I’m curious if it was rented or actively operating as a B&B since its purchase two years ago.

Wendy did an excellent interview. I suppose at times, private groups just want to get folks out of their hair. There is certainly a possibility that despite $300,000 in upgrades by previous owners, there were remaining or undetected issues. In fact, the Post article stated that there were supposedly structural issues as a result of some of the prior renovations. Buying it for half a million without intensive home inspection would have been a major mistake. Any known, but undisclosed issues by the prior owners (i.e. the most recent sale) can be grounds for a lawsuit. Here's the part that stands out the most. Why spend $500,000 on a home to tear it down? There are much cheaper homes in the neighbourhood that could be purchased and demolished for far less, including on Park St itself. My only hypothesis is something related to the funding that will be forthcoming for the Cedar House project (and/or where the initial funding came from) that makes the wasted money irrelevant to the purchasers. TBD.

Keep in mind that building codes vary based on the type of use. So while the building may have been up to code as a residence or B&B, changing its use to something else, particularly health or government-related, increases the requirements significantly. I suspect that's where the problem is. But as Joe W has pointed out, anyone spending $500,000 on a property for a particular future use might be expected to already know this before buying the property — unless perhaps it was poor planning or their expected use for the building changed after purchase.