Buyers in a recently cancelled Vaughan condo development are alleging that their builder failed to tell them it had no right to construct homes on the property when it sold the giant project in February 2017.
Gupta Group sent purchasers deposit refunds and letters last week citing financial reasons beyond the company’s control for the cancellation of the three-tower development that was to have included 1,650 condos, a hotel and convention centre.
The buyers have written Ontario’s home warranty corporation Tarion asking it to investigate whether the project was actually cancelled because the developer wasn’t legally allowed to build homes on the site near Highway 7 and Edgeley Blvd. at the Vaughan Metropolitan Centre.
The property was subject to “restrictive covenants,” legal conditions tied to the 2005 purchase of the land by Gupta’s Icona Hospitality from a numbered company.
In July, an Ontario Superior Court of Justice dismissed Icona’s application to delete those covenants even though the area is in an area that has been slated for high density development. According to court documents, the restrictions, which had a 40-year term, state that the property, currently the site of a Hilton hotel, could only be used for a hotel, meeting and banquet facilities. It also gave the seller of the land, a company called 274 Canada, the right to approve how the site was developed.
It argues that Tarion rules don’t allow builders to terminate projects because of restrictive covenants.
“The project was not cancelled ‘due to circumstances beyond their control that made their project unfinanceable,’ as their cancellation letter states,” wrote the buyers.
“Tarion’s early termination conditions do not include any provision whereby a vendor can cancel because the land is subject to a restrictive covenant,” says the letter sent by a group of four Icona buyers.
They are the organizers behind a Facebook page called Cancelled Icona Condo which has 420 subscribers. They have also registered about 100 buyers for a meeting on Monday to explore legal avenues. Buyers have to register for that meeting by emailing Icona[email protected]
A spokesperson for Tarion confirmed that it had received the letter and had already requested information from Icona “so we can review the circumstances surrounding the termination of the purchase agreements to determine whether Icona is in compliance with its obligations as a registered vendor/builder.”
The Gupta Group, which also operates Easton’s Group of Hotels, has not responded to requests for interviews.
When Icona Hospitality purchased the land in Vaughan, it was part of a large parcel of which 28 hectares is still held by 274 Canada, according to the July court decision. Development of the land was done through mutual agreements that treated the area’s parking and servicing “holistically,” the court heard. In an affidavit, a representative for 274 Lands said it was concerned that the Icona project could negatively impact future plans for mixed-used development in the area.
Restrictive covenants are not uncommon in large land sales, said lawyer Bob Aaron, who writes a legal column on home ownership in the Toronto Star.
They are more commonly seen in cases where a retailer sells a piece of land with a restrictive covenant to prevent a competitor from building nearby.
Icona is the second major condo cancellation at the Vaughan Metropolitan Centre. In April Liberty Development cancelled about 1,000 units in the Cosmos condo development on the same stretch of Highway 7. It also cited financial reasons for the cancellation. A group of 451 buyers in that project are asking a court to cancel their purchase agreements so they can sue Liberty for damages.
Although pre-construction condo buyers get their deposits back if the developer cancels, many say that money isn’t enough to allow them to buy a similar property months or years later in a rapidly appreciating real estate market like the Toronto area.
Tess Kalinowski is a Toronto-based reporter covering real estate. Follow her on Twitter: @tesskalinowski