DELAYED CLOSING WARRANTY FOR FREEHOLD HOMES

Transcription

1 DELAYED CLOSING WARRANTY FOR FREEHOLD HOMES REFERENCE GUIDE FOR FREEHOLD HOME BUILDERS The purpose of this Reference Guide is to assist builders in complying with their warranty obligations and in ensuring customer satisfaction. The Guide and any attachments, including sample forms, are meant as aids only. These materials do not provide legal advice, nor do they replace or alter the builder s obligations as set out in the Ontario New Home Warranties Plan Act, applicable regulations and Builder Bulletins, which builders should review in detail so that they understand the nature and scope of their legal obligations.

2 TABLE OF CONTENTS CHAPTER ONE INTRODUCTION Purpose of this Guide What is the Delayed Closing Warranty? Key Elements of the Delayed Closing Warranty... 2 a) Addendum... 2 b) Choice of a Firm or Tentative Closing Date at Time of Sale... 2 c) Statement of Critical Dates... 2 d) Sufficient Notice to Purchasers of Changes to Critical Dates... 2 e) Disclosure in the Purchase Agreement... 3 f) Early Termination Conditions... 3 g) Three Methods for Changing the Firm Closing Date... 3 h) Delayed Closing Compensation... 3 i) Triggering Delayed Closing Compensation Rights... 4 j) Short Term Delays... 4 k) Termination of the Purchase Agreement... 4 l) Return of Monies on Termination Schematics of Timelines and Notice Periods Where to Find Additional Information... 4 CHAPTER TWO EARLY IN THE PROCESS ADDRESSING POSSIBLE CAUSES OF DELAY Acquiring Development Land or Building Lots... 5 As a Developer... 6 As a Builder Arranging Inspections... 7 CHAPTER THREE PREPARING TO ENTER INTO PURCHASE AGREEMENTS Deciding Which Transaction Type is Appropriate Firm Closing Date vs. Tentative Closing Date... 9 a) Selecting the Firm Closing Date Option for Your Sales Transaction... 9 b) Selecting the Tentative Closing Date Option for Your Sales Transaction Deciding Whether to Include Early Termination Conditions Using Your Purchase Agreement Along with the Tarion Addendum i

3 CHAPTER FOUR COMPLETING THE ADDENDUM AND STATEMENT OF CRITICAL DATES Statement of Critical Dates a) Completing the Statement of Critical Dates for a Firm Closing Date Transaction b) Completing the Statement of Critical Dates for a Tentative Closing Date Transaction c) Critical Dates must be Business Days d) Critical Dates Calculator and Calendar Completing the Addendum a) b) c) Completing The Vendor, Purchaser And Property Description Section Completing the Information Regarding the Property Section Completing the Early Termination Conditions Section CHAPTER FIVE ONGOING COMMUNICATION AND NOTICES REQUIRED UNDER THE DELAYED CLOSING WARRANTY Communication and Customer Service Trigger Events for Written Notice Providing Written Notice a) Commencement of Construction Notice b) Notice Regarding Early Termination Conditions c) Notice for Changing Closing Dates (i) Changing the Closing Date by Mutual Agreement with the Purchaser (ii) Setting New Closing Dates Under the Tentative Closing Date Option Notice for Setting a Second Tentative Closing Date Notice for Setting a Firm Closing Date Possible Automatic Firm Closing Date (iii) Setting a Delayed Closing Date (iv) Setting New Closing Dates Due to Unavoidable Delay d) Notice to Confirm Readiness for Occupancy CHAPTER SIX TERMINATION OF THE PURCHASE AGREEMENT Possible Reasons for Termination a) Termination by Mutual Agreement b) Termination Because Early Termination Conditions Not Satisfied c) Termination Due to Delay Beyond Outside Date for Closing d) Termination Due to Calendar Dates Not Specified e) Other Termination Rights Return of Monies Plus Interest on Termination Disputes Regarding Termination ii

