Tarion improves transparency and disclosure

Pre-construction condominiums can be great investments, either to live in as a principal residence or to rent to someone else and earn income. It may not, however, be all wine and roses.

A significant question on everyone’s mind these days is whether the project will be completed.

Recently, two developers cancelled developments in Vaughan because they stated they could not receive satisfactory financing for the projects.

The developers notified the purchasers who signed the Agreements of Purchase and Sale (“Agreement”) that the contract was being terminated, the project cancelled, and all deposits were returned to the purchasers.

The current Tarion Addendum included in the Agreement allowed for this because a permitted condition to terminate is if the vendor does not acquire satisfactory financing.

For purchasers who made their deal and gave a deposit three years or more before, this was a very unhappy conclusion. They may now be shut out from purchasing a new home because of price escalation or as an investment they have missed on a rising market.

There was a lot of press about this and today purchasers are asking, “What rights do I have if the project is cancelled? What happens if the project is not completed?”

We are recommending as we have in the past to research your builder; check the Tarion site and ask the builder a lot of questions. You are not buying a toaster or a car. You are spending a lot of money. Do your research.

As a result, changes were made to Tarion effective Jan. 1, 2020 to allow for more disclosure and transparency for buyers.

Every Agreement signed after Jan. 1, 2020 will include a mandatory information sheet (“MIS”) that will outline risks and considerations for prospective buyers. As Tarion notes: “Common element, vacant land, and leasehold condominiums are excluded from this requirement.” Section 1 of the MIS emphasizes that the project may never be completed, to review the Agreement with a lawyer who is familiar with pre-construction condominium transactions, and that purchasers have a 10-day period to cancel the Agreement per the Condominium Act, 1998.

A major focus of the MIS is the chance that the project may never be completed. In Section 3, the MIS highlights the early termination conditions by the vendor. The vendor can terminate the purchase if: The sales goal set for the project has not been achieved; certain zoning and/or development approvals have not been obtained; and satisfactory financing for the project has not been obtained.

It is a shout-out to a prospective purchaser to review and weigh the risks on a particular project in order to make an educated decision on whether to proceed.

Furthermore, in Section 4 and 5 of the MIS, the vendor represents and warrants that the vendor owns the freehold ownership interest in the property and that the property is free from any registered title restrictions that binds the project that would prevent completion of the project and/or sale of the unit to the purchaser.

Tarion has also made changes to the Ontario Builder Directory.These changes are now in effect and include information about builder history and condominium projects. Initially, it was difficult for prospective purchasers to be able to search builders and projects. Now, purchasers can search for different project names, different builders, status of the project, and the number of units in the project. In addition, the changes allow purchasers to search for cancellations of condominium projects and any builders convicted under the Ontario New Home Warranties Plan Act.

The Tarion amendments are a significant improvement, but they do not guarantee the unit you have purchased or the project therein, will be completed. The amendments simply highlight the risks more effectively to prospective buyers of pre-construction condominiums.

It is important to have your pre-construction agreement reviewed by a lawyer, knowledgeable in this area of law, who can review the agreement in full and provide proper guidance and direction.