Uhh you're forgetting a few things:
1) The reason the developer owes so much money against the properties is because he borrowed it. He KNOWINGLY borrowed more money against the properties than he had contracted to sell them for. Can you say fraud?
2) If the developer screwed up on his estimate of what it was going to cost him to build the places, that is HIS PROBLEM. If he had hugely underestimated, it would be HIS GAIN. No one forced him to start the project in the first place.
3) Bob Rennie's reputation is that of a guy who screwed over a LOT of people in the whole 'leaky condo' fiasco. People in BC have extremely short memories it seems.
4) The pre-existing contracts that are being cancelled are with various real estate agents who would be receiving roughly 5% commission on average. The new listings all have the guy's wife as the listing agent.
This is all about developer greed. They borrowed against the increased value of the land and over leveraged the properties FRAUDULENTLY and their lender has called them on it, and they are using that as an excuse to not live up to their signed sales contracts. I bet they took nice big 6 or 7 figure salaries over the entire time (borrowing the money against the properties to pay themselves) and everything is under a corporation so if they bankrupt it and walk away they have still pocketed a sizable amount of cash personally and they have no personal liability.
If the contracts do have a unilateral cancellation clause by the developer that is not a force majeur clause (ie: act of god, war, terrorism or otherwise beyond the control of the developer) then they are likely illegal contracts under the BC real estate laws, or at the very least, the agents who represented the buyers in those contract signings are going to get sued and/or lose their licences for negligence.
If you underestimate the building cost, that is not a factor 'beyond your control', same goes if you hire bad workmen or borrow too much money from the bank.
It is certainly possible that this is motivated by greed, just as it is possible that it isn't.
To the best of my knowledge, there isn't anything in BC law that prohibits making a contract that permits unilateral cancellation.
These were pre-sales. There is rarely any representation by a "buyer's agent" in any traditional real estate transaction in BC (I always laugh when I hear any buyer refer to someone as "their" agent). When it comes to pre-sales, how likely is it that there are many deals where there are two agents involved?
In addition, these sort of contracts are almost always on the developer's own forms, and include custom language, of the developer's own choosing. Negotiation about contract wording is almost non-existent.
IIRC, many of these pre-sale contracts were signed in 2005. Are you seriously suggesting that it is fraudulent for a developer to incorrectly estimate how costs might change over a two year period?
Construction costs in the lower mainland have grown considerably in the last two years, and there are shortages of labour and materials that, at the least, can result in delays.
As I expect you are aware, these construction mortgages aren't advanced all at once, and generally speaking no payments are made on them until the unit sales actually complete. As a result, the amount owing at time of payout includes a substantial portion of already accrued interest. All it takes is for there to be delays in approval or inspection processes or stages of construction (particularly early ones) or for certain parts of the construction process (again, particularly early ones) to come in at higher than expected costs, for the interest component on these mortgages to grow substantially.
I am not saying that it is impossible for this to be an example of underhanded dealing. What I am saying, is that it is very likely that this is an example of a developer underestimating future costs and then, as a result of being caught in a resulting financial bind, being forced to invoke a contract provision that was put into the contract for that very purpose (possibly, at the insistence of the developer's lenders!).
You need to understand that so much of this business is driven by the requirements of lenders. In the case of small developers at least, there is an almost certainty that the individuals who own the development companies have had to supply personal guarantees to get the financing.
I feel sorry for the buyers who may end up either disappointed or, worse, disappointed, without a home, and financially behind. I would point out though that:
1) if these contracts do include a right that permits the seller to cancel them unilaterally, the buyers should not have signed them unless they were willing to accept the risk that the developer would cancel them; and
2) even if the contracts do not contain such a right, the buyers need to understand that any contract that is for delivery of something a long way in the future is vulnerable, if there are reversals of fortune, and the buyer's remedies if the seller breaches the contract may be far from adequate.
I wonder how many of the buyers actually read the prospectus that they were given at or before the time the contract was agreed upon? In particular, I wonder if they paid any attention to those parts of the prospectus that dealt with construction financing mortgages?
I really wonder how many of the buyers sought legal advice on the contracts before signing them? In my experience, probably none of them.
If the poster wasn't jjinvan, I would have thought that the poster was asking that there be some sort of government intervention in this process, but that of course couldn't be the case, could it?