4 CHAPTER SEVEN PROCESSING A DELAYED CLOSING COMPENSATION CLAIM When is Delayed Closing Compensation Payable? Calculating Delayed Closing Compensation Processing Delayed Closing Compensation Claims GLOSSARY APPENDICES Appendix A Addendum Form for Firm Closing Date Transaction (including Statement of Critical Dates) Appendix B Addendum Form for Tentative Closing Date Transaction (including Statement of Critical Dates) Appendix C Schematic of Firm Closing Date Transaction Timelines Appendix D Schematic of Tentative Closing Date Transaction Timelines Appendix E Sample Chart of Development Process Appendix F Sample Inspection Checklist from Various Municipalities Appendix G Screen Shot illustrating Tarion Web-based Critical Dates Calculator Appendix H Sample Excerpt from Tarion Monthly Statement of Critical Dates Calendar Appendix I Sample Notice of Commencement of Construction Appendix J Sample Notice of Satisfaction of Early Termination Condition Appendix K Sample Notice of Termination of Purchase Agreement Due to Non-Satisfaction of Early Termination Condition Appendix L Sample Amending Agreement to Change Firm Closing Date Appendix M Sample Amending Agreement to Change Delayed Closing Date Appendix N Sample Notice of Setting Second Tentative Closing Date Appendix O Sample Notice of Setting Firm Closing Date iii

5 Appendix P Sample Notice of Setting Delayed Closing Date Appendix Q Sample Notice of Unavoidable Delay Appendix R Sample Notice of End of Unavoidable Delay Appendix S Sample Notice of Readiness for Occupancy iv

6 CHAPTER ONE INTRODUCTION 1. Purpose of this Guide This guide has been written to help builders understand their responsibilities under the Delayed Closing Warranty for freehold homes with Purchase Agreements entered into on or after July 1, A separate Builder Best Practices Guide has been prepared for the Delayed Occupancy Warranty for condominiums. This Guide will help you understand your rights and obligations under this warranty. As a builder, you need to ensure your responsibilities under this warranty are fulfilled and supported by your day-to-day business practices. This Guide reviews the warranty using a chronological approach to the new home building business. It will help you answer the following questions: What do you need to consider before you go to market? What do you need to do when signing Purchase Agreements? What communications are needed leading up to closing? What triggers a delayed closing compensation claim? How are delayed closing claims administered? 2. What is the Delayed Closing Warranty? The Delayed Closing Warranty is a statutory warranty which every builder of a new freehold home by law gives to the home buyer at the time the Purchase Agreement is signed. Through this warranty, you continue to guarantee that the home will be completed by an agreed closing date or by a properly extended date. If the date is not met, then you are required to compensate your home buyer for direct costs suffered by him and his family as a result of the delay. There is a maximum daily amount of compensation for living expenses, and a maximum total amount of compensation payable for all direct costs. Tarion guarantees the warranty, compensating your home buyer if you do not fulfill your warranty obligations. Ontario has had a Delayed Closing Warranty since A special committee was formed in 2006 to make recommendations for changes that would ensure the warranty protection offered in Ontario remains at the leading edge. The Delayed Closing Warranty provides both builders and home buyers with clarity and transparency on issues that might impact closings. It benefits builders and home buyers by: 1

