Vancouver-based real estate developer Bonnis Properties has been ordered to return a deposit it received, plus interest and general damages, as a result of a sales transaction that ultimately fell through, according to a judgment published by the Supreme Court of British Columbia this week.
The transaction was pertaining to 728, 780, and 796 Main Street, three low-rise properties located on the northeast corner of Main Street and Union Street, just south of Keefer Street in the Chinatown neighbourhood of the Downtown Eastside.
Bonnis Properties submitted a rezoning application for the site in 2017 and was planning a 15-storey mixed-use building with strata units, social housing, and commercial space. The rezoning application was later revised down to 11 storeys and was approved by Vancouver City Council in February 2021 following a public hearing.
Shortly after receiving approval, however, Bonnis Properties decided to sell the project, which they had named Main & Union.
The Deal
Bonnis Properties is led by brothers Kerry Bonnis and Dino Bonnis, with Dino's son Dimitri Bonnis also involved in the company as a Vice President. For the transaction, Bonnis enlisted Sutton Group WestCoast Realty's Adrian Gomes, who is related to the Bonnis family through marriage, according to court documents.
Gomes was also a long-running acquaintance of Victor Jang — both were at Sutton Group WestCoast Realty at the same time, according to Jang's LinkedIn profile — and Jang had an existing relationship with Derek DiMartile, Founder & President of Epix Developments.
Jang and Gomes were in regular contact and Gomes introduced the 796 Main Street property to Jang after Jang asked him about potential off-market development opportunities with Epix in mind. Gomes forwarded information about the property on May 15, 2021 to Jang, who then forwarded it to DiMartile.
In early-July, Epix made an offer to buy the property. Bonnis countered and the two sides ultimately entered into a purchase and sale agreement on July 27 for a purchase price of $22 million, with an initial deposit of $100,000 and an additional deposit of $1,000,000. Closing was set for 30 days either after waiver of the purchaser's conditions or the receipt of the prior-to letter from the City of Vancouver that grants conditional approval for the project, whichever was later.
Due Diligence
Based on communication with Bonnis, Epix's understanding was that rezoning had been enacted, a factor that was appealing to Epix because it meant that development work could begin as soon as they received a development permit or prior-to letter from the City that in effect serves as development permit approval. However, rezoning had only been approved, not enacted. Usually, rezoning approval is conditional and applicants must then meet certain requirements to trigger enactment.
This was not discovered by DiMartile until the due diligence period. The two sides reconvened and Epix also raised concerns about an environmental soils condition requirement and a statutory right of way / setback requirement, two requirements for rezoning enactment.
The 2017 proposal (left) and 2019 proposal (right) for 796 Main Street in Vancouver.
By September, the two sides agreed to an amendment that made completion conditional on both rezoning enactment and the prior-to letter being received. The purchase price was not amended and the outside date was set at December 31, 2021, with an ultimate outside date of May 31, 2022.
Bonnis then began addressing the rezoning requirements, with Epix concerned about the potential costs of soil remediation due to the historic uses of the site. Epix was also concerned about the potential loss of sellable square footage because the design accounted for the City's setback requirement from the front of the curb rather than the back of the curb.
The outside date was extended to the end of January, then the end of February, and then the end of March, by which time frustration started to grow on both sides.
Collapse
"Epix's attempts to obtain updates about the status of the work Bonnis was undertaking continued into March 2022, but with little substantive response," said the judge presiding over the case. "On March 4, 2022, Bonnis advised it would not extend the Outside Date past May 31, 2022, stating it had worked hard and diligently to fulfill the conditions precedent, noting the issuance of the PT Letter and expressing confidence that there was no 'real risk' that the building could not be built as planned, and suggesting the City was to blame for the delays in obtaining the rezoning enactment. The clear implication was that Bonnis believed Epix should close without the rezoning having been enacted. On cross-examination, Kerry admitted this was Bonnis' position in March 2022."
After Bonnis indicated on March 22 that it was not open to any more changes to their agreement, Epix initiated a civil claim the next day for breach of contract and registered a certificate of pending litigation (CPL) on the land title (which freezes the title and usually means the property cannot be sold or mortgaged). That same day, Bonnis put the property back on the market, with Simon Lim, James Lang, and Jessica Hathaway of Colliers listing 796 Main Street for $23,800,000.
On April 29, Bonnis then filed a counterclaim and the two sides began litigation. However, by December, Bonnie indicated that it was close to securing rezoning enactment and asked Epix to temporarily lift the CPL so enactment could be completed. Epix did not agree and Bonnis made several more attempts to have the CPL lifted, setting a final deadline of January 3, 2023. Epix said it would lift the CPL and pursue claims for damages, Bonnis registered the necessary documents, secured rezoning enactment on January 31, then sold 796 Main Street to the Hogan's Alley Society in April 2023 for $21.75 million before reducing the price down to $20 million. The transaction closed on November 6, 2023.
The Ruling
In a nutshell, each side blamed the other for the transaction not completing and the dispute is over the deposit and damages.
Epix believes that Bonnis did not fulfil its contractual obligation to deliver the site with rezoning enacted, that Bonnis breached its obligation to act in good faith by not keeping Epix well-informed when Bonnis was working towards rezoning enactment. Epix argued that it was entitled to terminate the purchase and sale agreement on December 30 and thus their $1.1 million deposit should be returned and they should be awarded damages.
Bonnis disputes that it failed to fulfil its obligations, says that Epix was never ready and willing to complete the transaction as agreed (which DiMartiled admitted was true on March 23), that Epix improperly filed the CPL that hindered its ability to secure rezoning enactment, and committed "slander of title and abuse of process." Bonnis argued that it was Bonnis who terminated the contract, that Epix forfeited the deposit, and that Epix should pay the costs of Bonnis having to secure another purchaser.
Ultimately, the judge ruled in favour of Epix, ordering Bonnis to return the $1.1 million deposit and pay general damages for breach of contract in the amount of $190,572.86.
"In the present case, Bonnis took the position in the litigation that the Agreements were void and unenforceable, and remained silent for months about what, if any, steps it was taking towards completion, in breach of its contractual obligation to keep Epix informed and involved," said the judge. "Then without warning, on December 1, 2022, Bonnis suddenly re-engaged by announcing it was close to securing the rezoning enactment and requesting that Epix lift the CPL. Through December 2022, Bonnis suggested (indirectly at first, and then explicitly on December 27, 2022) that the Agreements were valid and enforceable and demanded Epix take steps on expedited timeframes. When Epix did not take those steps, Bonnis asserted a repudiatory breach."
"As Bonnis did not cure the continuing breach of its contractual obligations in December 2022, Epix was entitled to accept Bonnis’ repudiation and terminate the Agreements as it did on December 30, 2022," the judge added. "For the reasons expressed above, it is not fatal that Epix did not provide a specific reason for accepting the repudiation in its December 30, 2022 email. Epix has established through trial that reasons existed at that date that can support its acceptance of Bonnis’ repudiation. Accordingly, I find Epix validly terminated the Agreements as of December 30, 2022."
