The New Home Offer – Eyes Wide Shut?

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You are reading the newspaper on a fine Saturday morning and, having spent your time indoors the previous Saturday, you are ready for something different. Your partner, who is absorbed by the new homes section of the paper suddenly exclaims, "Hon, it is sunny and we have a few hours today; let’s go visit a few new home sites." To please your partner, you go ahead with the plan. Off you both go, and that same afternoon, you are both enamoured with the model home in a beautiful sprouting subdivision in the "burbs".

The builder’s representative attempts to review the Agreement of Purchase and Sale with you but all you really care about is the price while your partner is deep in thought regarding the various finishing touches and material options. After all, what is there to worry about? Sure, it’s a dozen long pages or so of fine print, but it is all standard isn’t it? Besides, what does one have a lawyer for?

Purchasing a new home from a builder can be a beautiful and rewarding experience. However, one cannot proceed with blinders on. You must be aware of some fundamental matters found in most Agreements of Purchase and Sale for new homes. You will then be in a better position to decide whether to purchase from a builder or consider a re-sale home.

The Ontario New Home Warranty Program requires that every Agreement of Purchase and Sale for the purchase of a new home include an addendum disclosing certain matters that may be contained in the builder’s Agreement of Purchase and Sale. These matters affect, and may ultimately be detrimental to, your rights as Purchaser of a new home. Some of these matters are discussed below.

The Agreement of Purchase and Sale may provide that the builder has a right to terminate the Agreement if, in his sole and unfettered discretion, he is not satisfied with the economic feasibility of the project by a certain fixed future date. Accordingly, make the necessary inquiries or look for such a clause in the Agreement. If there is such a provision, ask whether the builder has made its determination regarding the feasibility of the project. If it has, the provision entitling the builder to terminate in the future should be deleted. If such a determination has not yet been made by the builder, you must assess your willingness to proceed in view of this uncertainty.

This same assessment must be made with respect to the builder’s right to extend. The Ontario New Home Warranty allow a builder to extend the closing date of the transaction, as may be required. Regardless of what the Agreement may provide in terms of extension rights, the Ontario New Home Warranty Program limits these rights to extend to not exceed 120 days, unless the Purchaser agrees in writing to further extensions. Consider carefully the full impact of such extensions to your situation. The stage of completion of the subdivision may be a better measure to guide you than are the dates specified in the Agreement.

Another caution given by the New Home Warranty disclosure provisions is the builder’s right to alter plans and specifications or to substitute materials. Some Agreements allow for these alterations and substitutions without notice to the Purchaser. Although most Agreements do provide that any substitution of materials be done with materials of equal or better quality, quality is a subjective determination. It is best to ensure that the Agreement provides limitations on the builder’s right to alter plans or make substitutions.

One should also be aware that the purchase price is subject to increase for realty tax adjustment and other charges, set out in fine print.

This discussion has not been made to dissuade you from considering the purchase of a new home, only to bring to your attention the importance of carefully reviewing the Agreement, or having it reviewed by your lawyer, prior to executing it. In fact, the Agreement should provide for a review period following signing, with the opportunity to change your mind within that review period.

The purchase of a new home can be a wonderful and exciting experience. With the proper understanding of the issues raised in the Agreement of Purchase and Sale, one can embark upon the experience with confidence. Do so with your eyes wide open.