By: Jayson Schwarz
As the Purchaser of a brand new home pre-construction you have the opportunity in most cases to choose the elevation, the lot and the various specifications and finishes You expect that what you have chosen will be what you will receive on closing.
Now imagine that your new home has just been built and you have just completed your pre-delivery inspection with the builder’s agent and you have noticed that the builder has – without any advance notice to you – made numerous changes to the finishings, colours and/or layout of the home. This is clearly not what you bargained for. What do you do? What can you do?
The first reaction is to threaten to not close. Bad decision. Be advised that most builders’ agreements contain a clause that limits or restricts the remedies available to the Purchaser in the event of a breach of the agreement by the builder. Many such clauses also permit the builder to substitute materials, and to make various changes to the plans and specifications relating to the subject property. From the point of view of builders, such clauses are necessary to offer them some degree of flexibility to deal with unforeseen circumstances that often arise in the course of new home construction or with the requirements of the Municipality.
Without getting into a long commentary on the law of contract rescission – which is extensive to say the least – the courts have generally held that where a builder has breached a fundamental term of the contract, he cannot hide behind the his exclusionary clauses. While what constitutes a “fundamental term” is often figured out by a judge, suffice it to say that the test is very tough and Purchasers seeking to get out of their builders’ agreements on breach of contract grounds (called “Rescission”) often end up with the short end of the stick.
With that said, here are a few of the factors to examine in determining when rescission will likely be granted by the courts:
- Motivation: Courts are generally unlikely to grant Purchasers Rescission for a construction deficiency or modification in circumstances where they believe that the true factor motivating the Purchaser is something else (like lack of money, change of mind, etc.).
- Builder’s Prior Knowledge: Courts are more likely to grant Purchasers Rescission, where they can demonstrate that the possibility that the unwanted modification would be necessary was known to the builder at the time the agreement was signed and was not adequately brought to the Purchaser’s attention at that time.
- Rectifiable Deficiencies: Courts are less likely to grant a rescission as a result of incomplete construction, or as a result of deficiencies that can be remedied without seriously inconveniencing the Purchaser. This is especially the case where the builder has obtained an occupancy permit from the local municipality.
If you do not close and a court determines that rescission is not available, not only will you lose your deposit, you will also be found responsible for all of the builder’s consequential damages and legal costs. This is an especially significant issue where the value of the home is declining. All in all, prospective Purchasers of new homes should be aware of the fact that rescission is generally not granted.
Remember that when the Builder does not do what he promises Tarion can be your best friend. Go to www.tarion.com to see the protections under the Ontario New Home Warranties Plan Act. This is the best protection for new home buyers in Ontario.
Jayson Schwarz is a Toronto Real Estate Lawyer.