Floor-by-Floor Sales Venture Would Work Better as a Condo Property

Bob Aaron in Legal, Home Selling, Home Buying

For SaleMy nomination for the
the most odball real estate scheme of the year is last week’s proposal
by Larry Chilton and his real estate broker to sell separate floors of
his Victorian rooming house facing Trinity Bellwoods Park.

As reported by Kamila
Hinkson last week in the Star, the first and second floors are available
for about $480,000 each, plus the cost of renovating the house to
create separate units. Half the house is also for sale, and the whole
house is tagged at $1.7 million.

In my experience
practising real estate law in Ontario, I’ve never seen anything like
this proposed joint venture with total strangers. It simply won’t work
here because it’s unfeasible and impractical. To be honest, it’s a pipe

During an interview
with CBC host Matt Galloway, listing agent Daniel Freeman admitted, “In
our jurisdiction, there aren’t any guidelines or laws that allow us to
do this very easily.

“You’re buying an
interest share in the property,” he said, “not unlike two people who
know each other coming together and buying a property together . . .
We’re bringing people together and forming an alliance and a

That’s much easier said than done.

Freeman added, “We’re going to have a contract where we flesh out all the little details of sharing.”

In fact, the details aren’t so little. There are numerous big problems, including:

  • The difficulty of two
    partners obtaining joint financing together and the impossibility of
    financing parts of the house separately.
  • Dealing with one
    owner’s default in mortgage payments, for which both owners would be
    equally responsible — the owner in good standing could be evicted by the
    bank for his partner’s arrears.
  • Similar challenges
    where one owner’s utilities are in arrears and water, cable, phone, gas,
    Internet or hydro is shut off even though the other partner’s
    contributions are up to date.
  • Unwinding the venture and selling a share to a third party, especially where one party wants to sell and the other does not.
  • The absence of a
    legislative structure such as the Condominium Act or a skilfully crafted
    co-operative or co-ownership agreement such as those used in larger
    multi-residential buildings in Toronto.
  • How to deal with
    repairs, especially where they are necessary in one unit only, or where
    one party is unable or unwilling to contribute his share.
  • The huge cost of creating new Ontario legal contracts, similar to those in common use in Quebec, California and elsewhere.
  • The challenge and
    cost of physically separating the units and staircases according to
    current Building Code and fire regulations, so that each owner has a
    private, self-contained apartment.

As I see it, it would
be far more cost-effective to convert the house to a condominium. Even
if the conversion, surveying, legal and renovation costs were as much as
$250 per square foot, or $100,000 for the whole building, the return on
that investment could easily be recovered by the increase in the total
value of the building.

In a
condominium, one owner’s arrears of mortgage payments, common expenses,
taxes or utilities cannot be charged against the other owners in the

seems to me that the listing of this Queen Street West neighbourhood
house for sale by the floor — in the absence of a serious proposal for
the operation of any sort of partnership — was just a clever and
somewhat entertaining publicity stunt, but one which is totally
impractical and doomed to failure.

Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron
in Toronto and a past board member of the Tarion Warranty Corp. Bob
specializes in the areas of real estate, corporate and
commercial law, estates and wills and landlord/tenant law. His 
Title Page column appears alternate Fridays in The Toronto Star and alternate weeks on Move Smartly.  E-mail bob@aaron.ca

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