I’ve been writing blogs for over eleven full years now, and in those eleven years, I’ve told a lot of stories, pointed a lot of fingers, and exposed a lot inconvenient truths about the Toronto real estate market.
I’ve received complaints through my brokerage, I’ve been taken to RECO, and I’ve been sued.
There’s a delicate balance between trying to spread the proverbial “good word,” and both inform and empower the consumer, and keep my name and career in good standing at the same time.
So with that said, I am not going to name the developer, and the real estate brokerage, that are the subject of today’s blog. I honestly don’t think it would make a lick of difference, to be quite honest.
I have been saying for the better part of a decade now that the Condominium Act, 1998, which was likely drafted, edited, and revised from, say, 1995 to 1998 inclusive, is exceptionally out-of-date, and needs a complete overhaul.
Remember back in 2012, when NDP MP, Rosario Marchese, jumped on the bandwagon and started to make noise about significant changes to the Condominium Act? Google it, and you’ll find dozens of articles. But was “significant change” ever implemented?
We’re beyond “change” at this point. The Act needs an entire re-write.
One of the best blogs I’ve ever written, if I do say so myself, is this one: “National Hockey League vs. The Condominium Act (1998).”
Back in 2012, I decided to compare the National Hockey League’s “Collective Bargaining Agreement” to the Condominium Act. Why? Because the CBA was the cause of all the issues between the players and owners, and had to be renegotiated every 5-7 years. Simply put, the owners would discover all the ins, outs, end-arounds, and ways to ‘cheat’ the system, and over time, the agreement needed to be changed.
Do you see the parallel I’m making with the Condominium Act? You’d think after twenty years, condo developers and their lawyers have a pretty good idea of what they can and can’t do, regardless of the intent of the Act.
Now you know me – I’m not a fan of government intervention in a free market. So I just know some of the savvy blog readers are about to comment that this comes off as hypocritical. But I do have a habit of cheering for the little guy, and I do believe in consumer protection.
So for the life of me, I just can’t see why not a single person in a position of power and influence is interested in taking another look at an outdated piece of legislation. And for that reason, I’m not going to put my neck in the guillotine today and name the names.
I will, however, tell you the story in full; with slight adjustments to the who, what, when, where, why, and how.
Last month, a client of mine who is a long-time condominium investor, asked me to lease out his unit a new GTA condominium that had just given occupancy.
For those of you that don’t know what “occupancy” means, perhaps a brief refresher…
Condos are pre-sold, before there’s ever a shovel in the ground. When your individual unit is finished (according to the developer), regardless of what else is happening in the building, you are given “occupancy.” You then wait an indeterminate period – often a year (I’ve seen occupancy last anywhere from one week, to two years), for the building to be registered as a Condominium Corporation.
It’s important to note that once you’re handed the keys and given occupancy, you don’t own the unit. You can’t mortgage it, you can’t sell it, and the occupancy period comes with various regulations, and/or restrictions.
During this occupancy period, you pay an occupancy fee or a “phantom mortgage” as some people call it, to the developer.
My client, like every other person in his position, wanted to lease the unit out during the occupancy period to offset the occupancy fee. This is common, almost automatic, in the Toronto condo industry.
So after he was given the keys, we listed the unit on MLS for $2,195 per month.
About ten days into the listing, something bizarre happened. It’s something that through 14 years in this business, I have never seen before.
I received page through my brokerage front desk (not on an actual pager; we get ‘messages’ and call them ‘pages,’ I don’t know why) that I didn’t quite know what to make sense of.
Why don’t you read it for yourself, and tell me what your first reaction would be. Here’s that page, literally copied-and-pasted from my MS Outlook:
I didn’t know what in the world this meant.
I had to change the list price?
My client wouldn’t be allowed to book the elevator?
So I immediately called the developer, and I told the first person who answered what I was calling about. She had no idea what to do with the call. I was transferred twice, told two more people why I was calling, and finally I got a nice young lady who said she knew what the message was.
This is, word-for-word, what she told me:
“Well the developer doesn’t want people setting their own prices. These units have to be at least $2,200 on MLS, because he thinks it will devalue the building otherwise.”
I probably speak to 30-40 different people on the phone, every day, so trust me when I say that I didn’t think this lady knew what she was saying. So I got a bit chatty, and replied:
“Wow, that’s crazy! That’s blatant price-fixing! What’s going on?”
