Wednesday, June 19, 2013

Flipper fails to have pre-sale contract ruled invalid. Ordered to pay $750,000.


Last night CBC-TV ran a story which shows the danger of condo pre-sales when they profiled the story of a man who signed a pre-sale contract for a luxury condo in Vancouver and has now lost almost three quarters of a million dollars after he failed to complete the final sale on the unit.
Lawrence Austin signed a deal to buy the condo at 1499 West Pender in the spring of 2008, just months before the global financial crash.
Austin agreed to pay Reliance Properties $2.71 million for the 25th floor Coal Harbour condo, and put down a 10% deposit of $271,000.
But within a few months the global real estate market had crashed and Austin began looking at his options to get out of the deal.
Initially, he argued that at the time of the sale he had made an oral agreement to be able to assign the pre-sale agreement to another buyer, regardless of price.
But the developer told him his pre-sale agreement restricted him from assigning it to another buyer for less than the purchase price.
Austin then tried to get out of the contract by arguing that the developer failed to give him a copy of the original disclosure statement before he signed the contract, as required by law.

The developer disagreed on both points, and in the winter of 2011 when the building was completed, Austin didn't pay the balance of the purchase price.
Six months later, the developer sold the unit for just over $2.05 million and sued Austin for the difference in price, minus his deposit.
In her ruling issued last week, Justice Catherine Bruce dismissed Austin's claims that he had not received the disclosure statement, noting he had signed a statement saying he had received it at the time he inked the deal.
She also found nothing substantial to support Austin's claims that he had an oral agreement with the developer permitting him to assign the pre-sale agreement without the developer's agreement.
The Court ordered Austin to pay the developer nearly $500,000 to cover the difference between the pre-sale and final sale price, minus his deposit.
Austin was also ordered to pay the maintenance fees and property taxes for the six months it took the developer to sell the condo.

Meanwhile it seems the industry is fighting hard to prevent future buyers from trying to escape their contract based on changes to the disclosure statement.

CBC reports developers, through the Urban Development Institute (UDI), are lobbying the Province to change the act because buyers are using it as a loophole.  The UDI says buyers simply want out of contracts signed before the market had fallen.  "To allow them to do so leads to uncertainty and... slows down the industry and the economy as well as impacting housing supply and prices."

(hat tip Kabloona on VCI)
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  1. Perhaps people will finally get it through their heads that prices don't always go up, sometimes they go down and some times they go down a lot.

    Any way you look at it a pre-sale is a gamble for both the buyer and the developer. After years of seeing buyers win, the tide appears to have turned. I'm pretty sure the buyer in this case would have been outraged if the price had gone up 30% and the developer tried to reneg on the contract.

  2. A crazy unregulated futures market with amateur investors. Things will not end well.

  3. The developer has only a $500k judgement against Mr Austin.

    A mere judgement is a long way from getting $500k cash.

    Collecting a judgement is a whole other matter. Good luck to the developer.

  4. So if a property loses value before closing, the developer can sue for the difference. IF a property appreciates before closing the developer can charge the buyer fair market value to close on the agreement? Why the hell would anyone ever buy presale? It is a rigged game in favour of developers.

  5. Pre-sales = leveraged amateur gambling. This guy was obviously an amateur and blinked rather than going through with his commitments. He does not have $500K laying around and will never pay and will declare bankruptcy.

    1. "pre sales = leveraged amateur gambling"
      True if you dabbled in the pre sales game after 2008.But the previous ten years it was great way to make tons of money in this town.Like any investment there is risk.You have to be prudent.This guy my have been an amateur but yet again he may have been a pro investor. You just dont know. Like all real estate there are cycles.We are no doubt in a down turn. But if you were to average the last twelve years , you would be way ahead in the condo "pre-sales "game.

  6. The actual judgement is here for anyone who would like to read it:

    It would be nice if the CBC would do a follow-up story on whether or not Austin paid Reliance Properties any of the awarded damages.

  7. been lurking here for awhile. Just wanted to say good work with the daily tidbits. That reading bar on the side has really come in handy too.

    Also hat tip should be to Schadenfreude which linked the article first yesturday on VCI.

  8. Ouch!!! That's an expensive bill! And no condo at the end of it!

  9. Is this the same project Kim Campbell is trying to back out of?

  10. As the media is not digging the fact of Trump's failed adventure history (people got scammed), maybe Whisperer can do a story about Trump tower in Toronto, etc?

  11. mac:

    Nope, Kimbo is trying to bail from the Hotel Georgia project if I recall correctly. Also, I believe that lawyer Brian Baynham is representing her in that case.

    At any rate, I think she is screwed, figuratively speaking of course.

  12. One of these days we in Canada really should have an adult conversation about the total government (federal, provincial, and municipal), business, and household debt that is being built up in this country.

    The following statistics are taken from a credit market summary data table released yesterday by Statistics Canada: (The link to this data table is at the end of my post.)

    The total debt outstanding in Canada at the end of March 2013 (bottom line of the data table) was $5.33 Trillion. From the end of March 2012 to the end of March 2013 the total debt outstanding in Canada increased by $323 Billion. For that 365 day period the total debt outstanding in Canada increased at a rate of $885 Million per day.

    From the end of December 2012 to the end of March 2013 the total debt outstanding in Canada (bottom line of the data table) increased by $90 Billion. For that 90 day period the total debt outstanding in Canada increased at a rate of $1 Billion per day.

  13. During the boom a colleague was bragging about "buying" floors of an apartment building at a time. I am sure she unloaded it by now that was in 08, but I am sure there will be a few out there that played monopoly with real properties knowing "prices only go up" around here, 'cause "its different this time."

  14. From the decision, it looks like Mr. Austin was self represented in court. Imagine. He can seemingly afford to purchase a $2.71 million condo but can't afford a lawyer to represent him in court. Sad.

  15. He's going to come out way further ahead than if he went through with the purchase and wanted to sell 3-5 years from now. This is not an amateur investor, 500K is nothing compared to the holding costs and losses he can expect in 3-5 years. This is the cost of doing business and the smart money is getting out of Real Estate in this city. The slow, painful, inevitable return to fundamentals is under way...

    1. He certainly acts like an amateur.