Beware of Buying Homes from Builders Who Don’t Own the Land

It’s time to change law to protect consumers who buy pre-construction homes from builders who do not own the land they are built on.

Gary Howard and Julia Niblett signed an agreement in 2015 to buy a house to be built by a company operating as Above All Building. The sale price of the house on Applewood Lane in South Frontenac, Ont., was $794,000.

At the time, Above All Building did not own the lot on which the house was to be built. As is typical with many pre-construction contracts in Ontario, the lot was owned by land developers: Magenta Waterfront Development Corporation, and a numbered company, 1324789 Ontario Inc. (132).

A separate agreement between the builder and the developers provided that, when the house was finished, title would be transferred to the buyers directly from the landowners. The sale price would then be divided between the landowners and the builder as they had previously agreed. 

Howard and Niblett paid a deposit of $118,800.25 to Above All, including monies for upgrades and extras.

The parties agreed to extend closing beyond the original contract date to Sept. 7, 2016, but, by that time, the house was less than half finished. Above All effectively had abandoned the job the month before, and the agreement between Above All and the developers was never completed.

Ultimately, the buyers had had enough and notified Above All that they were terminating the contract.

They demanded a refund of their deposit, but only recovered $40,000 from the deposit protection coverage of Tarion Warranty Corporation. Above All never refunded any money. 

After completion by another builder, the house and lot were eventually resold to another buyer and the balance of the original deposit money was paid into court.

Last December, Howard and Niblett applied to court to get their money back, and Magenta and 132 also asked the court to award them the same money.

In her ruling on Feb. 9, Justice Robyn Ryan Bell awarded the deposit to Magenta and 132, and the buyers were out of luck.

The law protecting the deposits of innocent buyers is that they can claim a lien against the land only if they pay the deposit to the owner of the land. In this case, there was no contract between the buyers and the landowner.

Howard and Niblett had paid their deposit to Above All Building, which was not the owner of the land, but was just the builder who was going to build a house on land owned by third parties.

Today, Tarion’s deposit protection for freehold homes selling for $600,000 or less is $60,000. For homes priced higher than $600,000, the deposit is covered for 10 per cent of the price up to $100,000. 

The deposit protection levels have not been increased since Jan. 1, 2018, and are today woefully inadequate.

If Tarion and the Ontario government truly care about consumers, deposit protection levels should at least double or triple.

It’s also time to change the law to protect consumers who buy pre-construction homes from builders who do not own the underlying land.

Meantime buyers and their lawyers should be careful about buying homes from builders who do not own the land where the house will be built.

Image credit: iStock/Getty Image

Bob Aaron is Toronto real estate lawyer. His column appears on this blog, Move Smartlyand in The Toronto Star. You can follow Bob on Twitter @bobaaron2 and at his website 

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