistically, if they were in ‘negotiations’ about such things and just decided not to do them after booking a bunch of sales, they could back away from it. And their contracts allow it. It’s why I would never touch a new build with a 10-foot pole, no matter how good the deal is.

    And for the record, those Leed buildings are pretty nice from the outside, and the units are nicely laid out, but the comments about finishes being substandard in the common areas is spot on- it’s like a mausoleum.

    1. Clifford says:

      Stick to real builders who have been building for decades. All the other fly by night guys that call themselves “developers” are who you should stay away from.

  7. Anthony says:

    …but on the other hand, I want to yell at them, “What the F#$@ did you think was going to happen?”’

    “Im also frustrated with the lack of research, planning, and investigation that those very buyers put into the projects.
    Both parties are equally to blame, ”

    Wait. Didn’t you buy the Westside Lofts and then later complained how poorly built it was? This developer HAS a record for poor build quality and you fell into the trap that you speak of today. You are one of those buyers that didn’t do their homework.

    Its sad that builders can get away with a lot. But this is Canada, the land of the decomcracy by concept but not in practice. Not just builders but even CRA can do things that would be considered borderline criminal. Example? There was a guy that made over 100k in his TSFA account and CRA taxed his profit. Their poor reasoning was it was a business and the number of transactions are high. There are no rules set but they make up their own as things go along. Would this guy have a solid case to sue CRA? I think so. But he paid the taxes because they would lock his account before even giving him chance to prove otherwise in court. This is how bad things have got in Canada. They don’t play by the rules. The list goes on and developers are just a speck of the problem.

    Back to Freed who are selling the Art Shoppe. The lobby design will be done by Karl Lagerfeld. His picture is plastered on all the ads and brochure. Would the buyers have a reason to sue if he doesn’t work on the project? I think so unless the contract states that he may not be the designer which would be a bait and switch.

    Another example is the Tridel Hullmark which had a nice large jumbo TV above the front entrance, but in the end it was replaced with glass.

    And lastly the L-Tower became the I tower.

    Let’s face it we live in a country that is full of injustice whether it be condo developers, competition bureau, hydro one, or the good ol government. Everyone has their hands in someone’s pocket.

    1. Clifford says:

      Hard to disagree with you.

      The biggest joke of all is the builders police themselves. Tarion is the biggest joke but so typical of what we see in Canada. Massive conflict of interest…purchaser gets the middle finger. The fact that a builder can easily decide not to stand by anything written in the purchase agreement is madness and a big reason why I could never buy precon from an unscrupulous builder.

    2. @ Anthony

      Yes, I bought at WSL in 2005. Ten years ago…….

      1. condodweller says:

        David, see you are the perfect example that for most people the first purchase is the eye opening experience from which they learn. I think there was an agent in 2005 that said it was the buyers’ own damn fault for not doing their research, get legal representation etc. etc. and get raped in the process. See my point? It’s easy to look down on people with 20/20 hindsight vision.

        I think it’s great that you are trying to educate people based on your experience however I fear your tone may alienate the very people you are trying to help.

        Unfortunately Canadians tend to be polite and trusting people which is great under most circumstances, however in this case greedy developers prey on them.

    3. Jimbo says:

      Get burnt on your property?

      I’m pretty sure it is bc David got burnt, that he speaks in such a loud tone about pre-construction. At least he is accountable for his opinions.

  8. daniel says:

    Interestingly, the exact tangible aspects of the building are very difficult for a developer to 100% lock down in advance (e.g. you’ll only know the true cost of connecting to the subway once you start digging, the city may make last minute demands to shift the building face thereby shrinking balconies, etc), the less tangible aspects (e.g. which interior designer to use, which furniture and finishes to put in the lobby) are easy for the developer to pin down.

    I’m not suggesting all changes are honest ones, but unless we change to NYC-style process where the building is completely designed and often construction is started when it goes to sale, it is impossible for developers to 100% commit to the suite features in advance. Also note, if/when the industry does switch to a more definitive model of selling, it will add a substantial amount to the cost of the project and, in the long run, to the price buyers will have to pay.

    Agree that it’s time for some change though.

    Also, David, i would say that in previous posts you’ve taken a more relaxed attitude to accountability when it comes to RE agents. Often times along the lines of “the only thing that could be done is to make a complaint to RECO about the other agent which is a lot of work and pisses off other agents, so nothing can be done”.

    1. Michael says:

      I agree when it’s a legitimate issue- but how common are these changes really?

      One of the top-line selling features of the Emerald Condos was the subway access. My guess is that it was assumed by the builder that it would be okay, and plastered all over marketing materials to sell units, knowing that if there were any hiccups, they were covered. If that’s the case, screw the builder. If on the other hand, due diligence was done and they received approvals in advance, and then at the last second something changed drastically stopping them from completing a key element, I would have much more sympathy for the builder.

      But I highly doubt that actually happened.

    2. @ daniel

      You’re the second person this week to say something to this effect.

      Somebody posted on Wednesday and said that my recent posts are always “bashing” something.

      I’m not the happy-go-lucky Realtor that points out the pretty granite counters in the kitchen; I’m the consumer advocate that talks about the pitfalls and negatives in the business. So perhaps my posts seem more downtrodden but I’d rather discuss hot-button issues and be completely honest about them than post funny “Photos of the Week” each and every time.

      When it comes to accountability, I’m not saying that lazy Realtors and shady developers aren’t accountable, or that I’m any less frustrated by it, but rather I’m saying that there is now, with the advances in technology and information available for consumers, more accountability on consumers for making mistakes.

      I’ve been shouting about pre-construction condo pitfalls for almost a decade, so I have less sympathy for the buyer who is complaining about needing $900/sqft to break even at “ICE” than I would have had 5-6 years ago.

      I certainly don’t want to come off as negative in all my posts.

      Nor do I want it to seem that I’m in favour of making people less accountable.

      Maybe I need to tell more stories about happy, satisfied clients?

      I appreciate the honest feedback. I write my posts; I never read them!

  9. JG says:

    David, here’s a dumb question/thought.
    What, if any, is the possibility of suing the sales agent directly. If there are enough suits against agents, the developers might have trouble hiring agents to sell their projects, since the agents would be in fear of being sued should there be a material change.
    I understand its not the agents project, nor are they the ones making the material changes to the design, but the idea of they were the ones zealously selling the project with all the stated claims – 450sq ft terrace, access to subway, etc. Is there no accountability on the part of the sales agent?
    I take it there would be no substantial money to get from the sales agents, but it could hinder developers in the future if it was hard to find sales agents to sell their products.
    (they were never able to get Al Capone for murder, racketeering, etc. but they did nail him on tax evasion!)

    1. condodweller says:

      You can’t sue the sales agent because they make you sign a waiver indicating that they are representing the developer’s interest and you should consult your own agent to protect your rights and you understand this and are willing to proceed. Now if you took David with you and you bought a unit he would probably make you sign a release that you are buying against his advice to protect himself.

  10. AndrewB says:

    I find it interesting that Canada is so over zealous when law tightening, that they can’t propose a law to make these developers accountable.

    Then again, we’re gonna be able to buy beer in grocery stores so perhaps change is a-comin’ haha.

    1. Wut says:

      Yes, in quantities of 1 or 6 and at the same price as the beer store. Along with a new beer tax.

      If that’s the change that’s coming, new condo buyers are f$@#ed.

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