Edmonton condo at risk of collapse to be sold as corporate law clouds hope for court fight

April 22, 2024 Canuck

The corporations behind the construction of an Edmonton condo building that was evacuated last year due to the risk of collapse no longer exist, which poses a legal hurdle for owners who were forced from their homes seven months ago.

All residents of Castledowns Pointe at 12618 152nd Ave. were ordered out last September after engineers investigating damage caused by a March 2023 fire uncovered dangerous structural flaws.

Investigators determined the 83-unit building, constructed in 1999, does not match the architectural designs on record and that construction did not comply with the building code.

Owners have decided to sell the condemned building and the land it sits on, rather than attempting to rebuild.

But the question of who could be held liable for the flawed construction of their homes remains complex.

City documents obtained by CBC News show that Carrington Hermitage Ltd applied for the building permit and Carrington Construction Ltd. applied for the development permit for Castledowns.

Parent company Carrington Holdings Ltd. continues to operate, but the subsidiaries directly involved with Castledowns Pointe “have long since been dissolved,” law firm Witten LLP said in a statement to CBC.

The law firm, which represents active Carrington corporations, has declined to comment on the structural flaws uncovered at Castledowns Pointe or its evacuation.

Condo board president Susan Strebchuk said the chances of a successful lawsuit are slim. Owners are instead planning to close down the condo corporation and cut their losses.

“We can’t go after the company that built this because supposedly, they don’t exist,” Strebchuk said.

“We’re not going to get anywhere.”

An aerial shot of a large condo building. A white tarp covers one wing of the property. — Engineers investigating the damage caused by fire discovered the Castledowns Pointe building was not structurally sound. (David Bajer/CBC)

The board is seeking approval from the court to terminate the condo corporation and sell the property as-is. A majority of owners — 71 of 101 of those eligible to cast a ballot — voted in January in favour of the exit strategy, Strebchuk said.

A rebuild was expected to cost more than $7 million. Demolition was expected to cost $500,000.

The property is expected to sell for anywhere from $2 million to $3 million, Strebchuk said.

If termination is formalized by the Court of King’s Bench, the condo corporation would cease to exist. The titles on each unit would be cancelled, creating a single parcel of land that can then be listed.

Strebchuk said owners are mulling a class action but the board has no plans for litigation.

“We’ve found it most frustrating that this is standard operating practice. You build a project and then, in a few years, you dissolve that part of your company. That doesn’t protect homeowners,” she said.

“There’s no one left to be held accountable.”

Single-purpose, a common practice

Housing developers often rely on single-use corporations. Developers create new corporations for the sole purpose of developing a project, and then dissolve the company once construction is complete.

A previous case involving Carrington — and allegations of improper construction at a different Edmonton condo building — illustrates how builders can be shielded from liability through the creation of single-purpose corporations, two legal experts say.

The case centred on construction deficiencies at the Avenue at Hermitage, a condo in Edmonton’s Canon Ridge neighbourhood.

During litigation, the Carrington subsidiary named in the suit dissolved. Despite an initial judgment in favour of the owners, they never saw their money.

Dana Hagg, a lawyer with Calgary-based HMC Lawyers LLP, said it was a notable case that upheld a longstanding legal practice in corporate law. Parent companies and their subsidiaries are considered legally distinct.

Hagg said while it can seem like an unfair loophole that developers can leverage single-purpose corporations and avoid liability, there is nothing inherently wrong with the practice. She noted that the same limited liability does not apply in cases of fraud.

“Single-purpose corporations, they are a necessary evil,” she said. “They’re the backbone of commercial transactions since the dawn of the common law.”

Wooden beams surrounded by pink insulation. — Images gathered by engineers demonstrate some of the framing issues uncovered during various inspections of the Castledowns Pointe building. (Read Jones Christoffersen Ltd.)

The Avenue at Hermitage condo board filed suit against developer Carrington Hermitage Ltd.

The company was a wholly owned subsidiary of Carrington Holdings Ltd., created for the purpose of developing the condo project.

Carrington Hermitage denied any liability. But as litigation progressed, the company dissolved in January 2018 and stopped defending the suit.

On June 4, 2018, the condo corporation won a default judgment against Carrington Hermitage for $112,000 and costs, but the company had no remaining assets.

The condo board then launched a second suit, seeking to collect damages from Carrington Holdings.

The board ultimately lost its case, first in the Court of Queen’s Bench in 2022 and then again last year in the Alberta Court of Appeal.

The appeal decision found that although Carrington Holdings was the parent company, it could not be held liable in the ruling against Carrington Hermitage.

Robert Noce, an Edmonton real estate lawyer who represented the Hermitage board, said the case shows how corporate laws can make it challenging for owners and the courts to hold developers accountable.

The Alberta government has said it has improved consumer protections through a new-home warranty program and stiffer penalties for builders. But Noce said those changes didn’t go far enough.

He said Alberta’s Business Corporations Act should be amended to ensure owners of poorly constructed buildings could launch claims against project developers and their parent companies.

“There’s a corporate term called ‘piercing the corporate veil,’ and it is a difficult, difficult thing to do in Alberta,” he said.

“The legislation does not afford buyers like condominium buyers any real protection to allow them to pierce the corporate veil and go after the parent company.

“The provincial government needs to come forward and really take steps to provide that additional consumer protection that people so desperately need.”

‘Just stops the bleeding’

But any changes in legislation will not change the situation for Castledowns, Noce said. He said owners have few legal avenues left and the termination process will do little to alleviate their financial hardships.

Owners will likely still be faced with making mortgage payments on homes they no longer own, and will also likely take a hit on the sale price for the property, Noce said.

“Termination really just stops the bleeding,” he said.

Strebchuk said the board is hopeful the court will expedite the termination process, but it could still be months before a sale is possible.

Another winter will mean additional costs to maintain the building, including heat and security, she said. She said many owners have been unable to afford their share of the $375,000 in special assessments levied since the evacuation, and that some owners have declared bankruptcy.

“We’re still paying condo fees for a building that we cannot live in. All of us lost our homes,” she said.

“Some of our elderly owners have said, ‘I can’t deal with this anymore. I’m just walking away.'”

Strebchuk questions how the condo passed inspection, and how many other buildings in Edmonton have undetected flaws.

“We would never have found these flaws until we had that fire,” she said.

“No one buys a home and rips the Gyprock off to inspect the studs. You assume that it has passed inspection and it’s safe.”

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Canada News

Edmonton condo at risk of collapse to be sold as corporate law clouds hope for court fight

Single-purpose, a common practice

‘Just stops the bleeding’

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