For some, buying a presale condo is a gamble

Open this photo in gallery:

At least two dozen buyers have been told that while they may have signed an agreement to buy a preconstruction condominium apartment in a proposed Lamb Development Corp. building in downtown Toronto, their apartment “no longer exists.”

The project called Wellington House is to be located at 422 Wellington St. W. and was originally marketed, in 2017, as a 23-storey tower with 129 apartments. The project required rezoning approval from the City of Toronto, but negotiations for those rule changes have apparently broken down, forcing the cancellation of units in the building – although not the entire building – according to recent letters to buyers from Lamb Development.

“During recent negotiations with the city, and our best efforts to achieve a ‘winnable design’ for our upcoming OMB hearing in October/November, we were forced to alter the design of Wellington House. The building has gone from 23 levels to 17. Additionally, the floorplate is now greatly altered floor to floor,” said a letter obtained by The Globe and Mail, which was signed by Brad Lamb, founder and chief executive of the Lamb Development.

“As a result of these dramatic changes, your unit no longer exists. While the project is at least a year from possible approval, we wanted to allow you to re-enter the real estate market as soon as we were sure of the changes. We have no option but to release you from your agreement and return your deposit in its entirety. Please sign the release attached and we will return your deposit as soon as possible.”

By comparing new architectural drawings with old ones, it seems as though as many as 53 condo units in the building were either redrawn or eliminated in the new plan, which features just 104 apartments.

Open this photo in gallery:

Mr. Lamb declined interview requests, but sent statements confirming elements of the letter to The Globe: “Over all, the building has been reduced in size by approximately 50 per cent. Despite these changes, we were unable to obtain approval at the city level. The project has not been cancelled; the project is going through the normal course of approvals within the rule book provided to developers in the province of Ontario.” The appeal to the Local Planning Appeal Tribunal – as the OMB was previously called – may not be concluded until 2019 or 2020, Mr. Lamb said.

It’s not clear how many buyers were affected, as Mr. Lamb wouldn’t confirm how much of the building had been presold. A 2017 report from commercial real estate services firm CBRE Group Inc. on developments in the King-Spadina neighbourhood suggested the building could be 94 per cent presold, at a price-per-square-foot range of between $940 and $1,040.

“With the building height and floorplate changes, some of the unit layouts have been altered, as a result of this, a couple dozen of [sic] buyers have opted to cancel their sales,” Mr. Lamb wrote.

Earlier this year, Lamb had to cancel a condo project at 452 Richmond St. W. called the James, which was presold in 2014 and struggled to get rezoning approvals from the City of Toronto. In March, 2018, the OMB ordered council to pass bylaw amendments for the site that approve construction of a 17-storey building with 245 units, which Mr. Lamb hopes to relaunch for new buyers as the Woodsworth. He has two other condo projects that are awaiting rezoning decisions: the Bread Company Condos at 193 McCaul St. and Bauhaus at 284 King St. E.

It’s not unusual in Toronto for a developer to begin selling presale condo contracts without planning approval in hand. According to condo-market analysis firm Urbanation Inc., fewer than half of the 32,435 apartments offered for preconstruction sales in 2017 had full approvals attached.

At the same time, industry experts say it’s unusual for parts of a building to disappear after it has been sold to buyers.

“Most developers are not going to start selling and marketing a condominium corporation if they don’t either have absolute planning approval or pretty damn close. They are just not going to do it,” said Audrey Loeb, lawyer and partner with Shilby Righton LLP as well as an expert and author of texts on condominium law.

“You can’t judge whatever person’s decision is, who knows what goes on behind the scenes, but for us, no. We wouldn’t be doing that,” said Shane Fenton, chief operating officer of developer Reserve Properties. “We’ve been in the business for 30-plus years; for us, reputation is No. 1 at the end of the day, because this is a long-term vision we have. This isn’t get in and get out for one building.”

Open this photo in gallery:

One high-profile exception to selling without approvals was the proposed Icona development in Vaughan, Ont., where hundreds of buyers purchased some of the 1,650 condos on offer from developer Gupta Group. In that case, the project was proposed on land that had a restrictive legal covenant that barred the company from building condominiums on it. In September, the project was cancelled and more than 1,000 buyers got their deposits back.

Since 2017, 12 condominium projects representing 5,625 units have been cancelled in the Greater Toronto Area.

Home warranties from Tarion, Ontario’s regulator for new home builders, do include warnings to buyers that a project may not have final planning approvals. But Harry Herskowitz, a senior partner at DelZotto, Zorzi LLP and chair of Tarion between 2009 and 2014, said that while 95 per cent of condo projects Tarion oversees are not cancelled, more needs to be done to warn buyers that they could be.

“We need better disclosure: We should be bringing it to [buyer’s] attention more; that this is a speculative purchase transaction. And Tarion is going to be taking steps to improve this, I know they are working on it," Mr. Herskowitz said.

His advice to buyers who feel they’ve been burned by a developer is simple: Take it to court.

“If it’s proven that the builder was not legitimate and, therefore, capricious, not only will the developer be exposed to a damage claim [in court], but if Tarion finds out that the decision affirmed that the developer acted improperly, [it] may pull the builder’s ability to register and build any other projects in Ontario.

“If you act improperly, if you’re a liar, a cheater or a crook, Tarion’s not going to allow you to continue to build other projects. You will be precluded, practically in perpetuity, from ever being associated with a new project again. The consequences are draconian and dire, and rightly so.”

That said, he cannot recall a case where Tarion took the step to bar a developer from its coverage.

In an interview with The Globe in March of this year, Mr. Lamb expressed frustration with the lack of progress on his rezoning application for Wellington House, particularly in contrast to nearby proposals. “Big developers came to [the City of Toronto], proposing to them something that was going to be a reshaping of the neighbourhood,” he said.

He was referring to the massive redevelopment slated for 440 Front St. W., (formerly the site of The Globe’s head office), which received rezoning and subdivision approval at city council in July, but still has several elements under review and an OMB appeal outstanding. It features plans for 46-, 39-, 36- and 22-storey towers of office, rental and condominium space from a collection of developers including Allied Properties REIT, RioCan REIT, Diamond Corp and Tridel. “I’m for that development, but when I proposed Wellington House 40 feet away from this wall of buildings, they accuse it of being well, well over density. I scratch my head, I fail to understand how that can be.”