| 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 Mississauga.
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 provide.
"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 purchase."
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 sales office.
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 coverage.
A $25 charge for negotiating each deposit cheque.
$267.50 in builder's legal fees for negotiating any changes
to the offer.
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 financing.
The cost of excess deposit insurance where the deposit
exceeds $20,000.
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 following:
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).
Appliances 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 office:
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 Toronto real estate lawyer. Send questions
to Title Page, New in Homes, The Toronto Star, One Yonge St.,
Toronto M5E 1E6, by e-mail to
bob@aaron.ca, phone 416-364-9366, or fax 416-364-3818.
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