I have already written about condo project cancellations and there have been a number of them in the last few years. Every time a unit is purchased a deposit is made, are these funds safe?
There are number of safeguards in place to protect the buyers and their deposits.
Tarion offers condo deposit protection up to $20,000, but as we know most deposits would exceed this amount by a large margin. The developer of the new condominium project must be Tarion registered and must enter into Deposit Trust Agreement between the lawyer holding the deposit and Tarion corporation, in addition new developers are required by Tarion to get a bond from the accredited insurance company.
As per Condominium Act the developer is required for all the deposits to be held in trust by accredited trustee (a lawyer). The deposits may be released when a prescribed security is obtained for buyer’s protection.
Usually the deposits can be released to fund the costs of the construction once certain milestones are met, these would include obtaining all necessary financing, permits and having contracts in place. The deposits are allowed to be released as well when the funds are insured for the protection of the buyers.
The insurance is called Excess Condominium Deposit Insurance for Developers. This type of insurance allows the developers to access deposit funds otherwise tied up in the trust accounts.
The lawyers handling trust accounts can face serious consequences for not following the rules Tarion, Law Society or the Insurers.
The deposits for the preconstruction condos are indeed well protected, for all the cancelled projects they have been refunded the buyers in every case but one.
In 2014 a Toronto lawyer has been arrested in an alleged condo fraud (deposits for Centrust Project at 5220 Yonge Street), which as far as I know is the only ever in the GTA with deposits not refunded when the project got cancelled.
As part of your due diligence buying the preconstruction condo please check who is the trustee for the funds, and do they have an experience and reputation for this type of transactions.
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