The following is a recent article from the Vancouver Sun:
By Derrick Penner, Vancouver Sun January 23, 2009
One Metro Vancouver developer is suing pre-sale buyers for trying to back out of their deals, in what a property law expert says could be the start of a trend as buyers grapple with falling prices and the disappearance of anticipated gains.
Amacon has filed suit against seven buyers for defaulting on their contracts to buy condominiums in its Morgan Heights development in south Surrey on purchases that were to have closed in early December.
In the writs of summons for those cases, Amacon seeks the forfeit of the buyers’ deposits and damages. And lawyer Nick Preovolos, who specializes in property law, says the damages could be substantially higher than just the deposit.
“Walking away doesn’t solve the problem,” Preovolos said, because a developer can sue for damages, and damages would be defined as the financial difference between the current market value the developer could sell for and the price the buyer agreed to pay in his contract.
If a buyer put down a $25,000 deposit, and the property sells for $100,000 less than the initial purchase price, Preovolos said the original buyer still owes the developer $75,000.
“It’s a serious liability for someone to pull out of a purchase,” Preovolos said. “They’d better have a good reason that they can argue in court.”
He said a buyer’s inability to get a mortgage to complete the purchase because the property has lost value is not a reason that a court will accept.
Preovolos said developers are often reluctant to sue clients, because that can be damaging to their reputations. At some point though, developers will act to protect their interests if they start to risk substantial losses.
And with thousands of condominium units under construction across Metro Vancouver as property values slide in a slowing market, “my guess is we would be seeing more of these cases,” Preovolos said.
Amacon official Bob Cabral said the company would not comment on any case it is party to that is before the courts.
North Vancouver lawyer John Whyte represents one of seven buyers Amacon is suing.
Amacon claims Whyte’s clients, Daniel and Jasbant McGarvie, defaulted on the purchase of a $445,000 condo in the Morgan Heights development when they didn’t complete the deal last Dec. 12 as specified in their contract.
Amacon is seeking the forfeit of the $22,245 deposit they put down to secure the unit, plus other damages.
Whyte said his clients’ defence is that they have rescinded their purchase contract, as allowed under provincial real estate regulations, because Amacon did not forward them all changes to its official disclosure statement for the Morgan Heights project.
Whyte said Amacon filed an expanded disclosure statement with the Superintendent of Real Estate, as it is required to do, but his clients did not receive the document, which contained significant new financial details about the project budget.
The McGarvies are now countersuing Amacon for return of the deposit, plus a $6,000 payment they made for a flooring upgrade.
Maureen Enser, executive director of the Urban Development Institute, said this is the first case she has heard of a developer suing buyers who have walked away from pre-sale contracts.
However, Enser does not believe stories of pre-sale buyers attempting to abandon their contracts and give up deposits will become rampant because there has been less speculation over the past couple of years.
More buyers, she said, have bought pre-sales because they want to live in the apartments and not because they expected to flip them for profit upon closing.