KPA Lawyers - June 11, 2020
The residential development industry is strong in Ontario providing $34 billion in investment value and employing over 270,000 people across the province. As Ontario’s population grows over the next decade, more and more new build development projects are going to be completed in an effort to meet the province’s housing needs.
With that in mind, it is very likely that you may find yourself buying a new build. Maybe you like the fact that you can select certain finishes or that you will be the first homeowners to live in the property. Maybe you see it as an investment opportunity. Regardless of your reasons, it is important to understand that purchasing a new build as opposed to a resale property will come with a number of additional obligations that are unique to the new build purchase.
In Ontario particularly, new home Agreements of Purchase and Sale include a Warranty by the Tarion Warranty Corporation (“TARION”), which regulates and enforces the Ontario New Home Warranties Plan Act (“ONHWPA” or “Act”). All new homes, with the exception of a few, fall within the purview of TARION.
The following are a list of items that are unique to new build purchases:
- New Build Agreement of Purchase and Sale (“APS”);
- TARION Addendum to the APS;
- Firm versus Tentative Closing/Occupancy Dates and extensions of same;
- Adjustments charged to Purchasers on Closing;
- Assignment of the APS; and
- Availability of the TARION Warranty.
The New Build Agreement
Unlike the Standard OREA form used in resale agreements, new build agreements of purchase and sale are far more descriptive and unique to the developer. In addition to the APS, there will also be a TARION Addendum added to the agreement containing a statement of critical dates, conditions, rights and obligations, occupancy and termination clauses, early termination conditions and a list of every closing adjustment the vendor proposes to charge. It is important that you have your lawyer review the APS, TARION addendum and any condominium documents, if applicable, either prior to signing or within the rescission period provided for in the APS. Most new build agreements allow buyers 10 days to have their lawyer review the agreement and any ancillary documents but know that some APS’s do also shift that time frame to three (3) or five (5) days. There are a number of clauses and conditions in a new build agreement that can be removed, capped or simply negotiated to suit your needs. Furthermore, many Purchasers are not aware of the restrictions that some new build developments place on Purchasers when it comes to the use of the home after closing like fence height limitations, use of satellite dishes, exterior renovations and aesthetics. to name a few.
TARION Addendum to the APS
In any new build agreement subject to TARION, there will be a TARION Addendum. This usually consists of a Statement of Critical Dates, a section outlining the terms of the agreement and two schedules. The first schedule, Schedule “A,” lists types of permitted early termination conditions while the second schedule, Schedule “B,” identifies all the closing adjustments that the Vender proposes to charge the Purchaser.
i) STATEMENT OF CRITICAL DATES
Many questions resulting from new build agreements concern the TARION Statement of Critical Dates. Depending on whether there is a Firm Closing Date or Tentative Closing Date, the Vendor will have an opportunity to extend the closing multiple times. In a Firm Closing Agreement, the Vendor must close within 365 days of the Firm Closing Date. A Firm Closing Date is accordingly not exactly “Firm.”
In Condominium purchases, you will also often see an “Interim Occupancy Date” that can also be tentative or firm. This is different to the Closing Date because it is quite common that condominium units are ready for occupancy long before the Vendor is able to transfer ownership. In that instance, the Purchaser will pay Occupancy Rent up until the Closing Date. If the dates are tentative, the date that a Purchaser can take interim occupancy can be extended multiple times by a Vendor without paying any compensation to the Purchaser provided the notice provisions are met by the Vendor. The only cap on these extensions is the Outside Occupancy Date provided in the Statement. If extensions go beyond that date, the Purchaser will have 30 days from that date to decide whether they wish to terminate the APS.
If you are signing an New Build Agreement, ensure that the dates in the Statement of Critical Dates are completed. They must not be floating dates or left blank. If there is a delayed closing date, there is compensation available to you under the TARION Warranty. It is $150 per day up to a maximum of $7,500.00. This only comes into effect if closing occurs on a date after a firm closing date or occupancy occurs on a date after the firm occupancy date. Should you exercise your right to terminate the agreement due to delay as permitted by the Addendum provided to you with the APS, you may also be entitled to this compensation plus a full refund of all monies paid (i.e. deposits, extras and upgrades) plus interest.
