Oops we built two extra storeys

A builder broke the rules, what's the right remedy?

Dartmouth is home to one of the odder building stories I’ve seen. A developer, Zagras Nova Home Development Ltd., got a permit to build a 97-unit, 9-storey building, but has ended up building a 117-unit, 11-storey building. Jen Taplin at the Herald has done a great job detailing this mistake - which appears to have been due to the builder thinking the HAF reforms allowed extra floors — which it did — but ignoring that Halifax also applies extra design features on taller buildings, which the extra floors have triggered. Taplin notes the design rules are to mitigate wind and shadows. In my mind, it’s critical that these are not safety related, but rather the far more common aesthetic and neighbour-appeasing nonsense.

Because of that, the building is technically illegal. This week, council voted to order the developer to rip up those extra floors. That to me sounds wild.

Torts and re-torts

In my undergrad at St.FX, one of the elective courses offered was Law and Economics. The class highlighted that many legal disputes could be alleviated by some negotiation and a deal, and that’s especially true given extreme legal costs — both time and money.

As a starting point, the developer says deconstruction of the two storeys would cost $1,260,000 and take between 29 and 41 weeks. But there’s far more than that at stake.

First, the building is almost finished! We are in a housing crisis and the need every unit. Not just that - but deconstruction would delay occupation (and therefore rent collection) for the builder too. At 8 months, the lost time would cost $1,400,000 in rent on units that are fully legal.

Then, there’s the 20 lost units. They will be gone forever. At about $432,000 per year in potential rent, that’s a worth about $5.4 million over the next 20 years (with a discount rate of 5%).

This is all before the legal process truly starts. The matter is expected to go before the courts. Let’s say legal costs add up to $500k. It will also take time — months, years? A demolition permit could also be delayed. The not-so adept developer who got into this mess might botch the deconstruction. All this before occupation means the builder hasn’t been able to refinance, and is likely relying on costly construction financing, making them particularly financially vulnerable.

Obviously, council has its hands tied, and is naturally concerned about precedent-setting. But deconstruction is dumb. Compared the scenario where the building opens, there’s conservatively an $8 million dollar pot of (avoidable) costs and collectable rents at stake. For context, the building permit estimated the building to be a $21 million dollar investment (for the 9-storey vintage). Regardless, a huge chunk of the projects value will disappear if council gets its way. Far from setting a lax precedent for the next developer, this one should worry about getting out of this one without declaring bankruptcy.

Luckily or unluckily, there’s only one good way out here. The provincial government. Rather than add a few affordable units (as the developer proposed), the province could buy the whole building. Due to the magic of municipalities aren’t real, the province could then exempt itself from the design guidelines of HRM. Or call this single lot a new Special Planning Area. Or find some other legalistic out.

Basically, there’s an $8 million dollar incentive to make a deal here. The province can grab most of it, while making sure the developer also doesn’t “win” from their mistake (but gets to limp off quickly). Oh, and it’d literally be “More Housing, Faster”.