Such lawsuits uncommon in a bull market
Derrick Penner
Sun
Another Metro Vancouver developer has launched a flurry of lawsuits against buyers attempting to walk away from pre-sale contracts in one of its developments.
In January, Amacon filed suit against seven buyers in its Morgan Heights project.
This time it is Onni, the developer that is also attempting to unload hundreds of unsold condominium units in developments around Metro Vancouver, that is suing 20 buyers in the Aria 2 building of its Suter Brook community in Port Moody.
The statements of claim, filed on Jan. 21, accuse the buyers of breaching their contracts for not closing on their specified purchase dates, and seek to claim the deposits buyers paid as well as additional potential damages.
In the claim, Onni said it “has suffered and will continue to suffer additional loss, damages and expense,” including reduced property value at resale, commissions to realtors, marketing costs and legal fees.
None of the claims have been proven in court.
Real estate lawyer Ron Usher, with the firm Bell Alliance, said that for decades, it has been a standard provision of condominium pre-sale contracts in Vancouver to include clauses covering the forfeiture of deposits, as well as additional damages.
“Imagine a scenario where a developer, now in this market, sells a property for $100,000 less than your contract price,” Usher said. “Your deposit was $50,000, but [the developer] still has suffered a loss, plus interest charges, of at least $50,000.”
Usher said contracts give the developers the right to seek more damages if their losses — from selling unclaimed units at market prices below the original contract prices — exceed the deposits buyers put down.
“These clauses were rarely, if ever, invoked in a bull market,” Usher said. “In a rising market, the developer is almost happy if someone drops out, because they could resell at a higher price and keep the profit for themselves.”
However, in a falling market, Usher said there are challenges for both developers and buyers when it comes to the financing of projects and purchases.
Developers, he said, are being squeezed by their financiers for payment of the construction loans secured to build projects.
Buyers, Usher added, often find their banks reluctant to grant mortgages for the full amount of the contract purchase price of units because the current market value of the homes has declined.
Usher said a developer has an obligation to limit its losses in such suits by properly marketing and selling units that are unclaimed by pre-sale buyers at fair market prices.
Onni, in January, attracted attention for launching a “liquidation sale” of 375 condominiums in developments across the Lower Mainland, including the Suter Brook community, at prices it claimed were as much as 40-per-cent off original prices.
Onni Group vice-president Chris Evans said at the time that the company faced high financing costs to continue carrying the units, so it made sense to try to sell its remaining inventory.
Evans did not return calls from The Sun for comment about the lawsuits, and it is unknown whether the unclaimed units from these 20 suits were included in the so-called liquidation sale, or what discount might have been attached to their prices.
There may be more such lawsuits in the offing.
“What we’re coming into now is a perfect storm,” Usher said, “of buildings built through the highest and most costly time of construction and contracts that were perhaps at their peak of planning.”
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