When owners of a downtown Toronto condo went searching for a foul smell wafting through their building, they inadvertently uncovered something much more mysterious — a dark, dirt tunnel burrowed beneath their homes.

The bizarre discovery, made about a decade ago, has set off a chain of events, including a multi-million-dollar lawsuit that continues to play out today.

Residents of Century Lofts on 365 Dundas St. E. moved into the two-storey building in the early 2000s after a developer refurbished the former factory, creating 41 condo units. The building has been there since 1940, when it was filled with factory workers manufacturing surgical supplies, then later, lenses for Imperial Optical.

According to the allegations, about four years after moving in, the residents began noticing a foul odour emanating from somewhere in the building. The smell got worse, and the condo board hired contractors to find the source of the stench.

CBC news has learned that condo owners are suing, after finding out there is a 20 metre tunnel under their Dundas Street building. (CBC)

Tunnel located behind a wall

Eventually the contractors traced the smell to the condo's basement — a relatively small, unused space accessible only by an exterior door at the rear of the building. When they peeled back a section of the basement wall, they found what condo owners describe in court documents as "the tunnel."

CBC News has learned that "the tunnel" is about two metres high and about 20 metres long. It had been dug through the earth underneath the north-eastern portion of the building.

In their original statement of claim, condo owners said it continued farther north past their building and right underneath Dundas Street. That claim has never been supported.

No one is sure who built the tunnel under their building, or why.

Condo residents in this building are seeking up to $3 million in damages, after finding a mysterious tunnel underneath their building. (John Lancaster/CBC)

Condo owners want $3 million in damages

The condo owners allege they were not told about the tunnel's existence, nor was it marked on maintenance diagrams. They're now suing the developer — Century Lofts Inc. — Enbridge Gas, the architect, two engineers and the city for up to $3 million in damages.

The owners claim an engineer they hired believes the tunnel has compromised the structural integrity of their homes. In the meantime, they've spent $100,000 installing lally posts—steel columns — in the tunnel to help support the structure.

The allegations in the lawsuit have not been proven in court.

Lawyer Paul Dineen, who represents Century Lofts Inc., says the tunnel is more like a "dug-out space," and says it was already there when the developer purchased the property. Part of it, he says, was used as a "service corridor" to run hydro, water and electrical lines for the condos.

Dineen told CBC News that city building officials inspected the structure during construction and everything "was clear."

"The city allows people to live there. And has not put out any work orders against the place because they don't conceive there to be a problem," Dineen said.

The lawsuit has created other types of problems for the condo owners, yet none of the owners, their condo board, their lawyer or a real estate agent currently selling a unit in the building would talk on the record when approached by CBC News.

Court documents show the steel doors the owners installed at the entrance to the tunnel, after the discovery was made. (CBC )

Lawsuit could deter buyers, real estate agent says

Linda Pinizzotto, who has been a real estate agent for 35 years and is now president of the Condo Owners' Association of Ontario, said the lawsuit could potentially deter buyers and lower property values.

"There are only 41 units, so the lawsuit costs have to be spread out across all 41 owners," she said.

"They either pay extra for it [the lawsuit] as a special assessment or they take it from a contingency fund if they have one."

Pinizzotto said that "unless someone really, really wants that location or unit, it might deter a buyer."

She also said buyers may have to negotiate with sellers to cover any future legal costs, especially if the lawsuit fails and condo owners are forced to pay the legal bills for the all parties they tried to sue.

The condo owners have now sealed the tunnel entrance with large steel doors. The case is set to go to trial in January 2018.

The city has declined to comment on the situation.