Image Credit: FACEBOOK/Highlands of East Hill

An Okanagan developer that abruptly pulled out of a large scale Vernon housing project, even though it had managed to pre-sell dozens of homes, is suing the City of Vernon claiming it breached multiple agreements which ultimately caused the project to fail.

Vernon Reservoir Developments Ltd filed a Notice of Claim against the City of Vernon June 30, accusing the City of knowingly misleading the developer in a "selfish attempt to secure an unjust profit" along with breaching various obligations it held under a development agreement.

"The City’s attempts to force the developer to pay the price in exchange for land that is different from, and substantially less valuable than the lands specified in the agreement is a bad faith attempt to secure for the City a windfall benefit," the court document says.

The lengthy and complex Notice of Claim outlines various aspects of an agreement between the City and the development better known as the Highlands of East Hill. The project was supposed to provide 173 units of housing at the site of the decommissioned Vernon Reservoir on 39 Avenue.

The court documents say the two parties agreed to a land swap but did not agree "precisely" on the details. When a land survey changed how the site would be subdivided leading to the developer receiving less land than originally agreed to, the developer wanted the price reduced.

The developer accuses the City of an "unlawful abuse" of its power after the City put the planning process on hold when it refused to pay full price for the site.

According to a news release from the City in November 2017, the City agreed to sell almost 20 acres of the McMechan reservoir lands for just under $6.5 million. The Notice of Claim doesn't mention an agreed sale price or use the name the Highlands of East Hill.

Billed as a "perfect blend of Urban and rural living," the site was to feature a mix of detached, semi-detached and row housing, many of which were aimed at middle-income families. 

At a groundbreaking ceremony in November 2018, parent company Stoni Consolidated Holdings CEO Graham Illingworth told the media it was an "outside of the box... one of a kind project." Illingworth said the development would have something for everyone from seniors to young families with plenty of trails and twice as much green space as required. At the time, Vernon Mayor Victor Cumming praised the project saying it would help to meet a demand for mid-priced housing the city was short of.

And demand appeared to be high. A company video in April 2019 says nearly all the lots had been sold in the first four phases of development. The company advertised $5,000 to reserve a lot, with a three-bedroom home starting at $399,000. Several months later in July 2019, the developer announced construction was about to begin.

Then abruptly in August 2019, Stoni Consolidated Holdings announced they would be refunding the 46 pre-sale homeowners to the tune of $24 million, laying the blame at the City and saying that it "could no longer rely" on commitments that Vernon had made.

A Vernon resident who pre-purchased a property and wanted to remain anonymous confirmed they did get their money back from the developer. A Vernon realtor who sold a client one of the homes also confirmed his client got their deposit back.

In the Notice of Claim, the developer says it began discussions with the City in June 2017, before entering into a phased land purchase and development agreement later that year.

"The City had no experience with phased development agreements, and this made it imperative for the developer to manage risks arising from the approval process, including delays and uncertainty of costs," reads the court document.

It said the agreement stated the City would have an option to enter into a limited partnership with the developer.

"If exercised, (the partnership) would require the City to contribute the lands to the partnership by transferring them to the partnership’s general partner, in exchange for credit of a fixed price to be paid over time plus a share of the profit on sales of units in the development," reads the document. "If not exercised, (it) would result in an obligation on the developer to purchase the lands from the City at (an agreed) price."

The court documents go on to say, "the lands would be developed in accordance with a phased development agreement, the terms of which were to be negotiated by the parties after entry into the agreement, and which was to be executed concurrently with the transfer of the lands."

City of Vernon chief administrative officer Will Pearce told media outlets in early August 2019 that the agreed close date was August 16 and the developer had not submitted an unconditional agreement to close the purchase and sale. A statement from the City at the time said there was "disagreement over the interpretation of the contract."

"The City has on several occasions purported to reset the closing date unilaterally," reads the Notice of Claim.

The court documents focus on lengthy and complex areas of the agreement, including the subdivision of land, building permits, the site's access and services, various approvals, variances, and bylaw amendments and accuses the City of giving the developer "false, inaccurate or misleading" information.

The developer also accuses the City of breaching of its duty of disclosure after the Regional District of North Okanagan refused to approve plans for Mutrie Road, which is on their land, and told the City it was not in favour of the project in general as it was concerned with increased drainage onto Regional District land.

"At no time has the City been ready and able to transfer the lands in accordance with the agreement, for reasons including that the City, in breach of the subdivision obligation, had failed to subdivide the lands in accordance with the original subdivision plan."

The developer also says that the City has benefitted from the work it did on the site to improve the land.

"The City has accordingly been unjustly enriched," says the document.

In the Notice of Claim, Vernon Reservoir Developments asks for damages as a "result of the City’s defaults, abuses, breaches of the agreement, breaches of duty, negligent advice, and negligent misrepresentations."

The document goes on to say it "suffered loss and damage, including delay in sales of housing units in the development, wasted expenditures, increased costs, loss of pre-sales, and loss of opportunity to market the Development in positive economic conditions."

None of the allegations have been proven in court. The City of Vernon has not yet filed a statement of defence.

Stoni Consolidated Holdings did not return our call. City of Vernon chief administrative officer Will Pearce said he could not comment about the case because it was in front of the courts.

To contact a reporter for this story, email Ben Bulmer or call (250) 309-5230 or email the editor. You can also submit photos, videos or news tips to the newsroom and be entered to win a monthly prize draw.

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