New 10-day freehold purchase termination right differs from condominiums

Law360 Canada (December 12, 2024, 1:29 PM EST) --

Ray Mikkola

The Homeowner Protection Act, 2024 (HPA) received Royal Assent on June 6, 2024. The HPA introduces a new 10 day “cooling off period” into the New Home Construction Licensing Act, 2017 which, once proclaimed, will permit the purchaser of a new freehold home from a builder to terminate an agreement of purchase and sale pursuant to an expressed statutory entitlement to do so. The termination right does not apply to resale residential purchase agreements or to properties already covered by the termination right afforded by the Condominium Act. The HPA termination right is similar, but not identical, to the termination right afforded to condominium purchasers from a declarant under the Condominium Act. This article examines some of the similarities and differences between the HPA termination rights and those in the Condominium Act.

The HPA termination right expires 10 days after the last to be delivered or satisfied of the following:


The prescribed information and any prescribed requirements are to be set out in a regulation, which has not yet been passed. Once the purchaser properly terminates the purchase agreement, the vendor must “promptly” refund the deposit. Where there is a delay in refunding the deposit, the vendor must include in the refund the mandated interest calculated from the date the deposit should have been refunded to the date of its actual repayment. The money to be refunded is the amount paid under the purchase agreement and credited towards the purchase price. It must be refunded “without penalty or charge.” It appears that the termination right may be exercised without providing reasons.

Unlike the repayment of a deposit to a purchaser mandated by the Condominium Act, it appears that the purchaser must personally rescind the purchase agreement. Under the Condominium Act, a purchaser or the purchaser’s solicitor may rescind the purchase agreement. The HPA notice of termination must be delivered to the vendor, whereas the Condominium Act allows the termination notice to be delivered to the declarant or to the declarant’s solicitor. Also, as with the Condominium Act, there is no specified form of termination notice, or stipulation as to how the notice must be delivered, or any deemed delivery provision. The HPA termination notice must be received by the vendor by the end of the 10-day period, so purchasers and their lawyers should ensure that the vendor actually receives the notice. Purchasers and their lawyers are well advised to use affidavits of service, written acknowledgement of receipt and other evidence of timely delivery and receipt of a notice by the vendor. Where possible, personal service of the notice of termination would likely be the preferred method. Any notice provisions of the purchase agreement should be strictly followed, with regard to compliance with any deemed service provisions and the effective date of service contained in any such provisions. While the purchaser’s HPA termination rights are broad, the failure to deliver the termination notice to the vendor within the 10-day period is likely fatal to the validity of the notice.

In the case of condominium purchase agreements from a declarant, the termination right can also be triggered by a material change in the information contained in the disclosure statement, and even where a purchaser is made aware of a change which would be material had the declarant disclosed it. In this regard, the HPA does not expressly contemplate a revival of the termination right, even where a material change occurs in the information which has been delivered to the purchaser. This raises the question as to what prescribed information is to be delivered to the purchaser.

The HPA requires the information to be “in respect of the home,” which suggests that the information is intended to be property specific, and not merely generic in nature. The provisions of the HPA which authorize the making of regulations include “prescribing requirements in respect of the information” to be delivered, and they further authorize regulations which obligate the vendor to comply with and “satisfy” prescribed requirements. These broad obligations could possibly encompass a revival of a purchaser’s termination rights where material changes have occurred to the information originally delivered to the purchaser about the home, particularly where such changes could reasonably and objectively be said to have been relevant to a purchaser’s initial decision not to terminate the purchase agreement. Such a revived right could be mandated, for example, as a term of the purchase agreement, as the terms of such an agreement must satisfy the requirements of the regulations. Still, the provisions of a revived termination right by means of a regulation would seem inconsistent with the HPA’s clear determination of the commencement of the only 10-day termination period. Of course, inconsequential changes in the information to be delivered to purchasers in respect of the home (whether they are disclosed to the purchaser or not) should not in any event automatically revive HPA termination rights. The Condominium Act has specific provisions for obtaining a court order to resolve disputes about whether a change to a disclosure statement, for example, is material, thereby reviving the 10-day termination right.

It is not possible in the absence of regulations to understand fully the substantive legal effect of the information to be delivered to purchasers and the impact of any prescribed requirements on the vendor. It seems unlikely that the regulations will create a disclosure regime with purchaser’s rights similar to those set out in the Condominium Act. But the absence of any statutory remedy for a purchaser where the information about the home is significantly changed or does not accord with the home once it is completed for the closing, significantly undermines the apparent purchaser protection purpose for having mandated the information in the first place. Sellers of new homes and their lawyers will no doubt take steps to ensure that their standard form purchase agreement contains provisions that reflect the HPA termination right, being careful not to extend such right beyond only those expressly mandated by the statute. Purchaser’s lawyers will likely seek to include in a purchase agreement a contractual right to terminate if the home is significantly different from the information included in the purchase agreement, assuming that the lawyer was given an opportunity to do so and that the regulation does not so provide.

Ray Mikkola is a partner with the firm of Pallett Valo LLP. 

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the author's firm, its clients, Law360 Canada, LexisNexis Canada or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
  
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