Purchasing a Newly Constructed Home: The Agreement of Purchase and Sale
An agreement of purchase and sale for a newly constructed home (also known as a “Builder Agreement”) is often quite voluminous however this should not discourage you from reviewing each paragraph and provision to ensure that you are fully aware and comfortable with its contents.
Please note, we strongly recommend that you contact your lawyer prior to signing any agreement of purchase and sale to ensure that you understand completely the terms of the agreement. In the event you are signing the agreement before having it reviewed by your lawyer, it is important to include a condition providing for solicitor review of the agreement. Please note that the review of such an agreement is included in our legal fees and disbursements and is not subject to any additional cost.
Harmonized Sales Tax
Usually builder agreement provide that the HST is included in the purchase price as well as the HST new housing rebates.
In addition to this, the agreement will provide for a certification that you qualify for the HST rebate (i.e. that you or an immediate relative will live in the unit and that this residency will be real and bona fide.)
If this is not the case, and if you intend to rent it out, you may qualify for the rental residential rebate which is the same as the builder rebate but you will pay it on closing and apply to Canada Revenue Agency to receive it after closing. If you have intended to purchase the property for investment please advise us and the builder immediately.
For more about GST/HST and the construction industry, please visit the Canada Revenue Agency website by clicking here.
Covenants, Restrictions and Acknowledgments
A builder agreement will also contain a schedule relating to “Covenants, Restrictions and Acknowledgments” which should be carefully reviewed as it contains restrictions on the use you can make of the property and facts which you are acknowledging when purchasing the property.
A restrictive covenant is a contract in which a party agrees to be restricted in some regards as to future conduct. Restrictive covenants give a development a more standard appearance as well, they control some of the activities that take place within its boundaries. When enforced, covenants protect property values.
For example, a common covenant or restriction relates to interference with drainage. Usually all builder agreements contain a paragraph that provides that the buyer shall not alter the slope of the subject property nor interfere with any drains contained thereon. This is of course in part to prevent owners from flooding their neighbours’ properties. Another example relates to trees. Certain trees have been identified as being nuisance trees in the City of Ottawa, either because of their invasive root system or vulnerable to disease. As such, most agreements prohibit the planting of poplars, alders, aspens, willows and elms. Finally, there are usually provisions relating to easements/rights-of-ways which we discuss below.
For more about restrictive covenants, read our July 2011 Real News Real Estate Professionals’ Newsletter.
An acknowledgement on the other hand relates to the condition at the property that you are aware and will hold the builder harmless for. For instance, most residences in new developments do not have the mail delivered to the door but rather to community mail boxes. It is a common feature of this schedule to contain a paragraph wherein the buyer acknowledges that the postal services may be delivered by way of community mailboxes as opposed to the door.
Tarion is a private corporation that was established in 1976 that is responsible for administering the Ontario New Home Warranties Plan Act, R.S.O. 1990, c.O.31 (as amended). This Act outlines the warranty protection that new home and condominium builders must provide, by law, to their customers.
The Tarion website provides useful information for buyers of newly constructed homes. In particular, they provide a calculation table for Tarion Enrolment Fee and a directory of licensed builders which also includes information as to whether claims have been made against them under Tarion.
Builder agreements usually provide for minor variations or deviations from the plans as well as substitution of materials for different materials as long as the materials are of quality equal or better than that specified for in the plans. These changes can usually be made without notice or compensation. You should read the clauses relating to variations, extras/options/colours attentively and ensure that you fully understand their effect.
Easements and Rights-of-Way
The most common easements (or rights-of-way) relate to maintenance, utilities, and access. Easements are registered on the title of the property and as such as binding on each owner.
Generally, a maintenance easement essentially allows for the maintenance (upkeep) of each owner’s respective properties. In cases where homes are constructed on small lots these easements permit owners to pass over adjoining lands for the purpose of cleaning, painting, repairing, replacing and otherwise maintaining their building. On the other hand, a utility easement allows for the installation and maintenance of wiring, pipes and cables by utility companies while an access easement. Finally, an access easement usually applies in cases of townhouses or row house units where title to the property is subject to a right of way along the back and/or side of the property affording access to other unit owners. In such cases, each owner is prevented from obstructing the access of the other by way of constructing a structure or even planting a hedge.