Many Canadian homebuyers eagerly waiting for the completion of their pre-sale units are now receiving cancellation notices from developers, leaving them discontented and struggling to recover their deposits or seek further compensation. Real estate lawyers from Canada’s busiest housing markets have revealed that the outcomes for buyers depend largely on their contracts. The Canadian Home Builders’ Association (CHBA) recently reported that high construction costs and rising interest rates are eroding developer confidence in the market. According to CHBA, two-thirds of builders are reducing the number of units they build, with 22% of developers cancelling projects entirely in recent months. Aman Bindra of KSW Lawyers in British Columbia, said that buyers who invest in pre-construction properties are taking a significant risk as they are speculating on the future state of the industry when construction is completed. He added that sometimes things don’t go as planned, as developers are currently cancelling projects. Here’s what potential buyers should know if their developer informs them that their dream home won’t be ready as planned, or at all. The rights of buyers are generally similar across different provinces, but since the real estate market is provincially regulated, the legal position of buyers in Vancouver may differ from those in Toronto. Bob Aaron, a real estate lawyer based in Toronto, explained that the obligations a developer has towards a buyer are outlined in the Tarion addendum, which is a mandatory attachment to a purchase agreement in Ontario. Aaron said that the addendum usually includes provisions that allow the developer to terminate the agreement, citing reasons such as failure to secure zoning approval or building permits, or not meeting a certain sales target for the project. He also noted that developers can claim a lack of financing for the project, which could be a consequence of rising interest rates and changes in the borrowing environment. However, Aaron argued that developers often use the financing excuse as an easy way out of a project that is no longer as profitable as it once was, relaunching it later with prices that are 20-30% higher than the original listing. This is common when home values have significantly increased. He added that in today’s market, where condo values are relatively low, buyers might be fortunate if the developer cancels the project, as the value may have dropped below the original purchase price. In British Columbia, pre-sale builders are regulated by the Real Estate Development Marketing Act (REDMA), but Bindra noted that the reason for cancellation is not an important factor in determining whether a builder is right or wrong in cancelling a project. For buyers in B.C., Bindra advised reviewing the builder’s disclosure statement as well as the purchase and sale agreement to better understand their available remedies. He highlighted the importance of studying the original purchase agreements as well, especially for buyers taking on the assignment of an original buyer’s pre-sale. When purchasing a pre-sale home, buyers generally put down a deposit on the project and pay the full amount upon completion. In Ontario, this deposit is typically placed in a third-party trust. Aaron stated that buyers can expect to have their deposit refunded in the event of a cancellation. Depending on the specific terms of the agreement, buyers may also receive interest on the deposit. In most cases in British Columbia, buyers are entitled to have their deposit refunded, without any additional compensation. In some instances, buyers may be able to sue developers for damages to recover the opportunity cost of their money that had been tied up without earning any interest during the agreement period. However, according to Bindra, a legal case can be challenging for individuals who must contend with well-funded developers, especially if the disclosure statement or purchase agreement does not include provisions for deposit interest in the buyer’s remedies. While it is possible for buyers to sue developers to enforce completion of the unit, Bindra stressed that this outcome is extremely rare. He explained that builder contracts are often favorable to the developer, and most buyers only receive a refund of their deposit. In cases where builders do not outright cancel a project, they may instead delay the completion date if they believe the project can still be salvaged. In British Columbia, according to Bindra, builders can extend the closing multiple times without any associated compensation. In such instances, buyers have the option to cancel the contract within seven days of the amendment being filed and receive a full refund of their deposit. For buyers in Ontario, they have 30 days to cancel the contract under the same circumstances. If buyers decide to remain in the contract, they will be entitled to delayed occupation compensation. In Ontario, this compensation amounts to $150 per day, with a maximum limit of $7,500. However, if the reason for the delay is beyond the builder’s control, such as a labor strike, developers can temporarily halt the compensation clock. Aaron warned that receiving the maximum compensation of $7,500 may not adequately compensate buyers who are waiting for several years for the builder to complete the unit. He cited an example where there was a seven-year delay between the signing of the contract and the buyer receiving the keys. Both Bindra and Aaron emphasized the importance of having a lawyer review the purchase agreement before committing to it to avoid any unwanted surprises in the event that a project fails to reach completion. Aaron argued that the rewards of timing the market correctly and being able to customize a property might outweigh the risks of potential hardships in the building environment, such as rising interest rates and construction costs. He stated that the key is to find a balance between the risks and rewards.
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