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.