February 10, 2007

Buyers protected – Court backs purchasers in delayed closings

It happens with great regularity. A client calls and tells me that his or her builder is running behind schedule with the house or condominium, and has requested that an agreement be signed to extend the closing date.

I explain that if the extension is signed, the clock starts running all over again as if the extended date is the original proposed closing date. As well, I point out that an amendment to change the closing date may amount to a waiver of the right to compensation, which the Tarion warranty program mandates for consumers.

Invariably, the client refuses to sign the extension agreement.

This same scenario was the subject of a court case last year involving a purchaser named Keith Markey, and the builder 1353464 Ontario Inc., which is owned by Intracorp Developments and Dundee Realty.

Back in 2001, Markey signed an agreement to buy a condominium unit in the Pantages Tower in downtown Toronto. It provided for a tentative closing date of Nov. 30, 2002.

The builder later sent letters to Markey extending the closing date to Jan. 14, 2003, March 4, 2003, April 30, 2003, May 21, 2003, and then July 22, 2003. At least one of these notices was not given within the time limits required under the Tarion rules, and the buyer was entitled to make a compensation claim as a result of the short notice.

On Aug. 1, 2003, the parties signed an agreement extending the closing date to Aug. 5, 2003. At that time, no discussion took place about the purchaser’s entitlement to compensation at the rate of up to $100 per day, and the issue was not mentioned in the extension agreement.

About a year after closing, Markey requested compensation of $4,920 for the delay. The builder turned down the request on the basis that the agreement amending the closing date constituted a waiver of the right to compensation.

The refusal of compensation was upheld by Tarion Warranty Corp. and Markey appealed to the Ontario Licence Appeal Tribunal. At the hearing, the builder’s representative testified that she knew by signing the amending agreement, the buyer was waiving his right to compensation, but she did not recall whether she discussed this with him at the time of signing.

Markey testified that he did not know that by signing the amendment of the closing date, he was releasing his right to almost $5,000 in compensation.

The Licence Appeal Tribunal released its decision in June, 2005. Vice-chair Alan Garbe ruled that the act of signing an amendment for the extension of an occupancy date should not automatically be treated as a waiver of a claim for delay.

This, he wrote, would allow a builder to ignore the requirements for the giving of notice under the Tarion regulation if the builder could get the purchaser to sign an amendment extending the closing date. In those circumstances, the builder would not even have to raise the issue of compensation with the purchaser.

“This approach,” ruled Garbe, “would be contrary to the intent of the act, which is for the protection of consumers.”

Garbe ruled that the buyer had a legitimate compensation claim, but ordered it reduced from $4,920 to $3,710.

Neither Markey nor the builder appealed the tribunal’s order, but the warranty program itself launched an appeal for the purpose of denying Markey his compensation. In response, Markey cross-appealed to raise the compensation back up to the full $4,920.

Last July, the Tarion appeal was heard by a three-judge panel of the Divisional Court. Not only did the court rule that the tribunal was correct, but it gave Markey his full compensation of $4,920 plus costs of $8,700.

The Divisional Court has now made it clear that where a builder has given short notice of delayed closing to a purchaser, and the purchaser is entitled to compensation as a result, “it should be incumbent on the builder to obtain an acknowledgment in writing from the purchaser when signing an amendment for the extension of an occupancy date that it is understood the purchaser is waiving his or her right to compensation.”

Without a waiver, the buyer gets his money.

What I find particularly puzzling in this whole case is that Tarion took the position that Markey forfeited the right to compensation when he signed the extension agreement without full disclosure of his entitlement to the money.

If the vice-chair of the Licence Appeal Tribunal was correct that the mandate of Tarion is the protection of consumers, I would have expected Tarion to have supported Markey’s bid for compensation.

The law is now clear. If a builder of a new home or condominium wants to extend an occupancy or closing date by amending a purchase agreement, it must disclose and obtain a written waiver from the buyer to any delayed occupancy claims.

The Divisional Court has clearly pronounced that the law governing the Tarion program is “consumer protection legislation and should be given broad and liberal interpretation.”

This is good news for other consumers in the same boat as Markey. If the warranty period has not expired, consumers who have already closed but signed an amendment moving the closing date may still be able to apply for delayed closing compensation.

Bob Aaron is a Toronto real estate lawyer. He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.
Visit the Toronto Star column archives at https://www.aaron.ca/columns for articles on this and other topics or his main webpage at www.aaron.ca.