The Tarion Addendum in New Construction Purchases

Purchasing a newly constructed home is a different experience from purchasing a resale property. Agreements are often signed before construction has even begun, with closing dates set for years later. Further, the Agreement of Purchase and Sale contains additional terms as set out under the Ontario New Home Warranties Plan Act (the “Act”) that govern various aspects of the transaction, and unique obligations between the builder and the purchaser. A recent decision of the Ontario Court of Appeal had to consider whether the parties to such a contract were free to set terms outside of the framework established in the contract itself.

Repeated Extensions of the Closing

The parties entered into an Agreement of Purchase and Sale (APS) for the purchase of a new construction residential home in March 2016. As this was a new build, the APS included a Tarion Addendum (the “Addendum”), which governed the relations between the parties, as set out in the Act.

Under the Addendum, the parties set a firm closing date for the transaction of January 11, 2018. The builder was required under the APS to provide an occupancy permit to the purchaser in advance of the closing date, however, it was not provided until January 12, 2018, one day after the original firm closing date had passed. As it happens, the purchaser was also not in a position to close on January 11th as he had not yet secured funding. The lender required five days from the date of the appraisal to the date it would approve the loan. However, when the appraiser attended the property on January 8, the home was not yet completed.

The purchaser’s counsel notified the vendor’s counsel in writing on the firm closing date that the appraisal could not be completed and requested an extension of the closing date until the lender’s criteria could be met. The lawyers for both parties agreed to extend the closing to January 15th, however, this was not the prescribed method for changing the closing date as set out in the Addendum.

On January 15th, the vendor’s lawyer requested an additional extension by one more day to allow the lender to complete the appraisal. The vendor agreed to close no later than January 17th. On that day, the purchaser was still not in funds and could not close the transaction. The vendor refused to extend the closing any further and declared the purchaser in breach.

Applications Judge: Agreement to Extend Violated Tarion Addendum

The applications judge found that the primary issue was to determine whether the agreements made between the parties’ counsel to extend the closing date were permitted under the Addendum to the APS. She ultimately found that the parties did not have the freedom to set a closing outside the confines of the Addendum. She found that the builder/vendor had options to set a new closing date in accordance with the framework set out in the Addendum, and failed to do so. Had they adhered to this framework, the new closing date would have been set 90 days after the original date, on April 11, 2018. As a result, she found that the vendor’s termination of the APS was invalid. The vendor appealed.

Court of Appeal: Parties Retained Freedom to Set Date Outside of Addendum’s Terms

The Court of Appeal agreed that the Addendum prescribed a framework for extending the closing date and that the parties did not adhere to it. However, the court was unconvinced that this was fatal to the agreement that was created. The court found that the Addendum does not render any non-compliant amendments unenforceable. In fact, s. 4(a) of the Addendum stated that “any amendment not in accordance with this section is voidable at the option of the Purchaser”. As a result, the purchaser had the option to void the agreed-upon closing date in favour of the April 11th date, however, he did not do so. The court found that while the Addendum was convoluted and confusing, the parties’ respective counsel should have been familiar with the terms. Since the purchaser’s counsel did not advise the purchaser to enforce the 90-day extension at the time, they could not seek to enforce it retroactively.

This case demonstrates the importance of retaining a skilled and detail-oriented real estate lawyer. When it comes to real estate transactions, there is a lot of money on the line and it is crucial that the parties are fully aware of their rights and obligations under the contract.

The real estate lawyers at GLG LLP in Toronto assist clients with a full range of residential real estate services, including purchases and sales, financing and even litigation if necessary. The firm offers exceptional client service as well as a Bay St. experience with more reasonable rates. Call 416-272-7557 or complete the online form to arrange a consultation.