She said, “I know, right?”
I said, “Who told you this?”
She replied, “Well I heard a few people in the office talking about it, so I know what’s the situation. That’s why I took your call, because they didn’t know who to pass the call to.”
I am one-hundred percent convinced that this lady was not supposed to divulge what she did. “The developer thinks it will devalue the building.” There’s just no way.
This reminds me of a story I’ve told on this blog before. It was probably ten years ago now, and I was in the sales centre for Market Wharf. When I told one of the ladies on the floor that the pricing made no sense, because comparable resale properties were already available cheaper, and that there was no room for appreciation, she said, “The appreciation is built in already.”
I smiled and said, “Who told you that?”
She said, “I heard it at our sales meeting this morning.”
This was around the time that pre-construction prices started to move past resale prices, because let’s not forget – once upon a time, you paid LESS to buy an unbuilt promise of a condo, on a parking lot, five years down the line, with all the risks involved. So back at the Market Wharf sales centre, when I remarked that the pricing made no sense, this lady working the floor basically told me what the developer and/or a few sales people must have been laughing about in a meeting earlier that day – that the “appreciation was built in already,” since the developer was going to absorb the future premium, not the buyer, as was the custom.
So back to my situation – with the developer telling me I had to raise the list price of my listing, or they wouldn’t let my client book the elevator.
I knew this was wrong in so many ways (even though, as I’ll explain in a moment, there’s actually absolutely nothing wrong with it at all), so I asked the lady on the phone if she could provide me with something to this effect in writing, and she took down my email address and phone number.
Five minutes later, I received a call from somebody who sounded good on the phone. You know the type – he was sharp, dialled-in, and knew his stuff.
He was also condescending, cynical, and sarcastic. In another life, we would be best friends.
He said, “I understand you have some questions about our request?”
I explained that I was confused by the request, which had simply come through my front desk in the form of a page, and asked him if he could send me something in writing.
He said he couldn’t, and reiterated the request.
Now I wasn’t looking for an argument here, nor was I trying to bait him into anything. I was, after all, just working on behalf of my client. A long-time client that I have done many transactions with, and who I owe a significant duty of care. This request was a strange one, and I needed to gather all the facts. They were asking us to raise the list price by a paltry $5, and essentially threatening us by saying they wouldn’t let us use the moving elevator.
The voice on the other end of the line explained that the client/landlord was holding the unit in the “occupancy phase,” and thus the developer had to provide consent for my client to lease the unit. That consent is unfettered, unquestioned, and in the developer’s sold and absolute discretion.
And this is what I meant when I said there’s nothing actually wrong with the developer, and the real estate brokerage associated with the developer, fixing prices.
They can do whatever they please.
The contract that buyers sign in pre-construction has a clause about “consent,” and that consent MUST be given.
End of story.
The developer, to put it so eloquently, has the owners by the balls.
I asked the voice on the other end of the phone, who said his name was “Andrew,” what his last name was. He said, “I’m not telling you that. Why would I tell you that?”
I said, “Because I don’t know who you are.”
He said, “Well I don’t know who you are,” and I pretty much realized where this was going.
But that’s how I knew I wasn’t speaking to another real estate agent. No self-respecting agent would refuse to provide his or her name. We are our names.
I asked, one more time, to get a copy of something in writing to explain what needed to be done, and why, because I needed to know how to advise my client, and it was impossible to do so with no more than a confusing page through my office, and the results of a testy phone call. “Andrew” said that he would be in touch.
The next day, I received an email from “Andrew,” this time providing his name and title, CC’ing my client (at an email address he hasn’t used in years – really helpful!), two other people at the developer’s head office, and I believe a lawyer.
This email was deliberately vague, making no mention of their request to increase the price, or their threat of withholding access to the elevator, but making a new and far more important, and effective threat, as follows:
I spoke with the developer regarding your MLS listing on the above property. Your client is in breach of the Agreement of Purchase and Sale as outlined in the Agreement of Purchase and Sale, clause 17, page 6.
As such, the developer has notified their legal team about the breach of contract. Your client and their lawyer will be receiving notice that due to the breach of contract, they are now in default.
If you have any questions, please feel free to contact me directly. In the meantime, I strongly suggest you cancel the above mentioned listing.
They were now threatening breach of contract.
And they made no mention of their request to increase the price. Completely strategic, and well-thought-out on their part. Everything that could be perceived as wrong-doing on their part was done verbally, except for the page through my office.
