The 150 purchasers in the failed Centrium condominium project might not have lost their combined deposits of $14.9 million had the Law Society of Upper Canada and the Tarion Warranty Corporation been more aggressive in carrying out their mandates to protect the public. The case became front page news in late August when Toronto lawyer Meerai Cho was arrested.
She faces 75 charges of fraud, possession of property obtained by crime, and breach of trust. The charges relate to her role as lawyer for Yo Sup (Joseph) Lee and Centrium Development Group.
Back in 2010, the buyers made deposits ranging from $40,000 to $700,000 on residential and commercial units in a mixed use development consisting of two proposed towers near Yonge and Finch. The deposits were held in Cho’s trust account.
When Centrium ran into financial troubles, the buyers turned to Cho for a refund of their money. They were shocked to learn that Cho had prematurely released the deposits to her client.
She has since declared bankruptcy, and on August 26, her licence to practise law was suspended pending further hearings. The investor losses could have been avoided or minimized had tougher rules been enacted by the bodies charged with protecting the public by supervising lawyers and builders. Here are my suggestions for ensuring that this calamity never happens again in Ontario. Tarion’s residential deposit protection has never been increased from the original figure of $20,000 for condos and $40,000 for freehold houses.
● Starting immediately, residential deposit protection should increase to $200,000 across the board. The Choi case illustrates that commercial buyers need the same deposit protection as residential purchasers.
● Commercial deposit protection should be implemented at a minimum level of $200,000. If Tarion enrolment fees have to be increased across the board to build up a fund to protect buyers, so be it.
● Effective immediately, the Condominium Act regulations should be changed by the Ontario Cabinet to ensure that lawyers holding purchaser deposits should have some minimum experience in and knowledge of the Condominium Act. Under those regulations at present, any lawyer is entitled to hold purchaser deposits, whether or not the lawyer knows anything at all about real estate or condominium law.
David Orazietti is the minister of Government and Consumer Services, which supervises the administration of the Tarion Warranty Program. Orazietti has been strangely silent in the aftermath of the Centrium collapse, but common sense dictates an immediate change to the rules to tighten up the qualifications of lawyers who hold millions of dollars in purchaser deposits. This change does not have to wait for the conclusion of the ongoing review of the Condominium Act.
The Law Society does not escape blame in the wake of purchaser losses in the Centrium fiasco. The Society’s compensation fund exists to reimburse people who have lost money as a result of a lawyer’s dishonesty. Each claim is limited to $150,000, an amount which has not been increased since 2008.
● The claims limit of the Law Society’s Compensation Fund should be doubled to $300,000 retroactive to January 1, in order to protect the Centrium buyers.
The fund does not cover claims where a lawyer’s action is found to be negligence and not dishonesty, but the lawyer’s Errors and Omissions insurance policy is then triggered.
The mandatory insurance program is underwritten by LawPRO, a wholly-owned arm of the Law Society. The basic coverage carried by most lawyers is $1 million per claim, with a limit of $2 million per lawyer per year.
● In my opinion, LawPRO is the best-run lawyer insurance company in Canada, but its board might want to take a look at raising the annual claims limit to $4 or $5 million per lawyer.
Nobody wants to have another Centrium disaster. The regulators and government who are charged with protecting the public need to take decisive action now.
Bob Aaron is Toronto real estate lawyer. His Title Page column appears on this blog, Move Smartly, and in The Toronto Star. You can follow Bob on Twitter @bobaaron2 and at his website aaron.ca Email Bob