Court File and Parties

Court File No.: CV-23-00709180-00CL Date: 2024-10-15 Superior Court of Justice – Ontario – Commercial List

In the Matter of an Application Under Subsection 243(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended, and Section 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended

Re: KINGSETT MORTGAGE CORPORATION AND DORR CAPITAL CORPORATION, Applicants And: VANDYK – UPTOWNS LIMITED, VANDYK – HEART LAKE LIMITED, 2402871 ONTARIO INC., VANDYK – THE RAVINE LIMITED, VANDYK – LAKEVIEW- DXE-WEST LIMITED AND VANDYK – LAKEVIEW-DXE EAST LIMITED, Respondents

Before: Justice Peter J. Osborne

Counsel: David Rosenblat, for KSV Restructuring Inc., in its capacity as Receiver Sean Zweig, for the Applicants James Wayne Maclellan, for The Trisura Guarantee Insurance Company Kate Parker, for Kohn Partnership Architects Inc. and Aquila Project Solutions, Construction Lien Claimants (Lakeview) Murtaza Tallat and Sierra Farr, the Receiver Thomas Sanderson, for The Corporation of the City of Mississauga Dillon Beaulne, for 560789 Ontario Inc. o/a R&M Construction, a Construction Lien Claimant (Lakeview)

Heard: October 15, 2024

Endorsement

[1] The Receiver moves for two orders:

a. a Third Amended and Restated Receivership Order approving the Heart Lake CM Contract and directing the Receiver to perform same, authorizing the Receiver to borrow up to an aggregate principal amount of $120,325,000 pursuant to the Heart Lake Commitment Letter and granting a corresponding Borrowings Charge; and

b. an Ancillary Relief Order authorizing the Receiver to enter into Agreement of Purchase and Sale (“APS”) APS Amendments in respect of the Pre-Sale APSs, terminating and disclaiming those Uptowns Project homebuyer Pre-Sale APSs where the homebuyers do not enter into an APS Amendment by the APS Amendment Deadline, and sealing the Uptowns Project Pro-Forma and APS Amendment Schedule until the earlier of the completion of the Uptowns Project or further order of this Court;

both as described in the Notice of Motion.

[2] The Notice of Motion had also sought relief in the form of a Conveyance and Easement Order vesting title to the Subject Property in favour of the Corporation of the City of Mississauga and the Regional Municipality of Peel in connection with development approvals. As agreed with counsel for the City who was present at the hearing of the motion, that relief is not being sought today and is adjourned until certain pre-conditions have been satisfied, at which time the motion for that relief may be brought back on.

[3] The Receiver relies on the Fifth Report dated October 7, 2024, together with appendices thereto. No other materials were filed by any other party, and the motion was strongly supported by KingSett, the primary financial stakeholder of Uptowns, and was unopposed, although as further described below, a significant number of Pre-Sale APS homebuyers were present in court and had questions about the process.

[4] Defined terms in this Endorsement have the meaning given to them in earlier Endorsements made in this proceeding, and/or the motion materials unless otherwise stated. To be clear, each counterparty to the Pre-Sale APSs was served with the motion materials (which is why so many were present in Court today).

[5] For the reasons below, I am satisfied that the proposed relief should be granted.

[6] Each of the Debtors is a single-purpose real estate development company that owns a specific project being developed on its respective Real Property, all of which are located in the Greater Toronto Area.

[7] I approved a sale process on March 8, 2024 for the Real Property owned by each of Heart Lake, 240 and Ravine along with certain other entities within the Vandyk Group. With respect to Uptowns and Lakeview, the Receiver, following on discussions with key stakeholders, determined that those Projects should be completed during the receivership to maximize benefits for stakeholders.

[8] Uptowns owns the Real Property at 10302 Heart Lake Road, Brampton, Ontario, where it is developing a residential project consisting of 342 stacked townhomes of which 329 were presold pursuant to APSs executed prior to the Receivership Order. Those have Termination Dates with the majority expiring in April, 2025 and a smaller subset expiring in March, 2026, after which time counterparties may have the ability to terminate those agreements.