7 Protecting both parties in different types of market conditions; Ensuring disclosure of relevant facts related to development, property and construction status which may impact Closing Dates; Providing a clear process to follow when permissible changes to Closing Dates are required; and Outlining clear conditions for contract termination. The Delayed Closing Warranty provides a balance between: Your need as a builder to be able to delay closing by a reasonable period if there is a legitimate reason for delay and timely written notice is given; and Your purchaser s need to be kept informed of the status of his or her home and to be compensated if costs are incurred due to long delays or delays for which fair notice was not provided by you. 3. Key Elements of the Delayed Closing Warranty The Delayed Closing Warranty includes the following key elements: a) b) c) d) Addendum Every freehold Purchase Agreement must contain an Addendum which provides details of important features of the Delayed Closing Warranty. A copy of the Addendums can be found in Appendix A and Appendix B of this Guide. Choice of a Firm or Tentative Closing Date at Time of Sale You, as vendor/builder, will decide if the transaction will involve a Firm Closing Date or a Tentative Closing Date. A different version of the Addendum (Firm Closing Date Addendum or Tentative Closing Date Addendum) must be used depending on the option that is chosen. A number of factors which affect your decision are discussed in the Deciding Which Transaction Type is Appropriate section on page 9 of this Guide. Statement of Critical Dates A Statement of Critical Dates will be completed by you and placed in front of every Addendum. It will list Critical Dates such as the latest possible Tentative Closing Dates, the latest possible Firm Closing Date, notice deadlines for extending dates and the Outside Date For Closing. These dates must be set out or the Purchase Agreement is not enforceable by you. Details on how to complete the Statement of Critical Dates can be found in the Completing the Addendum and Statement of Critical Dates section on page 14 of this Guide. Sufficient Notice to Purchasers of Changes to Critical Dates Whenever Critical Dates are changed, whether by mutual agreement, permitted extension or otherwise, you must provide adequate written notice to your purchaser setting a new Tentative, Firm or Delayed Closing Date. Notice is required for short term or longer delays. 2

8 For the Tentative Closing Date option, you are required to provide 90 days prior written notice to your purchaser when a Second Tentative or Firm Closing Date is set. For short term delays beyond the Firm Closing Date, at least 10 days notice must be provided to your purchaser. Details on how to change Critical Dates can be found in the Notice for Changing Closing Dates section starting on page 21. e) Disclosure in the Purchase Agreement To ensure transparency and also to allow you and your purchaser to assess the likelihood of delays, you must disclose in the Addendum facts regarding: Development status; Approval status for water and sewage capacity; Whether a building permit has been issued; and The estimated date when house construction will begin. Information on how to complete the Addendum starts on page 17. f) Early Termination Conditions The use of conditions which allow you to terminate a home purchase transaction is regulated under the Delayed Closing Warranty. The permissible types of conditions, called Early Termination Conditions, are set out in the Addendum and are discussed in this Guide, starting on page 11. If you choose to include Early Termination Condition(s), your purchaser will be entitled to a period of 3 Business Days to review the condition(s) and, if not satisfied with the condition(s), your purchaser can terminate the Purchase Agreement. g) Three Methods for Changing the Firm Closing Date Once a Firm Closing Date has been set, it can only be changed by one of three methods: By mutual written agreement between you and your purchaser; By setting a Delayed Closing Date; or By giving written notice to your purchaser of an Unavoidable Delay as permitted by the Addendum. Further details on changing Closing Dates can be found on page 21 and a discussion of how compensation claims are dealt with begins on page 29. h) Delayed Closing Compensation Compensation is payable to a home buyer up to a maximum of $7,500 including a fixed amount of $150 per day for living expenses. Information on the calculation and settlement of Delayed Closing Compensation can be found on page 29. 3

9 i) Triggering Delayed Closing Compensation Rights If the Firm Closing Date is not met, your purchaser will be entitled to Delayed Closing Compensation for each day of delay, starting from the Firm Closing Date, whether or not your purchaser has been provided with a specific Delayed Closing Date. This compensation will be payable if the home closes or if the Outside Date for Closing is missed and the Agreement is terminated. If written notice of a specific Delayed Closing Date is not given at least 10 days before the Firm Closing Date, Delayed Closing Compensation will be calculated from 10 days before the Firm Closing Date. j) k) l) Short Term Delays Proper notice and compensation for a Delayed Closing Date is required regardless of the length of the delay. Written notice is required at least 10 days before the Firm Closing Date and Delayed Closing Compensation is payable from the Firm Closing Date. Failure to provide at least 10 days notice will result in increased compensation. Termination of the Purchase Agreement Neither you nor your purchaser can terminate the Purchase Agreement except as clearly permitted by the Addendum. Termination rights are discussed in Chapter Six which starts on page 27. Return of Monies on Termination If the Purchase Agreement is terminated, other than as a result of breach of contract by your purchaser, your purchaser s deposit, including amounts for upgrades and extras, must be returned with interest. More details can be found on page Schematics of Timelines and Notice Periods The relevant timelines for the Firm Closing Date and the Tentative Closing Date options are illustrated in schematics attached as Appendix C and D respectively. These diagrams will help you understand the relationships between various Critical Dates and notice periods. 5. Where to Find Additional Information The Delayed Closing Warranty is described in more detail in this Guide and in Builder Bulletin 46. The legislation governing the Delayed Closing Warranty is set out in a new Regulation under the Ontario New Home Warranties Plan Act (the Act ). 4

