The sudden downfall of Urbancorp, one of Toronto's most active developers, has exposed what many say are serious shortcomings in consumer-protection laws governing new home construction in Ontario.
Since paying a $75,000 deposit toward an Urbancorp townhouse more than two years ago, Alex Oren is still wondering if he will ever get his home – or his money.
Mr. Oren is one of more than 50 buyers who paid more than $2.4-million in deposits for Urbancorp's Ravines of Lawrence townhouse project in west Toronto. The project is among the nine Urbancorp subsidiaries that have since filed for court protection.
Had Mr. Oren purchased a condo, rather than a freehold townhouse, his deposit would have been required by Ontario's condo laws to be insured or placed in trust.
But because he bought a freehold home, Mr. Oren is now among the nearly $4-million worth of creditors listed in Urbancorp's Ravines of Lawrence insolvency filing. The most he is entitled to reclaim from new home-warranty administrator Tarion Warranty Corp. is $40,000 – or close to half of his original payment.
"It's peanuts," said Mr. Oren. "Homes cost $1-million minimum in this crazy market and we pay such big down payments, the money has to be safe somewhere. This is an open door to steal people's money."
Tarion's warranty coverage for freehold deposits was last increased in 2003, when it was doubled from $20,000. Since then, single-family home prices in the City of Toronto have quadrupled to more than $1-million.
"Outside of the GTA, it's been sufficient largely, people haven't been putting down more than $40,000. I guess it's a different story in Toronto," said Tarion spokesperson Melissa Yollick.
"It's important for people to read their protection before they buy a home to understand: If I buy a freehold home, I am protected up to $40,000, so what does that mean?" Ms. Yollick added.
Urbancorp's financial problems have also highlighted the steep cost to consumers of lengthy construction delays – which have required some homeowners to pay rent to Urbancorp for years before they were allowed to finally close on the purchase of their homes, while others have waited nearly five years to move into their properties.
Cate Beyleveldt and David Dubrovsky are among a group of 41 purchasers who have lived in their east-end Riverdale townhomes for more than two years before they were finally able to close on their purchase and get title to their homes. That meant Urbancorp was able to charge them "occupancy fees" for years. Occupancy fees are similar to rent, essentially allowing developers to charge buyers fees to live in homes that are still legally owned by the developer.
In Mr. Dubrovsky's case, he paid roughly $55,000 in occupancy fees to Urbancorp before finally being able to close on his home purchase, as did many of his neighbours.
The process is known as "interim occupancy" and is typical in new large-scale condos, where owners on lower floors are often allowed to move in before workers have put the finishing touches on higher levels.
But it is rare for buyers of new single-family homes and other freehold construction to spend years in interim occupancy, since purchases typically close when each individual home is finished.
After August, when Urbancorp's plans to close on the Riverdale purchases were abruptly cancelled, the developer began to demand three months' worth of occupancy fees in advance.
The buyers say they also received little communication from Urbancorp, Tarion, or city officials to explain the delay until they read on Tarion's website that the agency was proposing to revoke Urbancorp's warranty registration – even though Tarion had been in negotiation with Urbancorp for months.
"People's life savings or retirement savings are being put into this home and they're at risk," said Mr. Dubrovsky.
"There were a lot of people who knew or at least should have known for a developer of this size what was going on."
Early this year, with few options to negotiate collectively with Urbancorp as 41 individual homeowners, the group decided to create a formal neighbourhood association, hire a lawyer and finally push Urbancorp to close on their home purchases. Urbancorp filed for court protection only hours later.
"What protections are there in legislation for consumers who buy freehold as opposed to a condominium project?" asked Gary Caplan, the group's lawyer. "Why isn't there some system in place to protect consumers?"
Mr. Caplan has also been contacted by buyers in other Urbancorp projects that have yet to be built. "These poor consumers run the risk of losing their deposits or parts of them," he said. "They're in a difficult position and they have to decide what their legal remedies are."
Elaine Quinn spent tens of thousands on storage fees and short-term accommodations while her family moved from home to home waiting for years for Urbancorp to finish their Leslieville townhouse. It was originally due to be completed in 2013, but remains unfinished.
The most the couple can recoup under Tarion's warranty for delay compensation is $7,500.
Increasing warranty coverage or forcing developers to insure deposits or place them in trust would require a legislative change to the rules governing the new-home construction industry, said Ms. Yollick, Tarion's spokesperson.
The province is in the midst of examining the rules governing the new-home market. It has appointed former Superior Court associate chief justice J. Douglas Cunningham to conduct an independent review of Tarion and its new-home-warranty legislation.
Anne-Marie Flanagan, Minister of Government and Consumer Services spokeswoman, said the review can make recommendations on a broad scope of consumer protection rules.
"Justice Cunningham could look into deposit protection as part of his recommendations on improving consumer protection, but since this is an independent review, we anticipate receiving the final report in the fall 2016," she wrote in an e-mail.
NDP MPP Catherine Fife, who has pushed for changes to the current consumer-protection legislation, including the practice of interim occupancy, described the province's actions as too little too late. "The failure of the Liberal government to enact substantive reform of Tarion continues to leave citizens at risk," she said in an e-mail.
In an e-mailed statement, Urbancorp said it is "working to find ways to advance all of its projects to completion" and expects to either give buyers their homes or refund their deposits.
For purchasers in Urbancorp's Riverdale complex, the years-long struggle has a silver lining. "We've gotten to form a community that is quite tight-knit," Mr. Dubrovsky said. "People know each other and work together and that's kind of special to have those connections."