[9] 287 of those 329 APSs contemplate a purchase price that in the professional opinion of the Receiver is now significantly below current market values. Based on the Uptowns Project Pro-Forma, the Uptowns Project is projected to have a deficit of approximately $57.3 million, with the result that KingSett is not prepared to advance additional financing without an adequate increase to the purchase prices. The proposed APS Amendments, and proposed authority to negotiate and enter into same or terminating disclaiming them, are being sought for that purpose.

[10] The amendments sought would extend the Termination Date to October 1, 2027 and increase the purchase prices for the 287 of 329 Pre-Sale APSs that are currently under market value to a Court-approved maximum increase per pre-sold unit. The Receiver submits that the proposed new Termination Date provides an adequate time frame within which to complete the Uptowns Project.

[11] The Ancillary Relief Order is a condition precedent to securing any further advances under the Uptowns Construction Facility, and those advances are required since the total loan amount provided for under the Uptowns Commitment Letter is insufficient to cover anticipated costs of completing the Uptowns Project for which it is estimated that an additional $120,550,000 in financing will be required.

[12] The Receiver submits, and I accept, that it is unlikely that a lender would be willing to provide the Uptowns Project with any further construction financing at this time, as such construction financing is generally not available unless a developer has presold 60% to 75% of units at “market” price, which requirement is not satisfied and cannot be satisfied by the current Pre-Sale APSs. In short, the Receiver cannot continue construction without the Ancillary Matters Order and that result would reduce potential recovery and benefits to stakeholders.

[13] The proposed Amended Prices allow homebuyers to retain value in their Pre-Sale APSs, as the Amended Prices are submitted by the Receiver to be below current market rates (by, on average, 13%), while providing for the prospect of achieving the presale thresholds in the near term required for the Uptowns Project to be financeable. Homebuyers have the election of terminating their APSs if they do not wish to agree to the Amended Price, in which case they would look to an existing Trisura surety policy which the Receiver expects would respond as to 100% of deposits paid in respect of Pre-Sale APSs that are disclaimed. Trisura was also present in Court today.

[14] The Pre-Sale APS provides that the purchaser subordinates and postpones their agreement to any mortgages arranged by Uptowns and any advances thereunder, and the agreement does not confer on the purchaser any legal, equitable or proprietary interest in the Real Property. No pre-Sale APSs are registered on title to the Real Property of Uptowns.

[15] In the unfortunate circumstances of this development, I am satisfied that approving the relief sought is the best path forward. As noted, a number of Pre-Sale APS homebuyer counterparties were present in court and had their questions answered. The Receiver has been and will continue to keep stakeholders up to date through communications and its website. In addition, in the near future, each Pre-Sale APS homebuyer will receive a package of materials outlining the applicable Amended Price and the protocol for agreeing to same by the deadline. For those who elect not to do so, subsequent information and materials will be provided with respect to how those homebuyers can make a claim against the Trisura surety policy in respect of the money paid as a deposit.

[16] The material proposed to be sealed includes the APS Amendment Schedule, which in turn includes the proposed Amended Prices. I am satisfied that, as the Receiver submits, public disclosure of those prices could harm the future marketability of units if homebuyers elect not to execute the APS Amendments, in which case the Receiver would likely have to secure a higher price upon resale to recover additional costs, and the disclosure of the Amended Prices could create an artificial ceiling for new sale prices.

[17] The Receiver submits that sealing the Uptowns Project Pro-Forma and the APS Amendment Schedule is vital for safeguarding the integrity and financial viability of the Project. I agree. I am also satisfied that the order is proportionate and time-limited until the earlier of the completion of the Project or further order of the Court, which can be sought at any time. In short, I am satisfied that the factors applicable to a determination of whether a sealing or confidentiality order should be granted pursuant to section 137(2) of the Courts of Justice Act as set out by the Supreme Court of Canada in Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41 and refined in Sherman Estate v. Donovan, 2021 SCC 25 have been met here.

