How is it possible that purchasers of a condo unit in a building could be left unprotected and lose all their deposits?
This is a question that many people are asking after hearing about the recent news of the lawyer for a condo developer who disappeared with $14.9 million in purchasers’ deposits when the condo developer did not move forward with the development.
In Ontario, the Condominium Act requires that all deposits that a purchaser pays for a condominium unit, whether Residential or Commercial/Retail, must be held in trust by the Developer’s solicitor or a prescribed trustee. Deposits are unable to be released to the Developer unless security is posted in the form of insurance. Tarion (the New Home Warranty Programme in Ontario), also provides a warranty for up to $20,000 per unit for purchaser’s deposits but only for residential condominium units.
You would think that condo deposits would not be at risk based on the requirements under the Condominium Act. So what happened in this case at this North York condo project? The purchasers paid their deposits to a reputable law firm for the developer. The law firm was then instructed by their client (the developer) to transfer the deposits to another lawyer. It appears that approximately $9 million in deposits is still being held by the initial law firm and were not transferred. Those monies are secure and will be returned to purchasers. The problem is that the other $14.9 million is deposits are gone, leaving those purchasers of retail/commercial units with little hope in recovering their deposits.
If the deposits related to residential units, then Tarion would protect up to $20,000 per unit of those deposits.
Whether the lawyer was aware that the deposits should have been held in trust, is a question that will have to be determined. Experienced condo development lawyers are aware that deposits must be held in trust by a law firm or a prescribed trustee and should not be released to the developer.
Purchasers should always ensure that they deal with reputable developers. In this case, the developer has vanished. The lawyer who handled the deposits has been suspended by the Law Society of Upper Canada, has been charged with 75 counts of fraud and has declared bankruptcy.
