A decision of the Ontario Divisional Court this summer underscores the importance of having an experienced real estate lawyer review a builder purchase agreement before it is signed.
Patrick Ha and Rosanna Chiu purchased a new home in Markham from Arista Homes (Boxgrove) Inc. A schedule to the agreement of purchase and sale contained a list entitled: “The following items are included in the purchase price.”
The item in the list which eventually resulted in litigation read: “Closing costs to be capped at $2,300 plus GST, which includes tree planting charge, asphalt driveway, hydro, water and gas hook-ups, educational levy, Tarion fee. . . ”
The buyers believed that those listed closing expenses were to be included in the purchase price. On closing, the builder refused to close the transaction unless the buyers paid an additional $2,147.64. The disputed amount was paid under protest on closing, and the homeowners later sued the builder in Small Claims Court.
The appeal court had to decide if there was an ambiguity in the contract, and if so, what it meant. Reading the disputed clauses together, the judge reasoned, leads to this: “The following items are included in the purchase price. . . . Closing costs to be capped at $2,300 plus GST . . . ”
Laywers concluded that there are two ways to read this clause. “The first way is to read it as the (builder) submits, as Arista Homes promising that it would absorb closing costs for the items listed in excess of $2,300. The second way is to read it as the (buyers) submit, as Arista Homes promising to absorb closing costs up to $2,300.”
Each of the interpretations was plausible and the judges at trial and appeal both agreed that the contract was ambiguous. At trial, the deputy judge heard the evidence of the buyers’ witnesses and concluded that the second interpretation was most appropriate. In other words, he decided that the buyers did not have to pay the extra money and the builder had to absorb it. The Divisional Court agreed with the trial decision and dismissed the appeal.
Although it was not argued in the courts, the old legal maxim of contra proferentum would seem to apply to this dispute. In plain English, the rule states that where there is an ambiguous clause in a contract, it will be interpreted against the party responsible for drafting it, in this case the builder.
The Divisional Court also awarded costs to the purchasers. The judge took note of the fact that the purchasers spent several thousand dollars to have a lawyer prepare the case for them, although the lawyer did not attend in court.
The total court costs awarded to the purchasers came to $8,587.64, including their lawyer’s preparation fee of $6,750, an award of $640 as a form of counsel fee on the appeal, plus expenses and HST.
Arista ran up its own legal bills of at least $10,210.17, bringing its total layout for the court case to more than $21,445 plus some interest — 10 times the original claim of $2,147.
This court case clearly illustrates the importance of having a builder purchase contract (and in fact any real estate purchase contract) carefully reviewed by an experienced real estate lawyer before it is signed or during any conditional period. I doubt if a real estate lawyer would have let an ambiguity like the one in this case remain unchallenged.
The builder’s sales contract in this case was negotiated and drafted by two people who are not currently licensed as real estate agents in Ontario. Our laws do not require builder’s sales representatives to be licensed, trained, insured or regulated, and as this case illustrates, using inexperienced or untrained sales staff can hurt both builders and buyers.
Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto and a past board member of the Tarion Warranty Corp. Bob specializes in the areas of real estate, corporate and commercial law, estates and wills and landlord/tenant law. His Title Page column appears alternate Saturdays in The Toronto Star and alternate weeks on Move Smartly. E-mail email@example.com