New Provincial Rules Can’t Stop Pricey Surprise Fees for New Homebuyers

Additional and high closing fees should not be billed to buyers of new builds in the final hours before their deals close.

A group of buyers of new townhomes in Mississauga got the shock of their lives when, a few days before closing their purchases last month, the developer presented them with demands for between $70,000 and $170,000 in extras in addition to their purchase prices.

Veteran Toronto real estate lawyer Stephen Shub contacted me earlier this month to forward copies of the builder’s statement of closing adjustments for one of his clients.

The purchase price for the property on Journeyman Lane was $888,900 but the builder added unexpected last-minute additional charges of $128,261. The big ticket items were $61,656 for utility meters, $55,674 for development charges, and $10,930 for a municipal park levy.

Beyond vague clauses in the Agreement of Purchase and Sale that there would be certain unspecified extra “adjustments,” none of these charges was itemized.

When Shub pointed out to the builder’s lawyer that some of the charges had in fact been capped in the purchase agreement, the additional charges were dropped by $47,200 to about $81,000.

Ontario law requires pre-construction condominium purchase agreements to have a 10-day conditional, or rescission, period for buyers to review the documents and accept or renegotiate the terms, or back out of the transaction.

Each agreement has two schedules: one containing the fixed additional costs, and another detailing the unlimited extras which can be tacked on to the purchase price.

Many of the buyers in the Mississauga development had to scramble at the last minute to come up with funds for the unexpected extras or lose their deposits and homes.

Lawyers who review preconstruction agreements will caution their clients about the unlimited extras and attempt — with varying degrees of success — to negotiate a maximum on the costs. Based on my experience, however, only a small percentage of buyers bother to have their lawyers review the agreements.

That was apparently the case for many of the Mississauga townhome buyers.

Shub had only harsh words for the builder. “When,” he asks, “will someone out there revise the regulations and put a stop to this type of outlandish creativity by builders?”

Builder Haven Developments did not respond to my requests for comment.

But in a statement sent to CityNews last month, Haven Developments said adjustments to final closing costs “should not come as a surprise to any purchaser and, certainly not, to their legal counsel.”

The builder also said the additional closing fees cover municipal development charges, parkland levies, the connection of utilities and related services, and additional infrastructure costs.

While builders always need to recover their construction costs, the issue to me in this development is the timing of disclosure and last-minute surprises to the purchasers.

Matteo Guinci is a communications manager with Ontario’s Ministry of Public and Business Services Delivery, which is in charge of new home builders. He emailed me to say that the government has strengthened regulatory tools to protect consumers.

A new Code of Ethics — regulation 245/21 — prohibits a builder’s undefined unprofessional conduct, misrepresentation and false advertising. It does nothing to stop huge extra charges or project cancellations.

It’s little more than smoke and mirrors. Ontario homebuyers deserve much better from our government.

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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