What Happens If The Builder Cancels Your Pre-Construction Condo Purchase?

Early Termination Conditions the Return of Deposit Monies

By Slonee Malhotra

We are seeing projects terminated more frequently now, sometimes for legitmate reasons and other times not. Most pre-construction agreements of purchase and sale contain builder “escape clauses”. While previously “hidden” in the APS as part of the Tarion Addendum, builders are now required to disclose all “Early Termination Conditions” as part of their disclosure at the start of each pre-construction APS.

If the builder cancels your project, look first at the Tarion Addendum which forms part of your Agreement of Purchase and Sale. The Tarion Addendum sets out the Critical Dates associated with your purchase. It also provides additional information on the development including:

• information about the status of development approvals and the status of construction so the purchaser can better assess the risk that a delay may occur;
• compensation mechanisms to purchasers where a delay occurs in excess of permitted delay;
• setting an Outside Occupancy Date beyond which the purchaser has a right to terminate the transaction;
• has summary sheets for closing costs and adjustments; and
• limits the Builder’s use of Early Termination Conditions in the purchase agreement;

Most preconstruction agreements allow the builder to cancel the APS if:

• a certain level of sales are not obtained

  • As a general rule, builders will try to sell at least 70% of a building before starting construction (typically a requirement of the builder’s construction loan).

• development approvals are not obtained; or

  • The Tarion Addendum sets out a timeline and speaks to permit approval deadlines.

• the builder cannot arrange satisfactory financing.

  • Builders will often employ cost-consultants or consult various construction guides when estimating their construction budget. Unexpected changes such as material shortages, new taxes or unavoidable delays can impact the builder’s actual budget.

If the builder cancels within the time frame specified, the buyer has no grounds to sue. The only remedy available is that the builder has an obligation under Section 82 of the Condominium Act to return the buyer’s deposit plus interest within 10 days of the cancellation.

If the builder cancels outside of the time frame specified, the buyer may be entitled to insist on the builder’s continued performance of the APS.

In cases where the project is cancelled, the builder may agree to complete construction if the buyer agrees that the purchase price is increased. Consult with your lawyer before acting on this. Review the Tarion Addendum to verify whether there is an obligation for the builder to continue forward under the terms of the contract or confirm that the builder is entitled to rely on the early termination conditions.

As always, we recommend that buyers do their research before signing an APS. Review the Tarion Builder Directory, search articles referencing the builder, and pay particular attention to the Tarion Addendum and the early termination conditions included within the Addendum.