Ontario Regulator Cracks Down on Builder Price Increases and Project Cancellations

Written by Posted On Tuesday, 30 August 2022 00:00

For most of the last decade, builders in Ontario couldn’t finish their home or condominium projects fast enough to meet consumer demand. But with a slowing real estate market and rising development costs, now project cancellations and price increases just before closing are growing concerns.

Recently Ontario’s Home Construction Regulation Authority warned that it is keeping a close eye on builders that cancel projects or add large price increases after a contract has been signed with the homebuyer.

“The HCRA expects licensees to abide by the agreements they enter into with purchasers in a way that is both legal and ethical,” says Wendy Moir, CEO and registrar of HCRA. “We understand that there may be instances of unexpected increases in costs to the builder. But there are rules that must be followed to ensure fairness to all parties and prevent price gouging,” she says.

If a contract is cancelled, HCRA says it “may step in if the builder tries to relaunch the project on the same property and enter into new sales agreements.”

“We will not tolerate a builder cancelling a project just because they think they can sell the units for more,” says Moir.

A report from Urbanation says at least 10,000 condo units that were expected to launch in the Greater Toronto Area this year “will be put on the shelf”.

Although new condo prices are not expected to see a significant drop, Urbanation says developers are grappling with “quickly rising construction costs, labour shortages, large increases to development charges, higher interest rates and lengthy approval timelines.”

The company says about 16,000 units were launched in the first half of 2022, but only about 10,000 more will come on the market for the remainder of the year – about 10,000 fewer than anticipated.

“The new condominium market is likely to continue slowing in the near term from last year’s record highs as presale buyers act cautiously and developers delay new openings, with a focus on finishing projects already underway,” says Shaun Hildebrand, president of Urbanation. “However, prices are expected to hold firm amid low inventory and high development costs. The strength in the rental market and shift in demand towards more affordable ownership options should provide support for condominium activity as the market works through the effects of higher interest rates.”

Meanwhile, in the low-rise market a couple of new developments have been in the news after the buyers received large, unexpected bills just prior to closing.

Some buyers who signed a contract in 2019 for a new home near Stayner, Ont. were told they had to pay an additional $175,000 before their house would be built. CBC reports that the builder blamed supply chain issues and the high cost of labour and materials caused by the pandemic.

At a Mississauga townhome development, buyers were given less than a week to produce an extra $70,000 to $170,000 before closing. The builder, Haven Developments, said in a statement to CityNews that there was “nothing exceptional about the current process despite the reaction of a handful of purchasers…Adjustments to address final closing costs of the purchase of a new home in Ontario should not come as a surprise to any purchaser and certainly not to their legal counsel.”

The statement says, “While we recognize the challenges closing costs can create for our purchasers, this eventuality is fully addressed in the Agreement of Purchase and a standard part of the new home buying experience in the province.”

Writing about the project in his Toronto Star column, real estate lawyer Bob Aaron says, “Lawyers who review preconstruction agreements will caution their clients about the unlimited extras and attempt – with varying degrees of success – to negotiate a maximum on the costs. Based on my experience, however, only a small percentage of buyers bother to have their lawyers review the agreements.”

In an advisory to builders, HCRA says, “Licensees are in a position of power relative to homeowners. Consumer put their trust, faith and money in the specific skills and expertise of licensees as part of the significant investment that goes into purchasing a home.”

“If builders want to make a case for purchasers helping to cover the unanticipated costs, they should provide reasons and sufficient evidence,” says Moir. “However, a licensee may not threaten to breach their contract if the purchaser does not agree to a requested increase. A purchaser faced with a request of this nature needs to have enough clear information and independent legal advice in order to be able to make an informed decision without a coercion.”

The regulator says if a builder has not “met HCRA’s expectations of acting with honesty and integrity, the registrar may take certain actions, including a notice of proposal to suspend or revoke a licence, or to apply conditions to a licence.”

Recent changes to consumer protection laws have increased the penalties and fines that the regulator can level on builders, ranging from $50,000 to $100,000. But Aaron says the fines are too low to discourage bad conduct and that a new code of ethics for builders is “little more than smoke and mirrors. Ontario homebuyers deserve much bett

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Jim Adair

Jim Adair has been writing about Canadian real estate, home building and renovation issues for more than 40 years. He is the former editor of Canada’s leading trade magazine for real estate professionals, as well as several home building, décor and renovation titles. You can contact him at [email protected]

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