10 CHAPTER TWO EARLY IN THE PROCESS ADDRESSING POSSIBLE CAUSES OF DELAY Land development and new home construction are complex processes that require professional expertise and skilled project management. This chapter outlines key considerations and questions to ask that will help you identify, assess and manage potential causes of delay early in the land development and construction process. 1. Acquiring Development Land or Building Lots Whether you are a builder who buys and builds on serviced lots or a developer/builder who develops, services and subdivides raw land to build on, it is important to consider potential causes of delay relating to the land. Possible causes of delay can include physical limitations, development approvals and permitting processes. Key Questions to Ask When acquiring development land or building lots, things to investigate include: What are the region s growth policies? Phasing policies? Are trunk services (road, water, sanitary, storm) available and sufficient to support the region s growth policies? Are there special infrastructure issues (e.g., pump stations, reservoirs)? Are there environmental issues? Are there soil issues? Compaction issues? Drainage issues? Are there archeological or Aboriginal claims issues? What is the local approving authorities record for processing approvals? How long will the subdivision process take? Is an official plan or zoning amendment needed? Answers to these questions will help you assess: Whether any of these issues may result in delays, and if so, for how long? Are any of these issues deal breakers? Could it mean the land is not developable or will it simply take longer? Given the development status, when can this land (or these lots) be realistically available for building? 5

11 As a Developer You understand that the development process is very complex and can take years to complete. Appendix E is a sample chart which illustrates these complexities. Answers to the questions above are critical to the process of servicing and subdividing new land and obtaining approvals for saleable, serviced lots. TIPS: Retain qualified advisors such as engineers, planners and environmental lawyers. Consider the advantages and disadvantages of hiring local advisors as local professionals may have helpful contacts and a better understanding of local processes. Economists may be helpful in making the case to municipal officials for balancing growth objectives and tax revenue. Speak to local decision makers and staff well in advance to get a clear understanding of local issues growth rates, official plan policies, parkland and school land dedication policies, infrastructure issues, maturity of planning processes. If new to the market, arrange for the introduction of your staff to municipal staff. Consider ways to help authorities process the application by facilitating required studies and/or peer reviews or using your resources to augment municipal resources. Advice should be checked with more than one source, if possible. Be methodical. Customize your flow charts, checklists and development schedules for the jurisdiction. Recognize that the process is fluid things can change, moving pieces need to be monitored. Allow for extra time plan for known and unknown delays. 6

12 As a Builder You recognize that you are relying on the developer the vendor of your building lots to complete the development and subdivision process so that you will have saleable, buildable, serviced lots. A careful builder will investigate, at some level, the same issues as the developer to determine what the possible or likely impediments to subdivision and sale of lots may be. Consider when it is appropriate to enter into Purchase Agreements with home buyers. Certain development milestones should have been reached. First, it is illegal under the Ontario Planning Act for freehold builders to enter into a Purchase Agreement for a subdivided freehold lot until after approval of the draft plan of subdivision. Beyond this minimum legal requirement, it is usually too early to enter into Purchase Agreements when key approvals that are essential to the ability to build on the land have not been obtained. For example, it is probably inadvisable to enter into Purchase Agreements with home buyers if sewage or water service allocations have not been approved. TIPS: Retain qualified advisors such as engineers, planners and lawyers. Prepare your lot purchase agreements carefully so that you and the developer are clear as to who is bearing the risk of particular delay factors. What protections do you have, for example, if servicing is not done in time or development approvals are not obtained? Speak to local authorities to determine local requirements. Different jurisdictions have different requirements and involve different agencies in the approval process. Be aware of development charge policies and how increases due to delay may be treated. Consider the impact of building cycles on the availability of trades. 2. Arranging Inspections Managing the process of the multiple inspections for a new home is essential to controlling the timing of closing and avoiding possible delays. Inspections may be required by a variety of agencies. For example, municipal building inspectors, electrical inspectors and health officials (e.g., septic system), may all need to be involved at certain points in the process. 7

