Why did these condo buyers never get their homes or equity?

Katrina Dionello used to regularly drive by a construction site on busy Hazeldean Road in Ottawa’s suburban west end, dreaming of one of the top two-story units in the future complex.

It was going to be the first time that the teacher had owned a house. He had a virtual board of decorating ideas on Pinterest and a stash of gift cards for home decor stores. Dionello used to brag to his friends about how he had landed a condo in the summer of 2019, before the pandemic and before the real estate market hit record prices.

“Now I feel sick,” Dionello said. She stays away from the Stittsville area entirely.

Two and a half years after he turned over his hard-earned savings for deposit, that money has been returned, plus an additional 40 cents on the dollar, as part of a bankruptcy proceeding. Dozens like her had put in between $15,000 and $90,000.

However, the builder, Hazeldean Crossing Inc., did not go bankrupt.

Knowing that other people will move into it and rent it out. … I feel sick to my stomach.– Katrina Dionello, Condo Buyer

Instead, the company settled with its unsecured creditors, primarily homebuyers, after its majority shareholder and secured creditor, GNCR Canada Inc., agreed to cover the cost of returning $4.8 million in deposits.

Hazeldean Crossing has also been restructured and the 86 condominium townhomes will be converted to rental units.

“Knowing that other people are going to move into it and rent it out, and I still feel like it’s my unit and I should have been able to move into it, it makes me sick to my stomach,” Dionello said.

His fellow buyers expressed anger, skepticism and frustration that they couldn’t take advantage of the increase in property values ​​since they signed in mid-2019. They also won’t be able to buy something similar at the same price now.

Dionello and others estimate they lost $200,000 in increased property value.

“It’s just a slap in the face,” he said.

Katrina Dionello spent her savings on a deposit for her first home, a stacked row house in condos in Stittsville, in 2019. She estimates she lost $200,000 in equity because the developer canceled the project and converted the condos to rentals. (Submitted)

Proposal to creditors

Dionello got the bad news in an email in January when a trustee alerted dozens of buyers that Hazeldean Crossing Inc. was going to file under the Bankruptcy and Insolvency Act.

The trustee’s letter described how the company had been “severely affected” by the pandemic, leading to delays as well as higher costs and shortages of both materials and labor.

The letter also details how the developer faced a dispute with its construction manager over construction quality and construction site management — neighbors who spoke to CBC had similar complaints. That contract was terminated, but the construction manager in turn put a lien on the property, halting work, and Hazeldean Crossing “had no choice” but to file under bankruptcy law, according to the trustee.

Buyers were urged to accept Hazeldean Crossing Inc.’s proposal of $1.25 for every dollar deposited, and told they would likely receive less if the company went into receivership.

shoppers unite

Another buyer, Hans van der Schoot, says it was a lot to take in, but he received the information “sceptically”.

Emails in 2021 from Bennett Property Group, which was involved in many of the transactions, told buyers that the company expected to provide closing dates soon, though units were delayed. Many buyers also checked in regularly and were not alerted to the problem.

Buyer Geoff Winchester says he was concerned the developer wouldn’t ask for more money because construction costs have skyrocketed. He had seen that happen in the Greater Toronto Area, where other projects had been canceled entirely.

“It was like a legal and calculated way to get us out of our investments,” Winchester said, upset that the condo he initially bought was converted to a rental.

“It really bothers me deep down, at the principle level.”

Feeling that they lacked power as individuals, some affected buyers approached others, and soon a large group hired a lawyer, dividing the fees among themselves, to review the proposal and negotiate something better.

In the end, they were able to increase the $1.25 the developer had offered to $1.40 for every dollar of deposit, plus reimbursement of legal fees.

“That’s what’s in the legal system, but it’s not justice,” Winchester said. “He is not someone who makes a mistake and is responsible for it.”

The company responds

The buyers were unable to point to any evidence of wrongdoing, but feared the units would be resold at a high profit.

In the negotiated proposal they agreed to, they also introduced a clause stating that Hazeldean Crossing Inc. would not be able to convert the rental units back to condominiums. The same would apply if you sold or transferred ownership to another related company.

CBC News contacted the president of Hazeldean Crossing, but received a response from a communications company in Toronto.

“After two years of construction delays, supply chain shortages, labor shortages, and skyrocketing building material costs caused by the COVID-19 pandemic, Hazeldean Crossings and GNCR Developments took the difficult decision to finish their condominium development,” the statement said.

“While this is an unfortunate and disappointing situation for everyone involved, getting it right for buyers has always been Hazeldean’s priority, which is why the offer included a provision of a 40 percent premium on top of deposits in recognition of the lost time for the past two years.”

Such a premium is “virtually unheard of,” the statement said.

These townhomes will be leased after Hazeldean Crossing files for bankruptcy and reimburses the original condo purchasers plus an additional 40 cents on the dollar. (Kate Porter/CBC)

Real estate broker Marnie Bennett, who had promoted the Hazeldean Crossing project on private radio, said she was “as shocked and disappointed as everyone else to learn of the bankruptcy action.”

His firm had never seen a developer take that step after so many challenges, but Bennett said the pandemic had created “unprecedented” times.

GNCR is registered with its offices at Lisgar Street and Carp Road on corporate and bankruptcy filings, but Bennett wrote that his firm “was not consulted in the decision to initiate insolvency proceedings” and “Bennett Property Shop’s relationship with Hazeldean Crossing Inc. is limited to that of the landlord corporation and working with other brokerage houses through the MLS real estate system to sell the houses.”

Buyer Protections

An attorney who specializes in condo developments says that despite what Hazeldean buyers have been through, the playing field is finally tilting a little more toward new-home buyers.

A 2019 audit of Tarion, the home guarantee agency, found that its rules often favored the development industry. An earlier report by Judge J. Douglas Cunningham had also recommended that Tarion lose his regulatory role and that a separate regulator be created to avoid potential conflicts of interest.

As of February 1, 2021, Tarion has required a new “Warranty Information Sheet” so that buyers are better informed of their rights when signing a purchase agreement.

On the same date, the Housing Construction Regulatory Authority took over licensing all builders and suppliers in the province and keeping their information in a searchable database.

Currently, Hazeldean Crossing Inc. is listed under the umbrella group of Latitude Homes, whose name is listed on an application the city received for a future large subdivision in Stittsville.

Sarah Morrey, an attorney at Lash Condo Law in Toronto, says a lot of paperwork is now required and any action that raises a red flag could affect a developer’s ability to build.

“There are definitely more incentives, I would say, for builders and sellers to not act in bad faith and really play by the book because we’ve already seen that those entities that don’t act in good faith can get licensed,” Morrey said. .

Dionello and his fellow shoppers at Hazeldean Crossing have had to leave their Stittsville dreams behind.

The teacher managed to find a 1970s condo at a price she could afford, and she’s busy tearing it down and renovating it with her boyfriend. She hopes that other homebuyers will investigate their builders and that politicians will do more to protect themselves against canceled projects: The Ford government increased penalties in housing legislation that passed this spring.

“It’s really, really heartbreaking,” Dionello said.

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