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Oct 2022

Bad Actor Builders Beware

An HCRA Crackdown and Adi Development Group

By Brooklyn Lester and Slonee Malhotra

In February 2021 we posted this article discussing the Launch of the Home Construction Regulatory Authority (HCRA). This new body was created to govern the licensing and registration process for builders and vendors in Ontario. Tarion continues to exist in unison, focusing on warranties and protections, while giving its authority over registration and licensing of builders to the HCRA. At the time it was launched, it was unclear what the full impact of this body would be.

Over a year later, the HCRA, in its first such act since its inception, has started a crackdown on bad actor builders. Adi Development Group, a Burlington based condo developer, has found itself the first target of this mandate.

Adi Development Group—Notice to Revoke License

On August 25, 2022, a Notice of Proposal to Revoke License and to Impose Conditions on License (“the Notice”) was issued by the HCRA against Adi Development Group.

The HCRA stated in the Notice that:

  1. Adi Development Group, through its entities, has demonstrated behaviour that the HCRA cites as evidence it should not be a licensed builder or vendor;
  2. Adi Morgan Developments (Lakeshore) Inc., has cancelled hundreds of purchase and sale agreements to increase its profits. It also has withheld deposits until the same units are resold at a greater price; and
  3. Upon investigation the HCRA states they were met with delays, incomplete responses and falsified documents.

The Group

Adi Development Group is an umbrella group with nine entities:

The Notice calls for the revocation of six of the entity’s licenses for violations under the New Home Construction Licensing Act. The remaining three entities have been served with a Notice to Impose Conditions, so that they may complete ongoing construction (for the sake of the purchasers) but they will not be permitted to participate in future developments.

The breakdown is as follows:

Adi Development Group—

  • 4880 Valera Road Inc., (CONDITIONS)
  • Adi Developments (Masonry the West) Inc., (REVOKE)
  • Adi Developments (Masonry) Inc., (REVOKE)
  • Adi Developments (Parkview) Inc., (REVOKE)
  • Adi Developments (Portland) Inc., (REVOKE)
  • Adi Morgan Developments (Lakeshore) Inc., (CONDITIONS)
  • Adi Morgan Developments (Thomas Alton) Inc., (CONDITIONS)
  • Adi Construction Management Inc., and (REVOKE)
  • Thomas Alton Midrise Towns Inc. (REVOKE)

The Facts

The HCRA’s investigation was triggered by concerning behaviour on the Nautique Project by Adi Morgan Developments (Lakeshore) Inc.

Between 2015-2020 Lakeshore sold condominium units located at 374 Martha Street, Burlington (the “Nautique Project”)

  1. On March 23, 2022, Lakeshore terminated 174 of these agreements citing a failure to obtain satisfactory construction financing;
  2. On June 22, 2022 only 27 purchasers had received their deposit funds back, and the remainder of purchasers were told that deposits would be returned after the unit was resold;
  3. After receiving numerous complaints from purchasers, the HCRA commenced an inspection, in which Lakeshore was uncooperative, omitting and falsifying requested information;
  4. Tarion has taken the position that the Adi Development Group should not be able to enroll additional homes in the warranty program.

Upon investigation, a larger pattern of bad faith by Adi Development Group was uncovered. Specially, this behaviour was notable at the Realm Condominiums at 4853 Thomas Altona Boulevard, Burlington and the Valera at 4880 Valera Road, Burlington.

Grounds

The following grounds are those on which the HCRA proposes to revoke and impose conditions on the licenses of Adi Development Group. These are under the authority of the New Home Construction Licensing Act, 2017 (“the NHCLA”).

  1. Under section 38(1)(b)(i) and (ii) of the NHCLA, Adi Development Group does not appear to present the requisite financial responsibility of a condominium developer;
  2. Under section 38(1)(b)(iii) of the NHCLA, Tariq Adi and the Adi Development Group do not appear to carry out their business with integrity, honestly, or in accordance with the law;
  3. Under section 38(1)(c)(i) and section 38(1)(c)(ii) of the NHCLA Lakeshore’s actions are in contravention of the NHCLA, prescribed legislation and Condominium Addendum; and
  4. Under section 38(1)(c)(i) of the NHCLA, Lakeshore’s activities are in contravention of the NHCLA, namely section 59 and section 58 of Regulation 626/20.

According to the HCRA, for the Adi Development Group to remain licensed would be contrary to the public interest.

Adi Development Group is Appealing the Decision

Adi Development Group has appealed the regulatory action. No appeal date has been set.

Adi Developments has accused the HCRA of an abrupt and uncommunicative course of action. They state that they were given no notice of the impending proposal, no explanation of the grounds and documentation on which their notice relies and no opportunity to respond or clarify before the notice was issued. Adi Developments has cited the lack of due process has resulted in reputational damage.

The Covid-19 pandemic and current inflationary pressures are what Adi Developments cites as the reason they were forced to lawfully terminate these agreements—to secure new financing in the face of a 35% ballooning of construction costs. Adi Developments cited an 85% deposit return rate so far, and adamantly denied the allegation of document forgery.

Adi Developments states they have been unfairly singled out, and that they hope to reach a resolution with the HCRA.

Questions Remain

Being the first such move by the HCRA since its inception, Ontarians are left with questions. Legal Counsel find themselves asking if such enormous price increases are merely incidental issues to the non-return of deposits and document forgery. Or, will the HCRA begin targeting developers for any of these matters. Such remains to be seen.

Conclusion

In conclusion, the HCRA has made allegations of bad faith, mismanagement and outright fraud. Adi Developments Group denies these allegations and blames the HCRA process for the miscommunications. 

This article will be updated when the appeal is heard.

If you have any questions about the HCRA, Tarion, or a pre-construction condominium, reach out to one of our qualified real estate lawyers today!