What Happens If The New Condominium You Bought Into Goes Into Receivership?

Picture this: You've just put down your deposit on a shiny new condo that's still under construction. You've been daydreaming as to how you'll decorate, which coffee shop will become your regular, and maybe even hosting some fabulous housewarming parties. But then, BAM! You get news that your building is going into receivership.

And this news has become more common as real estate receiverships are on the rise in Canada.

But, before you panic and start thinking your dream home is just, well, a dream — let's break down what this really means.

The Receivership Rollercoaster

So, what exactly is receivership? Think of it as a financial lifebuoy thrown to a sinking ship. When a developer can't pay its debts, a court appoints a receiver to take over.

This person or company steps in to manage the building's finances, make necessary decisions, and hopefully, steer the project back on course.

Receivership is considered pretty extreme legal relief, and not every developer who applies gets it. But if it does get the green light, the receiver will crunch the numbers to see what it’ll cost to finish the project. And how much they can make from selling the remaining units. If the costs are way higher than expected, they might have to take some pretty drastic steps.

Your Future Home Sweet Home Is Still In The Works

First things first: Your investment is still valid, and the goal of receivership is to complete construction.

Receivership isn't a giant eraser that wipes out your property. Instead, it's a process designed to protect the project's value, ensuring it doesn't fall apart. The receiver's job is to sort out the mess, yet keep things moving forward.

But sometimes when extreme actions need to be taken, the pre-sale condo purchase agreements may be terminated.

Who Pays for What?

Now, you may be wondering about money. Will you have to shell out extra cash? Will you get your deposit back? The short answer: It depends.

The receiver will need to figure out how much it will cost to finish building, and how much they can expect to make from selling the units. If there’s a big gap because expenses are higher than expected, they may give current buyers the option to pay more for the units.

Another option is to try and sell the in-progress project or find new investors. But in today’s market, that can be tricky.

If all that fails and the condo becomes insolvent, do you lose your deposit? No.

Buyers will get some solid protection under the Condominium Act, which requires that developers put your deposits into a trust.

So if your builder cancels the purchase agreement, they must return your deposit in full within 10 days. If they don't, Tarion, a non-profit created by the Ontario government to oversee the province’s new home warranty program — has your back with deposit protection up to $20,000.

Additionally, you may get the right of first refusal to enter fresh purchase agreements through the receiver.

For example, take the case of Halo Residences which went into receivership in 2020. When the purchaser of the development relaunched, the pre-construction buyers had the opportunity to reinstate their purchase agreement for the same unit at a new price — less a discount of $150 per square foot. Those previous buyers who declined this option got, in addition to their refunded deposit, a payment of 2% on the value of that deposit.

Keep Calm and Stay Informed

The key to navigating receivership is staying informed. Attend meetings, read updates from the receiver, and don’t be shy to ask questions. Knowledge is power, and understanding what's happening can ease the stress.

But remember, receivership is usually temporary. It's a process to help the project get back on its feet.

So, while receivership might sound like a plot twist in a bad movie, it's more like a minor detour on the journey to your dream home. With some patience and understanding, you'll come out the other side with your ideal condo.

That’s when you can start planning that fabulous housewarming party, and picking which colour to paint the living room!