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Rendering of the On the Danforth condominium project, Toronto.

Diam Development/Diam Development

The cancellation of a sold-out 135-unit condominium building in Toronto throws into sharp focus some of the challenges in the Ontario government’s plans to reform the regulations around the new-home building sector.

On March 18, DIAM Developments began sending notices to holders of presale contracts to buy units at DIAM on the Danforth at 2359 Danforth Ave., telling them that an array of financing woes meant “the project is no longer financially viable.”

Among the reasons DIAM cited were rising construction costs, and “the refusal of DIAM’s lender to make the requisite construction financing advances under the construction loan.”

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An examination of property records for the On the Danforth project site raises questions about DIAM’s inability to raise money. Just weeks before the project was cancelled it secured an $11.5-million loan against the property from Mississauga-based Community Trust Company and according to at least one of DIAM’s earlier investors company representatives have claimed the project will be restarted and resold once the presale contracts are cancelled.

Tarion Warranty Corporation, the arm’s-length agency that is Ontario’s new-home building regulator, can review cancellations and ensure “the vendor took all commercially reasonable steps within its power to satisfy the early termination conditions.”

According to Tarion’s director of strategic communications Melanie Kearns, the agency is reviewing DIAM’s cancellation. “Should the review result in a public sanction against the vendor, such as a notice of proposal to refuse or revoke a registration, Tarion would communicate this information to the public,” she said.

Buyers may take a developer to court to pay for monetary damages that might result from a vendor’s failure to comply with Tarion’s regulations, though in truth, such revocations are rare: the last major case was related to the insolvency of developer Urbancorp in 2017. In 2018, more than 4,000 condominium units across more than a dozen projects in the Toronto area were cancelled by developers.

“We take these types of cancellations very seriously and we want to make sure we try to mitigate where we can and ensure that doesn’t happen on a continuing basis,” said Bill Walker, Ontario’s Minister of Government and Consumer Services, who has called Tarion “broken” and is in the consultation phase of making changes to the relevant legislation and regulations.

But critics say the proposed changes thus far focus too much on informing consumers about risk – through such measures as having Tarion post cancellation data on its builder registry (a move not expected to take effect until the summer of 2019 at the earliest) – and less about protecting buyers from cancellations that may not be warranted.

“It’s astonishing developers are being allowed to get away with this,” said Barbara Captijn, a consumer advocate who has for years argued for reform of Tarion. “All the cancelled projects, the reasons they’ve given are all sorts of flimsy little things: ‘unable to find the financing terms we wanted.'”

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“Right now our client has no plans for the property,” said Rhoda Eisenstadt, partner in public relations firm the Communications Group Inc., in response to questions about the project. “The first mortgage, which was for construction, was originally held by First National. In November, 2018, [they] called the loan, giving our client until March, 2019 to repay it or the company would be put into receivership.

“DIAM Danforth Property Inc. paid off this construction mortgage on Feb. 28 of this year. The mortgage is now held by Community Trust and a Toronto-based law firm [registered to Melvyn Eisen, of the Eisen Law Office].”

There were some indications of financial trouble on the project: Beginning in December, 2018, several contractors filed construction liens against Diam’s Danforth lot, a move building suppliers often take during disputes over payment. Such companies as Mykon Electric Ltd., Gilbert Steel Ltd., Skygrid Construction Inc., and Ironstone Forming Ltd. filed liens, but then in February, 2019, one after the other, the liens were removed.

The Danforth land registry information also shows an earlier charge, a $1.7-million loan added in September, 2015, which is a syndicated mortgage handled by Olympia Trust Company.

Olympia Trust is not a federally chartered trust company, nor does it have a business licence to operate as a trust in Ontario. As of August, 4, 2017, the Alberta-based company agreed to co-operate with the Financial Services Commission of Ontario regulations and stop opening new accounts in the province.

There are 36 individuals who formed the Danforth syndicate, mainly from Brampton and surrounding communities, that combined their RRSPs, TFSA, LIRA and other savings accounts in amounts ranging from $168,000 to $11,800.

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Harbinder Singh of Brampton, Ont., one of the investors in the syndicate, said he has been reassured by DIAM that the project will go forward. “I talked to the company, they said everything's fine, you don't have to worry, they are giving back the money and they are getting alternative funding from other companies,” he said.

The question for regulators is whether to crack down on developers who are accused of cancelling condo projects in order to resell them later at higher prices, using the pretext of financial troubles.

“I’m an individual consumer as well, and I would expect that I’m able to have proof if that’s the argument you’re using,” said Mr. Walker, in reference to financing clauses in Tarion warranties that allows developers to cancel projects with no penalties. “There should be a criteria and a definition that we all understand and that we are all bound by. I believe we should do whatever we can to tighten that … that we close those loopholes and make it the most protective we can for consumers.”

But while the province consults and tinkers, advocates say consumers remain exposed.

“If you’re going to say Tarion is broken you can’t let consumers flop in the wind, today, tomorrow, next month or however long,” Ms. Captijn said. “The moment you admit the problem you have to take responsibility for all the things that are still going wrong.”

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