Saturday, June 6, 2009

Another key court decision on pre-sales coming up

On Thursday we posted about the BC Supreme Court decision regarding a UBC condo presale in which the buyer had the contract rescinded because the developer failed to properly inform him of changes to the development. This is a chilling turn of events for condo developers who are trying to hold pre-salers to contracts after the real estate downturn of 2008.

In the next few days there may be another court ruling which could set a major precedent on the future of presales in Vancouver.

A court decision is about to be made on the stalled Jameson House development. The decision will determine if the project will finally be built or if disgruntled buyers can finally exit their contracts and reclaim their presale funds.

The 37-storey Jameson House on West Hastings in downtown Vancouver stalled last November when one of its major lenders pulled out amid the economic downturn. As a result, the Pappajohn family, which is developing the site, was forced to put the $180-million project on hold until they could find a new backer and pay the construction bills. They applied for protection under the Companies' Creditors Arrangement Act (CCAA).

The court will hear details of new financing deals, including the arrangement between the Pappajohns and well-known Vancouver developer Bosa Properties, which is reportedly stepping in to save the day.

The catch? In order for the new financing deals to move forward, Bosa must proceed with the original pre-sale purchasers bound to their original presale contracts.

Naturally those contracts were signed at the height of the housing boom, in 2006. Back then those units sold from $500,000 to $5.3-million. Of the 144 condos to be built, 105 of them pre-sold, generating $150-million of presale contracts.

George Gregory, a lawyer who represents some of those purchasers, is now fighting to withdraw from the deal. Their argument is that the CCAA decision could leave them without the legal right to rescind on a deal they believe has changed from the one they signed up for.

"This is the kind of democracy where the foxes sit around the hen house brewing whether or not to have chicken for dinner," Mr. Gregory says. "And I'm acting for the chickens."

And the chickens are scared. Right now they are suing the developer to rescind their contracts based on default. Should the CCRA case rule the contracts are still valid, it will supercede the rights of the buyers to sue for this reason.

"The plan explicitly says the CCAA proceeding trumps consumer-protection rights and permanently stays the rights of purchasers to sue the developer, or rescind their contracts based on default," says David Polinsky, one of the 22 purchasers that is taking action against the proposed plan.

The developers, naturally, will argue the project has only been delayed, not defaulted, pending some re-organization. No word on if the contracts contained a promised delivery date.

This juicy little story also involves Vancouver Condo King Bob Rennie, the man who originally marketed the project. When reached in Europe for comment, Rennie chose his words carefully: "I am quite confident that when Bosa takes over the management that the building will be built, and that they are very smart developers with a history of treating purchasers fairly."

The final decision will have a profound impact on condo developments currently in limbo in Vancouver.


Click 'comments' below to contribute to this post.

No comments:

Post a Comment