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 firstname.lastname@example.org.
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.