Deposits are safe, but what about money paid for upgrades?
A troubled condo project in Ottawa is being taken over this week by the developer’s major creditor. The Ottawa Citizen reports that this creditor announced it is terminating the existing purchase agreements and that:
The former purchasers of the condos were told they would receive their deposits back. But it’s not clear about other expenses, such as upgrades and fixtures that have already been purchased.
This situation illustrates that while a purchaser’s deposit for the purchase price is protected by section 81(1) of the Condominium Act, 1998 (“the Act”), not all monies paid to a developer are covered by this statutory requirement that money be held in trust by the developer’s lawyer or another trustee.
Clause 81(2)(a) of the Act provides that the section 81(1) requirement for deposits to be held in trust does not apply to money received “on account of the purchase of personal property included in the proposed unit that is not to be permanently affixed to the land.” Such excluded items might be moveable appliances, hanging artwork, curtains, furniture, decorative pieces and so forth.
On the other hand, money paid to a developer for built-in appliances and permanent upgrades to the proposed unit (such as counter tops, bathroom fixtures and hot tubs) will be protected by the section 81 trust provisions so long as the acquisition of these items is clearly included in the purchase of the proposed unit. The structure and wording of the agreement are deciding factors.
Money paid to a purchaser’s own contractors or other third parties for things such as custom design, additional work or the supply/installation of special items or fixtures enjoys no protection under section 81 at all.
This story from Ottawa reminds us that purchasers who pay for extra work or improvements outside the scope of their purchase agreement with the developer stand to lose that money if the developer becomes insolvent. Here, the purchasers are finding that improving or customizing a proposed unit prior to taking possession is inherently risky.
This situation is a prime example why it is so important for purchasers of new condominiums to have a lawyer review the agreements of purchase and sale. It amazes me that many of the people purchasing new units from developers are young educated people yet they ignore the 10 day cooling off period. When things go bad as they did in Ottawa the purchaser can get burned. We point out to purchasers that their agreement is subordinated to the developer's bank. In addition, we recommend changes to the agreement that any amounts paid for upgrades will be returned to the purchaser in the event the purchase is not completed for any reason save and except the default of the purchaser. What we have found difficult is to get developers to agree to characterize payments for upgrades as deposits so that they are protected. What we do insist is that amounts paid are held by the developer's lawyers in trust. GMA's motto; we want you going into a deal with a developer with your eyes wide open!
The exact situation is happening to my wife and I versus Moldenhauer Lifestyles. The original agreement was amended for upgrades to the unit, and all changes were permanent in nature. The builder asked for more money, but we were not comfortable with the whole amount not being secure, so we increased the value of the unit and the amendment now became secure, with a smaller amount left in as a deposit. Now the builder a year later and not completing the project is refusing to put the balance of the deposit into trust. The issue is not yet over and my legal advice to date is to take the builder to small claims court to ensure the deposits for all permanent upgrades goes into trust.
The statement "Deposits in trust are 'safe'." is not accurate.
As a result of the Moldenhauer project being terminated, my wife and I executed the release provided by the solicitor, and sent it back as requested.
But guess what, the lawyers and the builder had other plans than returning the deposits as they said they would.
They returned many other purchasers their deposits, but have held onto mine and refuse to return it.
The builder's lawyer now wants me to execute a non-disclosure statement.
I guess they read this blog or something and feel that I have to be stopped from letting other people know about the situation.
Be careful about putting your money as a deposit with a builder's solicitor.
Clearly this is not as 'safe' as one would think.