13 The Building Code alone has multiple inspections at different stages of construction. These include: Commencement of the construction of the building; Readiness to construct the footings; Substantial completion of: - the footings and foundations; - structural framing; - insulation and vapour barriers; - ductwork and piping for heating and air conditioning systems; - fire separations and all fire protection systems; - interior finishes and heating, ventilating, air conditioning and air contaminant extraction equipment; and - exterior cladding, fire access routes and site grading. Commencement of the construction of chimneys, fireplaces, stoves, ranges, space heaters and furnaces; Completion of construction and installation of the minimum components required to permit occupancy by the Building Code; Readiness for inspection and testing of building sewers and building drains, water services pipes, drainage systems and venting systems, water distribution system, and plumbing fixtures and plumbing appliances; and Completion and availability of drawings of the building as constructed. Different municipalities and agencies have different requirements. Attached as Appendix F are sample checklists from various municipalities. TIPS: Check local requirements to determine the types of inspections needed, at what stage they are needed and how much notice the inspector requires. Many municipalities have very helpful websites which provide information about their permitting and approval processes. Project schedules which keep track of deadlines for inspections will save you time, frustration and money. Ask if there are known staffing issues at the municipality or other approving agencies that could lead to delay. Ask if an occupancy certificate is required. Allow time for inspections and delays in inspections, when you set Critical Dates. 8

14 CHAPTER THREE PREPARING TO ENTER INTO PURCHASE AGREEMENTS The Delayed Closing Warranty allows builders to structure their sales transactions with either Firm Closing Dates or Tentative Closing Dates. The choice will depend on a number of factors including the timing of the sale and the stage of development and construction of the property. In either case, the transaction will require both a Purchase Agreement and a Tarion Addendum (including a Statement of Critical Dates) which will form part of the Purchase Agreement. This chapter describes factors to consider in selecting the most appropriate transaction type for a given situation, and outlines some of the advantages and disadvantages of each approach. This chapter also identifies factors to consider in deciding whether to include Early Termination Conditions in the Addendum and explains the requirement to ensure the Purchase Agreement is consistent with the terms of the Addendum. 1. Deciding Which Transaction Type is Appropriate Firm Closing Date vs. Tentative Closing Date The first step is to decide what type of transaction is appropriate for your business circumstances and the property being sold. Can you set and adhere to a Firm Closing Date or should you set a Tentative Closing Date? How predictable is the Closing Date and what development milestones remain? You will have the opportunity to determine which type of transaction is appropriate for every home you sell. a) Selecting the Firm Closing Date Option for Your Sales Transaction In deciding whether to use the Firm Closing Date option, the key question you need to answer is: How much confidence do I have that the Firm Closing Date can be met? For example, a Firm Closing Date should work with houses in inventory or very near completion. Details on completing the Statement of Critical Dates and the Addendum for the Firm Closing Date option can be found on page 14. This option is best when you plan to pick a Closing Date and stick to it. Keep in mind that if you cannot meet the Firm Closing Date, with rare exceptions, you will be obliged to pay Delayed Closing Compensation. TIP: If a home is not yet started and there are unpredictable obstacles, then you would be taking more risk with the Firm Closing Date option. Care must be taken in choosing this option because compensation is payable if you miss the Firm Closing Date. The advantages of the Firm Closing Date option include: Simplicity The Firm Closing Date option is simpler to administer and understand for both you and your purchaser. 9

