Despite constant advice from
lawyers, real estate agents and the Greater Toronto Home Builders'
Association, a significant number of new home and condominium buyers never
get their agreements of purchase and sale reviewed by a lawyer before they
become firm and binding.
Those who don't have the complicated document vetted in advance usually go
into the transaction blindly unaware of the complexities of the deal. As
well, they expose themselves to the small print in the offers, which often
brings some very unpleasant surprises on closing day.
Unfortunately for homebuyers, the standard form purchase agreements of many,
but not all, builders have new traps and legal land mines that impose
significant and unexpected costs and risks on buyers. These increasingly
sophisticated agreements continue to eat away at the protections that buyers
of new homes have every right to expect.
Based on communications with my legal colleagues, I'm not the only real
estate lawyer who feels this way. Recently, I received a letter from Pierre
Marchildon, who practises real estate law in the city's west end. Under the
heading "outrageous adjustment by builder," Marchildon wrote to complain
about an agreement of purchase and sale used by a home builder in
Buried in the middle of a solid block of tiny type explaining the protection
of the Ontario New Home Warranty is the standard requirement for the
purchaser to meet with a builder representative just before closing to
complete the usual pre-delivery inspection. Then comes this zinger: "On
closing, the purchaser shall pay a pre-delivery inspection fee of $225."
Marchildon was incensed when he saw this clause. "It is offensive to me," he
wrote, "that a charge of this nature should be foisted upon a purchaser for
completing a document which the vendor has a statutory obligation to
"Put another way," he added, "the purchaser is paying to list the vendor's
building deficiencies outstanding at the time of closing on a new house
Marchildon's clients were not warned about this or the other extras in the
agreement in the sales office.
As offensive as this extra is, it's just the tip of the iceberg when it
comes to hidden costs in builder offers. In general, I have no objection to
builders recovering their costs and profits from homebuyers. The issue is
one of disclosure and honesty in the sales offices. Based on my discussions
with many other real estate lawyers, it's obvious that in most cases, the
extras are simply never explained or set out separately and clearly so that
buyers will know the full cost of the home or condo before they leave the
In my experience, some of the common extras that are almost never clarified
in the sales offices are:
The premium the builder pays for the Ontario New Home Warranty
A $25 charge for negotiating each deposit cheque.
$267.50 in builder's legal fees for negotiating any changes to the
The legal fees involved with holding the buyer's deposit in trust
prior to closing.
The builder's legal fees to pay off and discharge any construction
The cost of excess deposit insurance where the deposit exceeds
New taxes or levies imposed by any level of government.
Increases in existing levies or development charges imposed after
the offer is signed.
All or part of any municipal development charges or levies.
Meters and connection charges for gas, hydro and water.
Provincial sales tax on included appliances.
Sewer "impost charges" (taxes to fund the city's sewer system).
Several petty charges, like the $25 cost of carbon monoxide detectors and
the Law Society's $53.50 transaction levy.
Although not every offer contains all of these extras, even some of them
could amount to thousands of dollars, and yet they are buried in tiny type
and often scattered throughout the document.
But extra costs are just the beginning of the traps for the unwary.
Purchasers should be aware that typical builder offers contain either
dangerous clauses or gaping loopholes exposing them to some or all of the
Any verbal promises or representations made in the sales office are
not part of the offer.
The builder has the absolute right to change the floor plans and
the exterior look of the house without the buyer's permission.
Any representation of square footage is usually based on exterior
measurements, not room sizes.
Square footage may be changed without any recourse by the buyer.
Purchasers cannot obtain copies of architect drawings; the tiny
sketches attached to the offers are subject to change.
Furnaces are not included in many new homes; some builders require
purchasers to lease them.
Home purchasers are usually unable to obtain builder assurances
that hydro transformer vaults will not be placed on their front lawns.
There is no guarantee on views or sightlines (this one is contained
in the offers in a downtown Toronto high-rise condo marketed largely on
promises of location and view).
A ppliances may be supplied but not connected one builder just
dumps them in the garage.
One of the most offensive of all clauses is the omission of any
unconditional builder obligation to provide clear title to purchasers by
discharging the construction financing after closing.
A common weasel clause only requires builder lawyers to promise to register
discharges of construction financing after closing when they receive the
discharges. If they never receive the discharges or something goes awry
along the way, the builder and their lawyers are off the hook.
To me, the second most offensive clause is a very common one in new home
offers. It is usually found on the extras sheet, which is marked as a
"request" for extras and upgrades, but does not obligate the builder in any
way to build or install the extras. If the extras are included in the
purchase price at no charge and the builder omits them when the house is
complete, there is no recourse and no refund.
Here are four recommendations on how to survive the battle of the sales
Ask the sales staff to write down and sign any promises or
representations they make to you.
Ask for an itemized, written list of extra costs. Walk out if you
can't get it.
Ensure that the extras and upgrades are unconditionally included,
not merely requested.
Make sure, in writing, that the appliances will be installed.
And during the conditional period, always, always, always have your lawyer
review the agreement of purchase and sale line by line and give you a
written memo of the red flags it contains. This is the best way to avoid
nasty surprises on closing day.
Bob Aaron is a leading Toronto real
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