Agreement at centre of case required buyers pay for extra increases in construction costs as sworn to on behalf of builder. The judge wasn’t having it.

It has become an unpleasant fact of life in new home construction that some builders have implemented creative interpretations of their contracts to squeeze huge and illegitimate extra charges from innocent purchasers. Many buyers have succumbed to such builder demands when faced with the potential loss of their homes and their deposits. But maybe not for much longer ….

The practice may be curtailed significantly in the wake of a recent decision of Justice James Ramsay of the Superior Court.

Back in December, 2020, Harvinder and Gangadeep Dhaliwal signed an agreement to buy a pre-construction home from Midland Homes & Development for $712,900. The house is located on Autumn Ave., in Thorold, Ont.

The agreement contained a clause requiring the buyers to pay for increases in construction costs over and above the costs and expenses contemplated on the date of the agreement arising out of changes to the Building Code and any other government regulations.

The amount of the added costs was to be determined by a declaration sworn on behalf of the builder. The contract required the purchasers to accept the declaration as absolute proof of the increases, and to be bound by the contents.

About a year before closing, the Dhaliwals received a letter from the builder’s lawyer advising that the price of the house had increased by more than 21 per cent, or $152,640. The new price was $865,540.

The buyers were given two options: agree to the price change or terminate the agreement and receive a refund of the deposits. They did neither, but, instead, consulted with Toronto lawyer Gregory Weedon. His firm focuses on matters involving breach of real estate agreements and improper builder actions.

Weedon filed a court application seeking to overturn the extra charges to the Dhaliwals.

In response, the builder provided a declaration setting out cost increases arising as a result of regulatory changes and the government response to the COVID-19 pandemic.

The declaration set out nine types of increases ranging from 30 per cent for roofing, to 75 per cent for lumber and building material.

The builder never responded to several demands for proof of the purported cost adjustments.

Just days before closing, Justice Ramsay ruled that the builder’s adjustments were unreasonable and not properly disclosed to the purchaser in the purchase agreement.

As a result, the extra charge of $152,640 was ruled invalid and costs of $10,000 were awarded against the offending builder.

“It would be absurd,” the judge wrote, “for the purchaser to have given the vendor carte blanche to set the quantum of increased costs due indirectly to government action unrelated to construction.”

Midland Homes has other problems. The Home Construction Regulatory Authority (HCRA) regulates new homebuilders in Ontario. On April 12, 2023, it issued a compliance order against Midland Homes, requiring it to provide copies of 15 agreements of purchase and sale.

As well, Midland’s licence to build new homes is subject to an HCRA compliance order requiring its principals to submit to a criminal records and judicial matters check by May 10, 2023, failing which it could no longer act as a builder of new homes.