Homebuyers set to lose unprotected deposits of up to $150K after GTA developer refused licences

Hasmukh Patel and his wife thought a brand new townhouse in Richmond Hill, Ont., would be the perfect place for them to retire in a few years. 

But within a year of signing a pre-construction purchase agreement, the Etobicoke couple's plan, which included borrowing $250,000 through a line of credit to pay for their deposit, has turned into a nightmare. 

The 72-townhouse project — Boss Luxury Towns — from Ideal Developments was cancelled last fall after the developer was charged by Ontario's Home Construction Regulatory Authority for operating without a licence and was later refused a licence by the provincial oversight body. 

Since then, the secured lenders for the project have started a receivership proceeding to sell the development land near Yonge Street and Bond Crescent to recoup their loans. If the sale is approved by the court Tuesday, Patel and other freehold townhouse purchasers were told there likely won't be any money left over to pay back their deposits. 

"I'm basically killed, because what will I do now?" said Patel. "All of my life with my pension money, with my wife's pension money, everything will be going to the bank."

The 61-year-old is one of 29 purchasers who CBC News has confirmed put down a combined $5.7 million in deposits across two cancelled townhouse projects from Ideal Developments where construction never started. Their individual deposits range from $120,000 to $250,000.

The group of buyers stands to collectively lose $2.8 million because Ontario's home warranty program only protects a maximum of $100,000 for freehold home deposits — and unlike with condos, the developer isn't required to hold deposits in trust.

For Patel, that could mean losing $150,000 and delaying his retirement indefinitely. 

"My wife can't work. I have to do something," Patel told CBC News. "Every month, I'm paying $700 interest for the money I borrowed from the bank." 

In an email, Ideal Developments' founder Shajiraj Nadarajalingam told CBC News the developer couldn't comment for this story because matters relating to the properties are before the courts. 

"I will say that we will continue to do whatever we can reasonably do to assist the purchasers with respect to their interests in the subject properties," said Nadarajalingam. 

It used to be uncommon for pre-construction projects to collapse, but it's happening more and more often because the Greater Toronto Area's red-hot real estate market has enticed new developers into the field, says a veteran Toronto real estate lawyer.

"There's so much money to be made," said John Zinati. "That's when you have a greater likelihood of these types of situations where a builder maybe doesn't have the experience to handle the financing and build the project properly."

CBC News previously reported on Ideal Developments in March 2021, when pre-construction buyers from a different project in Richmond Hill found out that the developer had transferred the land to another company that wasn't planning to honour their agreements of purchase and sale. But in that case, the agreements were for condo units where the deposits were protected.