There is a time-honoured custom to handshake deals. But, as they say, the devil is in the details, and there is nothing civil about the breakdown of an informal agreement - particularly when it comes to purchasing custom-built homes. Some of the most complex and contentious files Tarion tries to resolve are those where the buyer and the builder fail to sign a proper purchase agreement.
There is a mantra that I often repeat: Never buy a home without signing a purchase agreement that has been thoroughly reviewed by a qualified lawyer. That is the only way you will understand what you are getting, how much it is going to cost you upon closing and when you can take possession of your new home. If you're purchasing a model home or condo, the purchase agreement is usually fairly standard. Just ensure that all extras or substitutions are clearly written down. But if, for example, you own a piece of land and want to contract with a builder for a custom-built home, you need to pay particular attention. Depending on how you and your builder spell out the details of the agreement, you could contract yourself right out of warranty protection. How is this possible? Under the Ontario New Home Warranties Plan Act, a builder is essentially defined as a person who performs all the work and supplies all the materials necessary to build and complete a home.
This is the case whether he builds the home to then sell himself or builds it under contract for someone else to live in or sell. The difference with respect to the Act is that if the builder moves into the home, no matter for how long, there is no warranty coverage. Coverage only applies when a new home is sold directly to a new owner. Those are the parameters within which Tarion operates. How does this apply to our custom-built home scenario? If you are handy and wish to take responsibility for completing such essential elements as exterior cladding , the foundation, the plumbing, heating or electrical work, under the Act this could define you as the "builder" and void your access to warranty coverage. Supplying your own finishing work or high-end upgrades may also impact warranty coverage. Who ordered the building permit? Who managed the tradespeople? You or your builder? The answers to these questions may make a difference to how your home is defined under the Act.
The only way to be sure you have warranty protection in these cases is to make a detailed list of each of your responsibilities, write them into a purchase agreement and have a lawyer review it. And make sure your lawyer reviews it with an eye to the definition of "builder" under the Ontario New Home Warranties Plan Act. As mentioned, in Tarion's experience, there are no homeowner/builder issues that result in more disagreement than those where there was no contract or purchase agreement at the outset. If issues arise and the relationship breaks down, handshake agreements and word-of-mouth promises do not amount to anything. If you would like to talk to someone about what constitutes a builder under the Act or what we would consider to be "essential elements," please do not hesitate to contact us at 1-877-9TARION. To learn more about your new-home warranty in general, visit our website at www.tarion.com.
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