Post by: Meghan MacDonald
Developers take note: Tarion has recently overhauled its Delayed Occupancy Warranty Forms and it could cause some headaches for phased condominium projects. Tarion requires Vendors to append these Forms to agreements of purchase and sale of newly constructed homes. Some of the major changes in the new Forms include:
- new Forms for parcels of tied land attached to common element condominiums;
- a new Schedule B in all of the Forms that lists all of the closing adjustments; and
- inclusion of an arbitration provision for resolution of disputes between a Vendor and Purchaser.
How Tarion has decided to implement these new Forms is where the headache for phased condominium developers lies. Regulation 165-08 of the Ontario New Home Warranties Plan Act governs the implementation of the Delayed Occupancy Warranty Forms. Section 8(1) of the Regulation states that, subject to exceptions, any agreements of purchase and sale that are entered into on or after October 1, 2012 must use the new Forms. Sections 8(3) to 8(5) set out the exceptions. Section 8(5) is the exception that applies to phased condominiums. Section 8(5) states:
If, before October 1, 2012, parties have entered into one or more arm’s length purchase agreements in good faith for condominium homes in a phase as defined in subsection 145 (3) of the Condominium Act, 1998, other than in a vacant land condominium corporation, then section 6 applies to all purchase agreements for all condominium homes in the phase and this section does not apply to those purchase agreements.
What section 8(5) says is that if a developer has entered into at least one agreement of purchase and sale for a home in a phase of a phased condominium before October 1, 2012, then all agreements of purchase and sale for homes in that phase sold after October 1, 2012 can use the old Forms. On a cursory reading, section 8(5) makes perfect sense. It appears to create consistency in the agreement of purchase and sale for all homes in the same phased development by allowing the same Form to be used for all of them.
The issue with section 8(5), however, becomes apparent once you try to apply it after reading Section 145 (3) of the Condominium Act, 1998.
Section 8(5) of the Regulation refers to “condominium homes in a phase as defined in subsection 145(3) of the Condominium Act, 1998.” Section 145(3) of the Condominium Act, 1998 states:
In this Part,
“phase” means the additional units and common elements in a phased condominium corporation that are created in accordance with this Part upon the registration of an amendment to both the declaration and description.
Section 145(3) of the Condominium Act, 1998 does not mention the initial registration in a phased condominium project. The initial registration in a phased condominium (i.e. the first units built and offered for sale and identified in the registered condominium declaration prior to the first amendment) is not a phase of the condominium. A phase in a phased condominium is any group of units brought into the condominium by amendment to the declaration after the registration of the condominium declaration which included the first units to be registered in the condominium.
This means that, due to the way section 8(5) was drafted, the exception that permits the use of the old Forms if there is a pre October 2012 sale doesn’t apply to the initial registration of a phased condominium project.
Neither is any future phase of the condominium exempt from using the new Forms if there are no pre October 2012 sales in such phase even if there are pre October 2012 sales in a prior phase or the initial registration of the condominium.
This could lead to situations where the new Forms must be used for sales in the initial registration and one or more of the phases that don’t have pre October 2012 sales while the old Forms can be used in other phases that had such sales.
The foregoing may have been intentional or it may be a drafting oversight in the Regulation, but it has the potential to cause issues. Take the following situation as an example:
- A developer has a phased condominium townhouse project consisting of an initial registration and two phases. The agreements of purchase and sale for some (but not all) of the homes in the initial registration were entered into before October 1, 2012. The agreements of purchase and sale for some (but not all) of the homes in the first phase were also entered into before October 1, 2012. None of the homes in the second phase were sold before October 1, 2012.
- On November 1, 2012, the developer enters into three agreements of purchase and sale, one for a home in each of the two phases and one for a home in the initial registration.
- The agreement of purchase and sale for the home in the first phase will be able to use the old Form pursuant to section 8(5) of the Regulation because at least one agreement of purchase and sale for that phase was entered into before October 1, 2012.
- However, the agreement of purchase and sale for the home in the second phase will use the new Form because none of the homes in that phase had been sold prior to October 1, 2012.
- The agreement of purchase and sale for the home in the initial registration will have to use the new Form even though some of the homes in the initial registration were sold before October 1, 2012 because section 8(5) of the Regulation doesn’t include the initial registration.
The above example illustrates that the inconsistency of section 8(5). This will likely cause confusion for phased condominium developers and their sales teams. The net result may be that builders should switch to the new Forms for all post October 2012 sales in a phased condominium even if there are existing sales in place at such time.