In this post, I would like to answer some questions from my fans related to the developer’s right to price increase and the buyer’s right to a deposit refund.
#1 Deposit Refund
Question from Regina:
“What’s the buyer’s options for the deposit if the project is delayed for years? Can the buyers cancel & take the deposit back?”
In the Tarion section of your purchase agreement, you will find these pages called “Statement of Critical Dates”.
Scroll to the middle of the page and you should see the Outside Occupancy Date.
If the developer is unable to provide occupancy by this date, then you may terminate the agreement within 30 days from the Outside Occupancy Date.
You will receive a full refund of your deposit if you decide to cancel.
You are also entitled to interest on your deposit and you may receive a delayed occupancy compensation for up to $7,500.
But of course, these amounts are negligible compared to the time you have lost.
For condos, the Outside Occupancy Date is typically set at around 8 to 10 years from the initial sales date.
You won’t be able to cancel the agreement and get your deposit back before the Outside Occupancy Date.
But delays are not always bad, there can be good delays.
Let me share a real case scenario, the 8 Cumberland condo right in the heart of Yorkville.
It went on sale in the summer of 2016.
Back then, a 700 square foot 2 bedroom corner unit was sold for only $639,000, in the most expensive neighbourhood in downtown Toronto.
The first tentative occupancy date was set for September 2021, with the outside occupancy date set 6 years after that in 2027.
Time started ticking and it was 2019.
The project suffered from unforeseeable delays related to construction, permits, approvals and heritage issues.
And the real estate prices in Toronto had a big jump since 2017.
The developer realized that they could sell the units at much higher prices if they could just cancel the project and restart sales again.
Good thing Great Gulf is a developer who cares about their reputation, so they did not cancel the project.
They sent out a letter to all the purchasers offering to buy back their units.
If you agree to cancel your agreement, you would almost double up the deposit you put down for just 3 years.
If you put down a $100,000 deposit, you would be getting almost $200,000 back, in just 3 years, that’s not bad at all.
My clients were all really smart though, none of them chose to cancel.
They all kept their purchase, the only thing that changed was a revised occupancy date to 2023.
The building is finally at the completion stage now.
Occupancy just started a few weeks ago.
Even though the market has crashed and the interest rate is high now, my clients are all smiling when they look at their purchase price from 7 years ago, that’s the power of buy and hold.
So this delay was not necessarily bad at all, but of course, you need to have a reputable developer who won’t just cancel the project.
By the way, if you are suffering from the market crash and the high interest rate, hang tight, real estate goes up and down, in cycles, but it always goes up in the long run.
I bought my house in 2008, just right before the financial crisis crashed the market and brought us into the Great Recession.
When I look back now, in the midst of another market crash, that was the best investment I made.
#2 Price Increase After Binding Agreement
Question from Navid:
“The buyers have a contract to buy a condo at price X. My question is how come developer can increase the price after contract? Is that legal in Canada?”
He’s referring to the letter from the Receiver of The One Project.
It says that the Receiver will review the existing sales agreement in conjunction with a review of the fair market value and decide what the next steps are.
If you haven’t watched the video about the big financial trouble at The One, you can catch it afterwards at the link below.
Does the developer have the legal right to increase the purchase price after a binding agreement was established?
No they don’t.
If they found that they sold at a price too low and that’s not enough to cover construction costs, then they may have to cancel the project with a legitimate reason specified in the agreement.
For example, unable to obtain satisfactory construction financing for the project.
After the cancellation, they can try to restart sales at a higher price.
But of course, this would be extremely damaging to the developer’s reputation.
Now, let’s go back to the case of The One.
So how come the Receiver is reviewing the agreements with fair market value?
The Receiver was appointed by the Supreme Court with the goal of completing the project and paying the outstanding debts.
After reviewing the existing agreements, the Receiver may come to the conclusion that it is impossible to achieve the goal with the existing sold prices.
In that case, the Receiver may ask the Supreme Court for approval to offer a new purchase price to the original buyers to make the math work.
And the buyers may decide to proceed or cancel.
This is very similar to what happened back in 2020 when Cresford’s Clover on Yonge project was placed into receivership because of financial trouble.
Subsequently, developer Concord took over the project by paying almost $200 million of Cresford’s debts.
Concord got the approval from the Supreme Court to offer the original buyers to buy back their units at a discounted market price.
For those who didn’t proceed, Concord resold those units at the higher market price.
The project was then completed in 2022.
So those are my super long answers to the 2 simple questions.
I was going to just answer them directly but then I wanted to tie in some real life stories so you have more substance in the answers.
I hope you enjoyed this episode and you learn something new today.
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