Case Commentary: Zheng v. Anderson Square Holdings Ltd., 2024 BCSC 216

A recent BC Supreme Court case, Zheng v. Anderson Square Holdings Ltd., 2024 BCSC 216, highlights the many pitfalls that await both pre-sale purchasers and developers alike in the high-stakes world of real estate development.

For pre-sale purchasers, what happens when developers give them notice, years after contracts have been signed and deposits paid, that the project cannot continue for a variety of reasons, that their contract is thereby cancelled, and that the only remedy they have is the return of their deposits, albeit with interest?

For developers, what happens when their main building contractor demands additional payments for their construction costs, stops work, and then sues the developer for these additional costs partway through the construction?

The Zheng case has all of this but is replete with so many twists and turns along the way that it is worthy of its own soap opera.

To summarize, in 2015 and 2016, Anderson Square Holdings, the Developer, developed, marketed, and sold units in a presale project in Richmond called “The Alfa,” consisting of 109 residential strata units and 10 commercial strata lots.

On July 12, 2019, Anderson notified its buyers through Termination Notices that they were terminating their contracts – as provided for under the terms of their contracts – and offered them a return of their deposits.

Besides construction delays, two other reasons were cited by Anderson:

1. A lawsuit filed against them by their building contractors.

2. The failure of their efforts to secure construction financing.

Thirty-seven of the buyers refused to accept that their contracts were cancelled and rejected the return of the deposits.

Two years later, the project was completed, and the units were remarketed as “The Prima” and sold to new purchasers at higher prices. Zheng was the outcome of the lawsuits filed by the 37 disgruntled purchasers, where the Court awarded the plaintiffs $13,093,900 collectively in damages, based on the difference between the prices that the units were originally sold for and their value in August 2021 when the disgruntled purchasers sued the developer.

An account of some of the most important details of this case:

1. The purported inability of the Developer to obtain financing because of a lawsuit by its own building contractors was found to be a half-truth at best because:
   (a) The failure to obtain institutional financing pre-existed the date of the lawsuit, and
   (b) There was evidence of private financing not only being made available but being advanced, allowing construction to continue even after the Termination Notices of 2019.

2. The purported economic effect of the lawsuit on the Developer by its own building contractors was also found to be a half-truth because a lawsuit is not a judgment, but only an allegation that has yet to be proven in court, especially since the construction contract was a “fixed-price” contract.

3. The wording of the individual contracts regarding the Developer’s right to terminate the contract, especially the use of two little words – “provided that” – was ambiguous. While one clause seemed to automatically extend the completion date, another clause seemed to limit it. When read overall in the context of the entire contract, it was more correct to say that the completion date was automatically extended, and therefore the Developer did not, after all, have the right to terminate.

4. When faced with a termination notice, the purchaser has two options: to accept what is legally called a “repudiation of the contract,” take back the deposit, and consider the contract “ended,” or to refuse to accept the contract as having ended, treat the contract as still alive, and insist on completion until it is no longer possible to do so. In this case, that point was August 2021 when Alfa was being resold as Prima, and the purchasers sued, thereby ending the contract at that time.

What lessons can be learned?

Both from a legal standpoint and also from the standpoint of the individual pre-sale purchaser or developer when faced with such a predicament:

Firstly, for developers, when stating the reasons for termination of their presales contracts, those reasons must be accurate and built on a solid foundation of reliable evidence. Secondly, for pre-sale purchasers, when facing a developer opting to cancel their projects, there is hope for alternative outcomes other than just the return of their deposits, but it may take lots of time – in this case, almost eight years – and the combined financial resources of 37 plaintiffs to get to this outcome.

Finally, for real estate lawyers acting for developers or representing disgruntled pre-sale buyers, it pays to be precise, careful, and mindful of cases such as Zheng.

Case Commentary provided by Real Estate Law Specialist, Iven Tse. Call him today to represent you!