[18] With respect to the Heart Lake Project, it is a single-purpose real estate development company that owns the real property at 10194 Heart Lake Road, Brampton, Ontario, where it is developing a residential project of 200 stacked townhomes of which 109 had been presold. Subject to obtaining the Third Amended and Restated Receivership Order, the Receiver intends to complete the Heart Lake Project to maximize recoveries for all stakeholders.

[19] A sale process was conducted in the spring of this year as contemplated by order granted by this Court on March 15, 2024. Two offers were received by the deadline, neither of which was determined by the Receiver in consultation with KingSett, the first ranking mortgagee of Heart Lake, to be satisfactory primarily since the contemplated purchase prices were insufficient to repay the KingSett loans, let alone any other subordinated debt.

[20] As a result, the Receiver, in consultation with KingSett, engaged with Elm to evaluate the feasibility of completing the Heart Lake Project and prepared a budget and proforma, following which the Receiver and Elm entered into a CCDC-5A Construction Management Contract - the Heart Lake CM Contract.

[21] I am satisfied that it should be approved. Elm is an experienced construction manager specifically with experience in building similar townhome projects and is known to the Receiver. The proposed Contract is supported by KingSett, and I am satisfied will create value for stakeholders of Heart Lake.

[22] KingSett has agreed to provided construction financing facility in the amount of $120,325,000 pursuant to a commitment letter dated October 7, 2024, conditional on the Third Amended and Restated Receivership Order being granted and other conditions being satisfied. The Receiver is of the view that the terms are reasonable and that the effect of annualized interest rate of the loans is consistent with, or lower than, market for a loan of this nature.

[23] The Heart Lake Construction Facility is required to restart construction of the Heart Lake Project and that is in the interest of all stakeholders if recoveries are to be maximized. KingSett is already the existing primary financial stakeholder in these proceedings and supports the relief sought and the development of the Project to which it is directed. KingSett requires the Receiver’s Heart Lake Borrowings Charge to fund the Facility.

[24] This Court has the jurisdiction to direct a receiver to disclaim presale homebuyer agreements in the context of real property receiverships: See, for example, KingSett Mortgage Corp. v. Stateview Homes et al., (November 16, 2023), Ont. S.C.J. [Commercial List], Court File No. CV-23-00698576 at para. 16 [Stateview Homes]; KingSett Mortgage Corp. and Dorr Capital Corp. v. Stateview Homes (Minu Towns) Inc., (September 14, 2023), Ont. S.C.J. [Commercial List], Court File No. CV-23-00698576 at p. 1 [On the Mark Endorsement]; Firm Capital Mortgage Fund Inc. v. Stateview Homes (Hampton Heights) et al., (August 18, 2023), Ont. S.C.J. [Commercial List], Court File No. CV-23-00700356-00CL at para. 6 [Hampton Heights]; Forjay Management Ltd. v. 0981478 B.C. Ltd., 2018 BCSC 527 at paras. 131-132 [Forjay Management].

[25] This authority derives from the duty of a receiver to maximize the recovery of assets under its jurisdiction, in service of which it may affirm or disclaim contracts: Peoples Trust Company v. Censorio Group (Hastings & Carleton) Holdings Ltd., 2020 BCSC 1013 at para. 25 [Peoples Trust Company].

[26] The criteria to be considered in determining whether to authorize such disclaimers were set out in Forjay Management at paragraph 44 (see also Stateview Homes at paragraph 17):

a. the respective legal priorities of the competing interests;

b. whether the disclaimer would enhance the value of the assets, and if so, would a failure to disclaim amount to a preference in favour of a particular party; and

c. whether, if a preference would arise, the party seeking to avoid the disclaimer has established that the equities support such a preference.