I responded to the email, once again, suggesting that the actual request that was being referenced, be put in writing, since we still were not sure what the request was, or exactly why it was being given – save for his referencing a page and paragraph from the Agreement of Purchase & Sale.
We increased the list price by $5, but I knew how this was going to end.
I was the squeaky wheel. I wasn’t trying to be. I swear, I wasn’t looking for a fight here. I was just trying to protect my client.
But two days later, the developer told my client that he should probably terminate the listing, and re-list with their in-house brokerage.
By the time my client passed this info on to me, I already had the termination drawn up.
In fact, I just had a bad feeling about the whole situation, and was going to tell my client to call the developers and tell them that he had fired me! Tell them, “I can’t stand David Fleming, I don’t know why I hired him, it was a huge mistake.” Tell them whatever they wanted to hear.
Because as I said, the developers have everybody by the you-know-whats. And you do know what, because I already wrote it once so far in this blog.
My client was being bullied, and I was being abused, but I’d gladly take whatever punishment was necessary to ensure he was still in good standing, and his investment was protected.
So we signed a termination, and my client sent it to the developer.
The rest is yet to be determined.
So what do we have here?
Anti-competitive acts or abuse of market power?
Can a developer tell a condo-owner what price he or she must be asking?
Can a developer tell somebody to fire their agent and insist that the person list with the developer instead?
Yes, and yes.
They can, because that’s how their Agreement of Purchase & Sale is written. An APS that has been examined, edited, and re-written a hundred times, by some of the Province’s brightest legal minds. That is who a condominium developer hires to protect their interests, and make the Agreement iron-clad.
And what does the consumer have at their disposal?
A Condominium Act that is 20+ years old, and a government that has no interest in taking a real look at the problem. Just stand in front of a podium, say some sh!t that will get people to vote for you, and then move on.
This developer is blatantly price-fixing, and it’s absolutely, completely legal. There’s nothing wrong with it. Because from a legal standpoint, it’s not price-fixing. It’s simply providing consent to lease a unit, or not providing consent to lease a unit.
So to the lawyers out there, provide a counter-argument, please.
Because what if, for argument’s sake, the consent wasn’t about increasing the price by $5. What if it was, say, baking cookies and bringing them to the office? Or what if it was, “I’ll provide consent, if you get down on your hands and knees and lick my shoe?”
It’s a grey area, it can be argued until we’re all blue in the face, but it doesn’t matter. Nothing can, and nothing will be done about this.
Keep in mind that none of this is in writing. It’s all hearsay. Deliberate, and smart.
And scary as hell too…
at 9:09 am
Interesting story. I don’t care enough to get involved (I’m part of the problem) but an interesting story nonetheless. As for the condo act not being re-written in 20 years, we live in a province where sex education gets updated and then un-updated (my personal view is that regardless of where one’s position is, the internet has absolutely changed access to sexually explicit as well as different types of sexuality, and should be updated to at least equip kids to be able to navigate it, instead of pretending that ignorance is bliss). so if that can’t get updated in a quarter century or so, what chance does the condo act where money comes into play have?
at 10:16 am
Why don’t you go to the media with this?
CBC Marketplace or Fifth Estate. Imagine what they could uncover with time and resources.
at 4:09 am
Totally agree… this is extortion. The developer is basically obtaining something (re-list with their in-house brokerage) through force or threats (breach of contract)
at 11:05 am
Great story David. I suspect this comes down to the developers wanting to be able to unload their remaining units to investors, or to satisfy oversees pre sale promises. For example a promise (probably a verbal one) that “$X” is the minimum amount of rent you will be able to charge at this location. Should be the key consideration for anyone making an investment.
Tread lightly though. This is just another example of developers operating like a cartel, and they have the deep pockets to make it very expensive for anyone who speaks out against them.
at 11:32 am
I agree with Housing Bear. David, this isn’t your fight. It’s commendable that you’re passionate about protecting consumers but the idea of going to CBC is misguided. These developers who you say yourself spend $$$$ on legal fee to draft the agreements could get nasty with you. You did what was right for your client where most other agents wouldn’t have. Take the victory and move on!!!
at 11:32 am
Wow. That is insane.
David, can you shed some light if this was an experienced builder with many projects under their belt or a smaller, less experienced one?