More information can be found on the Statement of Critical Dates here.
ii) SCHEDULE “B” – ADJUSTMENTS
Unlike a resale purchase where the adjustments are typically comprised of property taxes and common expenses, if applicable, new build agreements involve adjustments for a multitude of items that very often take purchasers by surprise at how expensive they can be. A non-exhaustive list of such adjustments can look like the following:
- Cost of water, hydro and gas meters and fees associated with installation and connection of such utilities;
- TARION enrollment fees;
- Estimated annual property taxes and a deposit on account of future taxes;
- Proportionate share of increases imposed by the municipality before closing as development charges, education development charges, and park and various other government levies;
- Proportionate share of any costs arising from an agreement between the builder and municipality concerning s. 37 of The Planning Act;
- Deposits to cover potential damages or alterations occasioned to any subdivision services, municipal installations, grading and/or drainage patterns caused by the buyer or those whom the buyer is responsible for;
- Fee for builder’s lawyer to register partial discharges of construction financing mortgages of the builder; and
- Disbursements incurred by the builder’s lawyer for discharging existing vendor mortgages and the Law Society of Ontario real estate insurance levy.
The adjustments that may be charged to a Purchaser must be disclosed to the Purchaser in Schedule “B” of the TARION Addendum to the APS at time of signing. Anything that is not listed cannot be adjusted for.
These adjustments, if not capped or removed, can end up costing Purchasers tens of thousands of dollars. Your lawyer will be instrumental in reducing and/or capping these adjustments to help you satisfy your payment obligations under an APS.
Assignment of New Build Agreement of Purchase and Sale
It is common for Vendors to not allow the assignment or resale of the APS in new build purchases before the closing date because they typically want to restrict any competition when selling a large stock of inventory. Sometimes an agreement will allow the assignment or resale of the property, but there may be a fee that is required to be paid to the vendor in order to consent to the assignment or resale.
If it is your intention or you want to have the option to assign or resell the property, you will need to instruct your lawyer to negotiate to allow you to assign or resell the new build property with no fee or, at least, at a reduced amount. Giving yourself the option to assign a new build agreement is particularly important if you have an outside closing date of two (2) or more years because your financial situation may change in that period. Giving yourself the option to assign could save you from breaching the agreement, forfeiting your deposits and being liable for damages.
Availability of the TARION Warranty
As mentioned above, TARION regulates and enforces the Ontario New Home Warranties Plan Act. The TARION Warranty is only available to purchasers who buy from registered builders and homes enrolled in TARION.
In order to obtain warranty service after closing, the Purchaser must complete:
- A confirmation of receipt of homeowner information package;
- A Pre-Delivery Inspection (“PDI”); and
- At or immediately after the PDI, complete and sign a Certificate of Completion and Possession (“CCP”) together with the Vendor or the Vendor’s representative.
The PDI is a formal record of the new home’s condition before the Purchaser moved in and is used by TARION as a reference point for any future warranty claims. The CCP states the Purchaser’s home’s enrollment number and the occupancy date, which functions as the start date of the Purchaser’s home’s warranty.
If any defect is noted in the PDI and not completed within 30 days of the Purchaser’s possession of the new home, they should include these items in the 30-Day Form, as well as any new items that have been discovered since taking possession. TARION is incredibly strict with its deadlines for forms. Accordingly, you are best served preparing and submitting your 30 Day Form on the 25th day of possession.
The next submission deadline for TARION is the one-year anniversary of the day the Purchaser took possession of the new build. The Year End Form has a strict deadline and is submitted to account for any outstanding warranty items.
The Second Year Form pertains to any outstanding warranty items covered by the two year warranty as well as any major structural defects that occur during the second year of possession. Second Year forms can be submitted to TARION anytime before the second year anniversary of possession and multiple times, if needed.
At any point during the third year of possession up to seven years from the date of possession, the Purchaser can submit a Major Structural Defect Form to TARION for, you guessed it, any major structural defects identified here.
Buying a home can be exciting and daunting! If you are thinking of buying a new build as opposed to a resale property make sure to have your real estate lawyer review the agreement within the required time frame. Each New Build Agreement of Purchase and Sale is different, so your lawyer can help break it down and fully explain what you are buying to you.
This article is intended to be information and does not constitute legal advice. Every situation is different. KPA Lawyers is open and has suspended consultation fees in an effort to maintain public access to legal information during this difficult time. If you need a real estate lawyer to review your New Build Agreement or have additional questions, give us a call at 905-965-626.