Pre-construction cancellation

Most pre-construction contracts assume some risks due to long building terms during which the real estate values can either rise or fall. In today’s over-heated real estate market, a few builders appear to be unwilling to proceed with deals at their initial contract prices. Some builders simply fold their developments with the return of deposits to purchasers. Others ask for additional funds anywhere from $100,000 extra on top of the purchase price to complete the transaction. If the buyers decline to pay more, they have an option of cancelling the Agreement of Purchase and Sale with the full deposit return.

This appears to be unacceptable and unfair for most buyers. The reason people buy into pre-construction is to take advantage of the appreciation in value while the project is being built. Purchasers expect builders to honour their contracts.

Not everyone can afford to top up the purchase price by as much as $100K, and therefore are forced to quit by cancelling their agreements and taking their deposits back. However, while you get your money back, you loose the appreciation on your investment and in some cases your dream home.

Pace Developments in Barrie and Richmond Hill is one of the latest developers to cancel their contracts unless the buyers agree to pay more.

Unfortunately buyers have little recourse against the builders, because builder contacts usually include clauses allowing them to cancel sales agreements, require more money and delay projects if there are “unavoidable” reasons, like a pandemic.

According to developers, the pandemic is to blame for negatively impacting their financing, as well as increased costs of materials and labour. However, purchasers feel that builders simply want to align their pricing with current market values at their expense.

Recently, the provincial government introduced new measures to regulate the building industry and protect buyers. On July 1st 2021 a new code of ethics for builders and their staff came into effect under the New Home Construction Licensing Act of 2017. The Home Construction Regulatory Authority (HCRA) was designated by the Government of Ontario effective February 1, 2021 as the regulatory authority for new home builders and vendors in the province. https://www.hcraontario.ca/about/our-role/

Buyers can get legal advice and file complaints with the HCRA. If it determines there’s been misconduct, the developer may be given a warning, or in the worst-case scenario, its licence could be revoked and a disciplinary committee could issue a fine of up to $25,000.