15 Competitive advantage Most home buyers want certainty When will my new home be ready? As a builder who offers the greater certainty of a Firm Closing Date, you may have a competitive edge over other builders offering Tentative Closing Dates. Firm Closing Dates may mean you can compete directly with the resale market as well. The disadvantage of the Firm Closing Date option is: Less Flexibility You have less flexibility to extend the Closing Date without paying compensation. b) Selecting the Tentative Closing Date Option for Your Sales Transaction Alternatively, you may decide to use the Tentative Closing Date option. This option is appropriate when the home is not yet started and you believe there could be unpredictable delays to acquisition of the lot or completion of the home. Details on how to complete the Statement of Critical Dates and Addendum for this option can be found on page 15. The Tentative Closing Date option allows you (with proper written notice as described on page 21) to extend the Closing Date two times, by up to 120 days each time, without paying compensation. This means that if the First Tentative Closing Date you set is not met, you can extend closing without payment for up to 240 days by giving two proper, timely written notices. If you need to extend beyond this period, you will be required to set a Delayed Closing Date and you must then pay Delayed Closing Compensation. Details on Changing Closing Dates can be found on page 21. The advantages of the Tentative Closing Date option include: Flexibility This option allows you greater flexibility to accommodate different types of delays, including both expected and unforeseen delays. For example, if you are building in a municipality that is less familiar to you, it may be more difficult to predict approval timelines and therefore you may want the flexibility of the Tentative Closing Date transaction. However, you must always use commercially reasonable efforts to complete the home on time as required under the Act. Managing Expectations A purchaser s expectations can usually be better managed by a clear statement in the Addendum that Closing Dates are tentative because then he or she understands from the outset that delays are possible. TIP: Ensure all communications with your purchasers, whether oral or written, are consistent and clear. Oral statements can be legally binding and if promises are made and not met, they can adversely affect relations with your purchaser. 10

16 The disadvantages of the Tentative Closing Date option include: Complex Administration The Tentative Closing Date option is more complex and therefore more challenging to administer and to explain to your purchaser. The Tentative Closing Dates, extension periods and notice periods require a well-trained staff and well-developed business practices. Your staff needs to understand and be able to explain the various dates to purchasers on an ongoing basis from purchase through to closing. Your business processes should include clear accountabilities to ensure that important dates are not missed. Competitive Disadvantage Multiple extension rights may be a concern for some home buyers. Builders offering Firm Closing Dates may have a competitive edge when attracting home buyers looking for certainty in a Closing Date. Reputation Risk To the extent you routinely offer only Tentative Closing Dates, you may gain a reputation as a builder who does not offer Firm Closing Dates, which may negatively impact your reputation in some markets. 2. Deciding Whether to Include Early Termination Conditions The Delayed Closing Warranty allows you to include certain, specific Early Termination Conditions in the Purchase Agreement. Generally speaking, these conditions are for the benefit of both you and your purchaser. A list of allowable conditions is included in Schedule A of each Addendum which can be found in Appendices A and B of this Guide. TIP: Purchase Agreements CANNOT be conditional upon: Receipt of a building permit; Receipt of an occupancy permit; and/or Completion of the dwelling. Should You Include Conditions? Early Termination Conditions may be appropriate if there is some external approval or event that is required before the transaction can be finalized. This arises most often in connection with infill housing. Examples might include a purchase transaction that is conditional upon receipt of an amendment to zoning or a minor variance. These are appropriate conditions because they are conditions for the benefit of both you and your purchaser. In normal tract housing, such conditions should be rare. As a general rule, it is usually better practice not to enter into Purchase Agreements with home buyers until development approvals and service issues have been settled. 11

