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With the rapid spread of COVID-19 across Canada and worldwide, governments and businesses are taking steps to contain the virus and flatten the curve of transmission. As a homebuilder, you might be concerned about meeting your obligations to your purchasers and looking to understand your rights and obligations under the Tarion Statement of Critical Dates and Addendum (the “Addendum”). We want to help. As a starting point, we’ve put together this Q&A and would invite you to reach out to us to discuss these or other questions you may have.
1. What is the Delayed Occupancy/Closing Warranty?
Every builder/vendor of new homes in Ontario must provide a delayed occupancy/closing warranty to purchasers, guaranteeing that the condominium unit/house will be ready for occupancy/closing by a certain date. This date is either “firm” or “tentative”, as described in the Addendum.
In the event of a delay beyond the firm occupancy/closing date, and subject to the rights to extend under the Addendum, the vendor/builder is required to pay to each purchaser delayed occupancy/closing compensation of $150 per day to a maximum of $7,500.
2. What is the Outside Occupancy/Closing Date and what if the Vendor can’t deliver?
If occupancy/closing of a condominium unit/house is not provided by the outside occupancy/closing date, the purchaser has a 30-day period within which he/she may terminate the purchase agreement.
3. What is an “Unavoidable Delay” and how does it affect a Vendor’s obligations?
The Addendum defines Unavoidable Delay as an event which delays occupancy/closing which is a strike, fire, explosion, flood, act of God, civil insurrection, act of war, act of terrorism or pandemic, plus any period of delay directly caused by the event, which are beyond the reasonable control of the Vendor and are not caused or contributed to by the fault of the vendor.
4. Does COVID-19 constitute an “Unavoidable Delay”?
On March 11, 2020, the World Health Organization declared COVID-19 to be a “pandemic.” As such, if the occupancy/closing date of a condominium unit/house will be delayed as a result of COVID-19, vendors/builders are entitled to extend the Critical Dates (occupancy/closing dates and outside date) without the approval of purchasers and without the requirement to pay delayed occupancy/closing compensation in connection with the Unavoidable Delay, subject to the terms of the Addendum.
Please note that the Tarion Warranty Corporation has released a series of advisories and resources.
5. How does a Vendor extend the Critical Dates dues to Unavoidable Delay?
Vendors/builders must follow the process set out in Section 5 of the Addendum. If a vendor/builder fails to do so, it cannot rely on Unavoidable Delay to extend the Critical Dates.
The first step is to provide an initial written notice to purchasers setting out a brief description of the Unavoidable Delay (the pandemic) and an estimate of the duration of the total delay, if practicable (the “First Notice”). At this stage, however, it will be difficult for vendors/builders to make an accurate assessment of the total delay; and, as such, they can refrain from giving such an estimate in this step.
Once the pandemic is declared over, vendors/builders must take the second step: delivery of a second written notice to purchasers (the “Second Notice”). This notice will contain the revised Statement of Critical Dates, as applicable.
6. How long does a Vendor have to give notice to purchasers?
Vendors/builders are required to give the First Notice to purchasers by the earlier of: (i) 20 days from the date the vendor/builder knows or ought reasonably to know that an Unavoidable Delay has commenced; and (ii) the next Critical Date.
The Unavoidable Delay is the pandemic, and we believe that Tarion will require that the First Notice be sent to purchasers within 20 days of March 11, 2020, subject to the notice provisions in the Addendum.
A Q&A provided by Tarion states that if a vendor/builder is not sure whether the pandemic will affect the condominium unit/house, the vendor/builder should err on the side of caution and send out a First Notice if there is any reasonable chance the home will be affected. If the adverse effects do not materialize, then the vendor/builder does not have to add any delay extensions to the closing.
The Addendum also provides that a vendor/builder must provide a Second Notice as soon as reasonably possible and no later than 20 days after the vendor/builder knows or ought reasonably to know that the Unavoidable Delay has concluded. Failure to do so results in the notice being ineffective and the existing Critical Dates being unchanged.
To determine when the Unavoidable Delay has concluded, vendors are permitted to look at the facts in connection with each of their condominium units/houses and determine whether or not there are any after effects, such as backlogs of work to be done by trades or municipal approvals. Tarion has referred to this as the Remobilization Period. In all events, this additional time following the end of the direct impacts must be estimated on a rational and reasonable basis, and vendors may be called upon to explain their reasoning for the length of the Remobilization Period and provide backup to justify their determination of the Remobilization Period.
7. Do Vendors need to rely on Unavoidable Delay to extend the Critical Dates?
Irrespective of an Unavoidable Delay, a vendor/builder may extend the tentative occupancy/closing dates without paying compensation to the purchaser, provided at least 90 days’ notice is given for each extension and the vendor/builder otherwise follows the specific rules for setting new occupancy/closing dates. Changing the occupancy dates, however, will not alter or affect the outside occupancy date and the purchaser’s right to terminate the agreement following that date.
If a vendor/builder believes that the outside occupancy date is set far enough out that notwithstanding any anticipated delay that may result from the pandemic, occupancy will be granted prior to the outside occupancy date, a vendor may, for various business or marketing reasons, determine that relying on Unavoidable Delay to extend the Critical Dates may not be in its best interest.
This Q&A is meant as general information only and is not to be relied upon as specific legal advice. It is a summary only, and we encourage you to carefully review the Addendum and speak with us to discuss your particular situation and the courses of action available to you. Although this Q&A is current as of the date written above, the subject covered is changing, and new resources and information are becoming available. Reliance on third party links is at your sole risk.
Miller Thomson is closely monitoring the COVID-19 situation to ensure that we provide our clients with appropriate support in this rapidly changing environment. For articles, information updates and firm developments, please visit our COVID-19 Resources page.