I would fathom a guess and go with the latter. Financing is also now much tighter with developers as well and they need to put their best foot forward with their lenders or risk the project getting stalled…
at 11:39 am
Hence, as you pointed out many many times, you’re better off buying resale properties! In my line of work, you couldn’t get away with it, needless to say…
at 11:44 am
This is a great story and sadly not totally unpredictable. Call me crazy, or just a masochist, but I like puzzles and therefore I like to read contracts beginning to end. Deciphering the meaning behind each clause can be an interesting pass time. I always wondered how many of the paragraphs get “exercised” by the developer, and how often.
I always go by the US Miranda rights when I read a contract: “Everything can and will be used against you”. The bad news is that it’s true; everything will be used against you but the good news is that the developer has to lay out all his cards in the contract and once he does you have a few options. One of them is to not sign it and walk away. Another is to try to add a few of your own amendments to level the playing field.
Another exercise I like to do while reading a contract is to imagine how it benefits the developer, and under what circumstances it may be used against me. If you can’t answer that question about each clause in the contract, and are not either ok with it or be willing to deal with it later, you should be very afraid after signing it.
In this case the reason is clear to me. You know how you have a 1st open house for a project launch where you are the first person in the door and the first 15 floors with the cheapest units are already sold? Well, those were sold at the preview event the week before held only for existing clients. Some were sold to investors with “connections” at the planning stages, some were sold to friends and family of the developer prior to that, and a gold sticker goes to you if you know who gets first pick and the best units. wait for it…………….the developer himself. If you don’t believe me, I speak from experience. Someone I know made an offer for one of the most desirable units in a condo a while ago after a year of registration that was never lived in. The seller was the developer’s wife.
All these people that the developer feels he has due care for expect and need a minimum rent to make their investment viable, therefore it’s not surprising to see the developer take steps to protect them. Especially if, to HB’s point, they made promises on minimum rent to investors. Not that any of that would be in writing.
Whether it’s right or wrong is a different story and is irrelevant except of a topic of a blog post. All I know is that people in position of power will invariably abuse that power. Until you have a deed in your hand you are at their mercy.
As for getting it in writing to self-incriminate themselves may be fun to try but it seems a bit naive.
at 3:09 pm
Trying to get them to do it in writing is because so many of them are that naive! Or at least the frontline people are. It’s also not great to have printed or emailed documents that tell employees not to put certain things in writing. But it does happen!
Google got in trouble over an anti-poaching agreement with Apple and other big companies. One thing that didn’t go over well in court was an email from Google Chairman Eric Schmidt asking people not to create a paper trail that they could be sued for later.
So even the smartest people in the world with massive internal legal teams and very expensive outside counsel will be dumbasses and put stuff in writing that will screw them in court. Condo developers run the gamut from smart to dumb as a post but even the best of them would admit that neither they nor their lawyers are close to being as smart or sophisticated as the execs at Google.
It’s free to try to get them to trap themselves and then David bowed out when they were smart/devious enough to only do the dodgy stuff verbally.
at 4:15 pm
Sadky developers can do this because of greed. I see many condo buyers through my work and only about 10% intend to live in them.
I have only had one client who bought a condo that they intended to live in and didn’t actually care about making money on the purchase . This is from hundreds of purchases.
As long as there are greedy buyers there are going to be greedy developers that take advantage of them.
Stop buying pre builds with the assumption that the value is going to rise and this problem is solved.
at 2:45 pm
Not only is the builder possibly guilty of price-fixing, they may also be afoul of the law regarding tied-selling which is:
“Tied selling is the illegal practice of a company providing a product or service on the condition that a customer purchases some other product or service.”
Coercing your client to list at a certain price and / or to utilize their real estate broker to handle the lease certainly seems more than a little fishy.
RECO might be interested in knowing more about these shenanigans, as well as the competition bureau.
Keep Your Records
at 11:02 pm
This is why all phone calls should be recorded. Canada is a one-party-consent country, as an individual you do not need to inform the other party the call is recorded and it is admissible in court.
Also, the biggest misconception about contracts (at least in most cases of people’s daily lives) might be that they are made among equals with equal negotiating power. In reality one party (the big company / the developer) dictates the contract and it is either non-negotiable or only minor changes will be made. The only way to win is not to play, in this case — just buy resale.
at 11:53 pm
Glad I’ve finally found somenhitg I agree with!
at 7:36 pm
can you investigate “thow shalt not move down rule in NS’