Tarion and delayed closings: Covid-19 and the impact on your new build construction home

With construction work being deemed an "essential service" by the Ontario government earlier this week, many construction projects are continuing to go ahead, though it is not clear for how long as the government's decision is being highly criticized.

Although the impact of the pandemic is not yet fully known, if you purchased a new build home which is yet to be constructed, it is quite possible that there may be a delay in the closing date.

Some builders may decide to halt construction in the midst of Covid-19 concerns and even if a particular builder has decided to proceed with construction, there may be shortages in certain trades and materials, or unavailability of government permits. Some municipalities are not accepting building permit applications at this time and have limited onsite building inspections, which are required in order for interim occupancy permits to be issued on new build construction properties in order for purchases to take possession of the home. Most lenders require that the lawyer acting on the purchase obtain a copy of such a permit prior to mortgage funds being disbursed.

Covid-19 concerns may also impact how Pre-Delivery Inspections ("PDI") are conducted prior to closing. The PDI is important because it serves as an official record of the condition of the home before the purchaser takes possession and is referred to afterwards with respect to any work that remains outstanding, as well as for warranty purposes. It is around the time of the PDI that the Tarion Certificate of Completion and Possession is issued, which lenders also required as a precondition to advancing mortgage funds on closing.

Pursuant to the Tarion Addendum which is attached as a schedule to the Agreement of Purchase and Sale, builders have a right to delay closing if there is an "unavoidable delay". The definition of "Unavoidable Delay" includes pandemics. It is also important to note that if the closing date is pushed back as a result of an "unavoidable delay", the builder is also not required to pay Delayed Closing Compensation to the purchaser.

We have had clients who have already been advised by builders that although the impact of the pandemic is not yet known, they should be prepared that their closing date may be extended.

In order for a builder to be able to delay your closing date, they are required to send out two written notices to the purchaser. The first notice must set out a brief description of the reason for the delay and an estimate of the duration of the total delay if practicable. Once the pandemic is over, the builder will look at the facts and consider whether there is any additional delay due to the pandemic that is beyond the builder's reasonable control affecting the property (such as a backlog in availability of trades). The builder may need some time to assess what the period of unavoidable delay will be. The builder will then send out a second notice setting out a brief description of the unavoidable delay, the end date of the unavoidable delay period (which includes the number of days of the direct impact of the pandemic itself plus the period of additional delay resulting from the pandemic), and the new critical dates. The critical dates listed in your Tarion Addendum can only be extended by the period of the unavoidable delay, but it is important to note that if your property is affected by the pandemic and the builder follows the rules set out in the Addendum, the builder has a unilateral right to extend the critical dates without having to consult with you. This, however, only applies to the current and future critical dates and does not give the builder the right to go back and change previous dates, such as the First Tentative Closing Date.

More information can be found on Tarion's website at https://www.tarion.com/news/64045/tarions-response-covid-19

Werhun Law is a law firm located in Etobicoke serving the Greater Toronto Area. Werhun Law provides services primarily in residential and commercial real estate, mortgages, commercial leasing, and wills and estates. If you have any questions or are in need of legal services you can contact us at info@werhunlaw.com.

The information in this post is for general informational purposes only. It does not constitute legal advice and does not create a solicitor-client relationship.

Parents co-signing on a mortgage with children

With the cost of housing soaring, young home buyers are finding it increasingly difficult to qualify for a mortgage and lenders are more commonly requiring that parents co-sign on the mortgage. It used to be that parents were simply required to guarantee the mortgage, but this option is now rarely available. Lenders instead are opting to have parents go on the mortgage as co-borrowers with the children.

By co-signing on the mortgage, the parents are required to go on title to the property along with the children, which has a number of implications for both the children and the parents. Often times, people who enter into this arrangement do not fully comprehend the ramifications.

With the parents going on title along with the children, this affects the amount of the land transfer tax rebate that the children would otherwise be entitled to if the children are first time homebuyers. There are also estate implications that need to be considered, as it is usually not the true intention of the parties that the parents or their estate have an interest in the property. Further, the parents can face tax implications when the property is ultimately sold if the property is not their principal residence. As a co-owner, the parents are also exposed to potential liability with respect to the property.

In order to deal with these issues, it may be advisable to have a Declaration of Trust signed prior to closing setting out that the sole reason that the parents are going on title is to assist with financing and that they are holding their interest in trust for the children. By holding the property in trust for the children, the parents are subsequently able to transfer their share back to the children, the true beneficial owners, without land transfer tax being payable when the mortgage is up for renewal if the children at that point qualify for financing on their own. In my experience, most lenders are willing to accept the trust declaration, so long as all parties remain jointly and severally responsible under the mortgage.

It is also recommended that all parties have their wills updated to address their interest in the jointly owned property.

If you are a parent or child in this situation, you should be consulting with legal advisors to ensure that your respective interests are adequately protected and that the transaction is structured in such a way that your true intentions are reflected.

Werhun Law is a law firm located in Etobicoke serving the Greater Toronto Area. Werhun Law provides services primarily in residential and commercial real estate, mortgages, commercial leasing, and wills and estates. If you have any questions or are in need of legal services you can contact us at info@werhunlaw.com.

The information in this post is for general informational purposes only. It does not constitute legal advice and does not create a solicitor-client relationship.

Tenants in Common, Real Estate & Marriage

Many couples who purchase property together before getting married, take title as "tenants in common", meaning that there is no right of survivorship and should one of the parties pass away, their interest in the property passes through their estate.

On the contrary, when married couples purchase a property, they typically take title as "joint tenants", meaning that they have an undivided interest in the property and because there is a right of survivorship, the deceased spouse's interest automatically passes to the surviving spouse, outside of the estate without estate taxes (probate fees) being payable on that share.

If you and your spouse took title as tenants in common but subsequently got married and had children, this has ramifications on how the estate of the deceased spouse is administered and your children, not just your spouse, may also ultimately have an interest in the property.

If you are unsure of the manner in which you hold title to your property, you should review your Deed and ensure that your intentions are appropriately reflected.

Werhun Law is a law firm located in Etobicoke serving the Greater Toronto Area. Werhun Law provides services primarily in residential and commercial real estate, mortgages, commercial leasing, and wills and estates. If you have any questions or are in need of legal services you can contact us at info@werhunlaw.com.

The information in this post is for general informational purposes only. It does not constitute legal advice and does not create a solicitor-client relationship.