Court of Appeal raises alarm over ‘trap for the unwary’ in addendum to home sale agreement

An Ontario Court of Appeal decision that ruled in favour of a builder in a dispute over a purchase and sale agreement has raised the need to revise the wording of an addendum regarding delayed closing provisions, according to a veteran real estate lawyer.

The Tarion form is “unintelligible” and “so complicated that it defies logic,” said Bob Aaron of Aaron & Aaron in Toronto.

Bob Aaron, Aaron & AaronIn Ingarra v. 301099 Ontario Ltd.(c.o.b. Previn Homes Ltd.) 2020 ONCA 103, released on Feb. 11, Justice Peter Lauwers wrote, on behalf of Justices Janet Simmons and Ian Nordheimer, that Tarion’s Addendum to Agreement of Purchase and Sale “is not ‘consumer-friendly’ by any stretch of the imagination.”

“It is a trap for the unwary, particularly the unwary lay person,” said Justice Lauwers. “The addendum is the territory of real estate lawyers, and any lawyer practising residential real estate involving new homes must be familiar with its terms, as we assume the lawyers were in this case.”

The court reversed a decision by Superior Court Justice Jessica Kimmel (Ingarra v. 301099 Ontario Limited (c.o.b. Previn Homes Ltd.) 2019 ONSC 3347) in which she determined that Previn Homes breached the agreement of purchase and sale (APS) with Anthony Ingarra by repudiating it, six days after the firm closing date on Jan. 11, 2018, after the builder “lost confidence” in Ingarra’s ability to close the transaction and refused to grant a third extension to Ingarra, whose lender needed further time to complete its appraisal before approving his loan.

Previn also did not meet the closing date since it was unable to provide Ingarra with an occupancy permit for the house on the original closing day or written confirmation of fulfilment of the conditions of occupancy under Ontario’s Building Code, as the application judge noted.

She said that neither party sought an amendment to extend the firm closing date as required under section 4 of Tarion’s addendum, nor did Tarion set a delayed closing date in compliance with s. 3 of the addendum. Therefore, the delayed date was deemed to be 90 days after the firm closing date of Jan. 11, 2018, as provided for under s. 3.

Previn Homes “purported to declare the APS to be at an end for alleged breaches by the purchaser that occurred after Jan. 11, 2018, [and that] constituted a breach of the APS by the vendor,” Justice Kimmel wrote in her ruling.

However, the Court of Appeal held that before Previn Homes terminated the APS on Jan. 17, 2018, Ingarra “had the option to void the newly set closing date, because the alteration was not compliant” with s. 4 of the Tarion addendum, and the deemed delayed closing date would have been April 11, 2018.

As the court highlighted, s. 4 of the Tarion addendum allows either the vendor or purchaser to — “after signing the purchase agreement, mutually agree in writing to accelerate or extend any of the critical dates.”

Ingarra did not exercise his right to void the agreement under s. 4, and Previn Homes had the right to terminate the agreement “at law or in equity on the basis of, for example, frustration of contract,” under s. 10, as the appellate court held in awarding the builder $15,000 in costs.

“I reach this conclusion without satisfaction,” Justice Lauwers noted acerbically, after writing that “it is not surprising that the lawyers [in this case] did not use the cumbersome, paper-intensive and therefore expensive process set out in s. 4.”

Aaron, an ex-officio life bencher with the Law Society of Ontario, said that in nearly 50 years of practising law he has “rarely seen a judge in the province’s highest court attack a government document as vehemently as the court came down on this Tarion form — and I might add, it’s well justified.”

Following the release of the ruling, he reached out to Tarion for a response to it.

“We have reviewed the comments from the court about the addendum and recognize the importance of helping purchasers understand their rights when they buy a new home,” Melanie Kearns, director of strategic communications at Tarion Warranty Corp, wrote in an e-mail to Aaron, which he shared with The Lawyer’s Daily. “We are striving to use clearer and more accessible language in our communications with homebuyers and will continue to make this a priority as we work to implement the recommendations of the auditor general to improve consumer protection.”

Longtime Ontario real estate lawyer Michael Lamb said the ruling’s warning to counsel is “beware of requesting extensions on behalf of the buyer because you may not be getting the protections that the Tarion addendum is supposed to offer.”

“Make it a mutual decision between builder and purchaser, and then it is voidable at the purchaser’s option if it doesn’t comply with the Tarion addendum,” said Lamb, an adjunct professor of real estate law at Western University, who referred to the end of s. 4 of the addendum that states: “If the purchaser for his or her own purposes requests a change of the firm closing date or delayed closing date,” the criteria for any amendments that accelerate or extend any of the critical dates do not apply.

Nicholas Cartel, Cartel & Bui LLPNicholas Cartel, a partner with Cartel & Bui LLP in Toronto and who represented Ingarra in the appeal, said that neither party raised s. 4 in the lower court, but noted that the appellate court stated that s. 4 allows the purchaser to void an agreement if an amendment altering a closing date is non-compliant with the framework set out in the section.

“The problem is that how can you void an agreement if you don’t know whether the vendor is going to give you an extension on a closing date?” he asked.

Cartel said his client has yet to decide whether to seek leave to appeal to the Supreme Court of Canada.

Ian Katchin, a partner with Fogler, Rubinoff LLP in Toronto, who served as counsel for Previn Homes in the appeal, did not respond to an interview request.

Aaron called the Appeal Court ruling “a pro-consumer decision in favour of the homeowner,” even as it was guided by the “strict wording” of the Tarion form, which he described as being “very, very difficult even for a lawyer to understand the narrow window in which to terminate a transaction when the builder has defaulted on its delivery date.”

Before the latest Tarion addendum was crafted in 2012, “a builder could postpone closing until the house was finished and there was no certainty of contract with homebuyers,” explained Aaron, a former Tarion board member. “The form tried to reach a balance between the need for disclosing to consumers and taking into account the realities of the construction industry.”

He acknowledged that the Tarion form has caused him headaches on virtually every real estate transaction he has handled beginning with the first line of the form that addresses the “first tentative closing date” for the vendor which he said is “wishful thinking” since builders have the option to extend that time by as much as five years, thus favouring vendors rather than purchasers.

Based on the Appeal Court’s strongly worded rebuke of the Tarion addendum, Aaron said he would not be surprised if the Ontario government did not “force Tarion to come up with a more consumer-friendly form,” but does not expect that to happen in less than one to two years following a public consultation period.

But before any changes are made, he added the decision is also a reminder that when reviewing APSs for pre-construction homes and condos, real estate lawyers “have to be careful to inform and advise their clients about the builder’s rights to extend almost indefinitely and the client’s limited rights to terminate in the event the builder doesn’t produce the completed home on the target closing date.”