[27] I am satisfied that the factors are met here. The proposed disclaimers would occur only in relation to Pre-Sale APSs for which an APS Amendment is not executed within 30 days of being sent to the counterparty or such later date as determined by the Receiver. The mortgages registered against the Uptowns Real Property constitute senior charges ranking in priority over the Pre-Sale APSs, none of which are registered on title.

[28] The authorization of the Receiver to disclaim is required to avoid the projected deficit, obtain financing and complete the Uptowns Project. Absent the relief sought, the Receiver would likely need to conduct a sales process, and in its submission, that in turn would likely lead to significantly lower recoveries.

[29] Moreover, granting the requested relief will minimize further construction delays, which in turn could further erode stakeholder value, and it should provide certainty and expediency for those homebuyers who wish to agree to the APS Amendments. Courts have held that a failure to authorize the disclaimer of purchase agreements in such circumstances would amount to a preference in favour of homebuyers: bcIMC Construction Fund Corp. v. Chandler Homer Street Ventures Ltd., 2008 BCSC 897 at para. 96; Forjay Management, at para. 93; and Peoples Trust Company, at para. 57.

[30] Further, equitable considerations do not support a departure from the existing priorities and granting a preference to homebuyers. Each of those parties has been served with these motion materials, as noted above. Deposits made by homebuyers under the Pre-Sale APSs are covered by a Trisura surety policy thereby allowing counterparties to disclaimed agreements to seek a refund of their deposit.

[31] In further addition, the interests of the homebuyers have been protected by the Amended Prices, which the Receiver submits are fair and appropriate in the circumstances and represent an average discount of 13% below current market prices. The alternative of a sales process would overwhelmingly likely result in the termination of all Pre-Sale APSs, depriving the homebuyers of all value.

[32] For all of these reasons, I am satisfied that the disclaimer relief is appropriate.

[33] With respect to the Third Amended and Restated Receivership Order and the approval of the Heart Lake CM Contract, this Court has broad discretion, flowing from section 243(1)(c) of the Bankruptcy and Insolvency Act, which permits the court to authorize a receiver to take any other action that the court considers advisable.

[34] Courts have routinely approved the entering into of key contracts to facilitate the receivership, including the retention of a construction manager: see Third Eye Capital Corporation v. Ressources Dianor Inc./Dianor Resources Inc., 2019 ONCA 508 at para. 85; KingSett Mortgage Corporation et al. v. Vandyk – Uptowns Limited et al., (June 13, 2024), Ont S.C.J. [Commercial List], Court File No. CV-23-709180-00CL at paras. 6-7; KEB Hana Bank as Trustee v. Mizrahi Commercial (The One) LP et al., (March 7, 2024), Ont S.C.J. [Commercial List], Court File No. CV-23-00707839-00CL at para. 20.

[35] For the reasons set out above, I am satisfied that this agreement should be approved here.

[36] I am further satisfied that retaining Elm as a construction manager is in the best interest of the Heart Lake Project going forward for the above reasons, including but not limited to stakeholder benefit and support. It follows that the Construction Facility and Borrowings Charge should also be approved. In this regard, section 31(1) of the BIA authorizes a receiver to borrow in order to fund the duties of the receiver, and further permits a receiver to give security on the property of the debtor in any amount, on any terms and on any property that may be authorized by the Court. Further jurisdiction is found under section 243(1)(c) of the BIA which gives the Court the power to take any other action that the court considers advisable.

[37] At the conclusion of submissions from all counsel for interested parties, a number of observers present in Court, who consisted virtually exclusively of Pre-Sale APS homebuyer counterparties, were given the opportunity to ask questions of the Receiver through its counsel, with a view to providing in simple and understandable terms answers to the questions asked about the relief being sought and the path forward.

[38] For all of these reasons, the relief is granted.

[39] Orders to go in the form signed by me which are effective immediately without the necessity of issuing and entering.

Released: October 15, 2024 Osborne J.