Purchasing a pre-construction home in Ontario can offer numerous benefits, such as modern amenities, energy-efficient designs, and customization options. Here are five aspects you should consider.
1. Research the Builder’s Reputation
The reputation of your builder is critical for ensuring a smooth and satisfactory process. A reputable builder is likely to adhere to schedules, offer quality construction, and more effectively resolve issues that may arise during and after construction.
- Online Reviews: Leverage online platforms such as Google Reviews to assess what previous customers have to say about the builder.
- Customer Testimonials: Reach out to previous clients, if possible, to get firsthand insight into their experience.
- Industry Associations: Builders registered with professional organizations like the Ontario Home Builders’ Association (OHBA) or the Canadian Home Builders’ Association (CHBA) usually adhere to industry standards and ethics.
- Site Visits: Visiting other properties developed by the builder can provide practical insights into construction quality, material quality, and design sensibility.
2. Understand the Legal Aspects
Ontario has stringent laws that govern the real estate sector, and it is imperative to understand your legal standing when entering into a pre-construction contract.
Agreement of Purchase and Sale
Agreement of Purchase and Sale is the fundamental legal document outlining the terms and conditions between the buyer and the builder. Given its complexity, it’s crucial to consult a real estate lawyer experienced in pre-construction purchases.
- Material Changes: Look for clauses that allow the builder to make ‘material changes.’ These could include alterations to square footage, layout, or even the location of amenities. Make sure there are acceptable limits defined for such changes.
- Caps on Levies: Some contracts will include clauses that put a cap on the levies and development charges, which could otherwise increase before the closing date.
- Assignment Clause: This allows you to sell the property before final closing. However, builders may include strict conditions or even prohibit assignment sales altogether.
Tarion Warranty Program
Ontario’s New Home Warranties Plan Act requires builders to provide warranty coverage through the Tarion Warranty Program to protect consumers in new home purchases.
Deposit Protection for freehold homes: Deposit protection is designed to safeguard consumers who have paid a deposit towards the purchase of a new home but are unable to complete the purchase due to their builder’s bankruptcy or a fundamental breach of their purchase agreement. Although these cases are rare, it’s reassuring to know that you have some protection in the event of such circumstances. If you choose to exercise your statutory right to terminate the purchase agreement, you may also be eligible to claim deposit protection. If your builder is unable or unwilling to refund your deposit, you can file a claim with Tarion for further assistance.If you signed your purchase agreement before January 1, 2018, your deposit is protected by Tarion up to a maximum of $40,000. If you signed on or after January 1, 2018, your deposit coverage depends on the purchase price of your new home. Please refer to the table below:
| Sale Price | Deposit Coverage |
|---|---|
| $600,000 or less | Up to $60,000 |
| Over $600,000 | 10% of purchase price (to a maximum of $100,000) |
Deposit protection for condominium units: When you buy a condominium unit, the builder must place your deposit in a trust account in accordance with the Condominium Act. If for any reason your purchase agreement is terminated by the builder, they must return your deposit to you in full within 10 days. However, if the builder fails to do so, Tarion will provide deposit protection of up to $20,000.
To ensure your deposit claim will be covered by Tarion, you should consult a lawyer before treating your purchase agreement as terminated.
Construction Defects: Coverage includes protection against defects depending on the type of property purchased and the specific defect.
Delayed Closings or Occupancy: If the builder delays closing or occupancy without proper notice, you may be entitled to compensation.
Other Legal Provisions
- Force Majeure: Some contracts may include a force majeure clause, absolving the builder of liability for delays caused by events beyond their control, such as natural disasters or labor strikes. Understand how this could impact your purchase.
- Dispute Resolution: Contracts usually outline mechanisms for dispute resolution, which could include arbitration or court proceedings. Be aware of your options and responsibilities.
- Phased Occupancy: For condos, understand the implications of phased occupancy, where you may have to take possession and pay occupancy fees before the condo is registered, which is when your mortgage would typically commence.
3. Assess Financial Considerations
Financial planning is crucial when dealing with long-term investments like a pre-construction home.
- Deposits and Escrows: Initial deposits can range from 5% to 20%. In Ontario, these are often protected under the Tarion Warranty Program. Confirm that your deposits are placed in an escrow account to safeguard your investment.
- Hidden Costs: These can include development charges, HST, and landscaping fees. Some builders may also charge for upgrades done during the construction phase.
- Mortgage Approvals: Ensure you understand when your mortgage actually starts, as sometimes you may be required to pay interim occupancy fees before the final closing.
4. Timeline and Delays
A realistic and well-informed expectation about timelines can save you from unnecessary stress and financial burden.
- Occupancy Date: Although an occupancy date will be given, it is often subject to delays due to factors such as labor shortages, weather conditions, and supply chain issues.
- Contract Clauses: Your contract should outline the extent of acceptable delays and any compensations or legal recourses you have should the delays exceed this limit.
5. Quality of Construction and Features
One of the primary benefits of pre-construction homes is the ability to customize, but this comes with its own challenges.
- Upgrades and Customization: The base model homes are often bare-bones. Upgrades can quickly add up, sometimes by as much as 20–30% of the original price.
- Independent Inspections: Although new homes come with a warranty, hiring an independent home inspector at various stages of construction can give you peace of mind. They can check for issues like poor workmanship or substandard materials, ensuring that everything is up to code.
Summary
Buying a pre-construction home in Ontario is a complex venture that requires planning and educated decisions. Diligence in researching your builder, understanding your legal protections, getting a thorough grasp of all financial elements, keeping a keen eye on timelines, and ensuring high-quality construction will significantly mitigate your risks.
By focusing on these five key considerations, you are better poised to navigate the complexities of buying a pre-construction home in Ontario’s increasingly competitive real estate market.
If you plan to buy a pre-construction home in Ontario, it is essential to seek legal advice to ensure that you know all the current rules and regulations. A Toronto real estate lawyer can guide and advise you before you make a purchase decision and help you understand the legal implications of buying pre-construction.
The information provided above is of a general nature and should not be considered legal advice. Every transaction or circumstance is unique, and obtaining specific legal advice is necessary to address your particular requirements. Therefore, if you have any legal questions, it is recommended that you consult with a lawyer.
