Builder tacked on $30,533 in cost increases. Case shows importance of reviewing clauses in proposed purchase agreements, writes Bob Aaron.

An itemized list provided to the buyers detailed higher charges for subfloors, masonry, rooftop deck, parapet and lumber.

Sayers Lane in Richmond Hill, Ont., is the location of a new development of stacked townhouses built by Dormer Bond Inc., an affiliate of Rivermill Homes. Last month, a young couple — I will call them Barbie and Ken — were about to move into their new home, when they got the surprise of their lives.

In addition to the underlying purchase price of $742,490, the builder tacked on an additional $30,533, due to what it claimed were cost increases resulting from the use of alternative materials and the unavailability of supplies. An itemized list provided to the buyers detailed higher charges for subfloors, masonry, rooftop deck, parapet and lumber.

None of these items was listed as an unlimited, but permitted, extra charge in the Tarion schedule to the original agreement of purchase and sale. At the time the buyers took possession of the unit last November, they signed an unusual and ambiguous occupancy agreement acknowledging that substituted materials were used due to supply shortages. It added that cost differences would be included in the statement of adjustments on final closing.

Stephen Shub acted for Barbie and Ken on the closing of the purchase. He pointed out to the builder’s lawyers the contents of a published advisory from the Home Construction Regulatory Authority (HCRA) concerning price escalations. The advisory, which was issued last August, states that builders should communicate about price adjustments with purchasers in a clear and timely manner. At minimum, purchasers have to be provided with a summary of how the extra charges were calculated.

If a builder does not abide by the sale agreement or drafts it in a way which is potentially misleading, the HCRA may consider whether there has been professional misconduct and/or whether the builder has the necessary competence to possess a licence.

In addition to pointing out the HCRA advisory, Shub also referred the builder’s lawyers to the Dhaliwal case which I wrote about in July. The Superior Court in that decision tossed out Midland Homes’ claim for extra charges of $152,000 on a new house in Thorold, Ont.

Faced with Shub’s position on the extra charges, the builder relented on the $30,533 extras. It also backed down on minor additional charges of about $3,500, but insisted on a non-disclosure agreement which would have prevented Shub and his clients from publicly discussing the settlement.

On the day of closing, Shub delivered funds to the seller’s lawyer, without the claimed extras and without the non-disclosure agreement.

Fortunately for Barbie and Ken, the deal closed and they are now in their new home.

The lawyers for the builder did not respond to a request for comment before press time.

The lesson for buyers of pre-construction homes and condominiums is to have their lawyers carefully review the clauses in proposed purchase agreements allowing builders free rein to add increased charges to the purchase price.

And on closing, buyers must be wary of extra charges and whether they are specifically permitted in the agreements of purchase and sale.

Fortunately, most builders do not attempt to add unjustified charges at the last minute.