17 Consequences of Including Early Termination Conditions A key consequence of including Early Termination Conditions in a Purchase Agreement is that the deal is conditional not truly binding until the condition is removed. It is important to consider the following implications of choosing to include conditions: Purchaser s Review Period Your purchaser is given a period of 3 Business Days to review the Early Termination Conditions. If your purchaser is not satisfied with any of the conditions, he or she may terminate the Purchase Agreement and receive a full refund of his or her deposit with interest. More Administration Including Early Termination Conditions involves increased administration for you as vendor. You must set a specific date for fulfillment for each condition. You are obliged to take commercially reasonable steps to fulfill any condition(s) by this date which also means monitoring the status. Early Termination Conditions must be satisfied well before the sale transaction is final. Notice of satisfaction or non-satisfaction must be provided a minimum of 90 days prior to the Firm or First Tentative Closing Date. Cannot be Waived With the exception of a home buyer s financial resources condition, which can be waived by you, you cannot unilaterally waive Early Termination Conditions. This means if the condition is not satisfied, the deal is terminated. TIP: Check with your financial advisors regarding the use of Early Termination Conditions, since Purchase Agreements containing such conditions may not be considered final agreements for purposes of obtaining construction financing. Purchaser Conditions The Purchase Agreement may also include any condition that is for the sole benefit of your purchaser as long as you are prepared to agree to it. The Purchase Agreement may specify that your purchaser has a right to terminate if this condition is not met. Examples of purchaser conditions might include conditions relating to the purchaser s mortgage financing, inspection of the home or water potability. 3. Using your Purchase Agreement Along with the Tarion Addendum The Delayed Closing Warranty applies to every Purchase Agreement for a freehold home signed on or after July 1, Every freehold home Purchase Agreement must have either a Firm Closing Date Addendum or a Tentative Closing Date Addendum attached to it. Your Purchase Agreement needs to work in conjunction with the required Tarion Addendum 12

18 must not conflict with it. The Tarion Addendum must be used as is, kept whole and it may not be revised in any way. The completed Statement of Critical Dates must be placed in front of the Addendum. You must fill in the Statement of Critical Dates or else the Purchase Agreement is not enforceable by you. The Statement of Critical Dates is a clear statement of when you expect to finish the home, as well as the latest possible dates for permitted extensions under the Tentative Closing Date option. There is an Outside Date for Closing which, if not met, allows your purchaser to end the transaction because the delays have been too long. TIP: Work with your lawyer to ensure your Purchase Agreement is revised as needed to fit with the Tarion Addendum. Details of how to complete the Addendum are described in Chapter Four. These are some general points to be aware of when preparing Purchase Agreements: The Statement of Critical Dates is placed in front of and forms part of the Addendum. The Addendum must be attached to and forms part of your Purchase Agreement. The Addendum provisions override any contrary or inconsistent provisions in a Purchase Agreement. In other words, you cannot do things in the Purchase Agreement which alter or take away rights set out in the Addendum. Closing Dates cannot be floating dates. For example, a Closing Date scheduled 60 days after a building permit is issued is not permissible. You must select and set out specific calendar dates for Critical Dates such as the Firm Closing Date under the Firm Closing Date option, and the First Tentative Closing Date under the Tentative Closing Date option. Tarion has created tools which are available to assist you in accurately calculating Critical Dates in order to fill in the Statement of Critical Dates. The tools will be explained later in this Guide. You are required to accurately fill in all blanks in the Addendum. Failure to do so, or knowingly providing false information, is contrary to the terms and conditions of your registration with Tarion and may result in sanctions up to and including the revocation of your license to build new homes. 13

19 CHAPTER FOUR COMPLETING THE ADDENDUM AND STATEMENT OF CRITICAL DATES The Addendum explains the terms and conditions of the Delayed Closing Warranty. When preparing the Addendum, you are required to insert important property details for the home being sold and to complete an accompanying Statement of Critical Dates. As discussed in Chapter Three on Preparing to Enter into Purchase Agreements, for every sales transaction you will choose either the Firm Closing Date or Tentative Closing Date option. For each transaction, you will prepare an Addendum which includes: Statement of Critical Dates; Other sections in the Addendum completed for: - Contact Information for the Vendor and the Purchaser; - The Property Description; - Information Regarding the Property; and - Early Termination Conditions (if applicable). TIP: The information you provide in the Statement of Critical Dates is significantly different for a Firm Closing Date transaction compared to a Tentative Closing Date transaction, while the information required in all other sections of the Addendum is the same for both transaction types. Failure to set out calendar dates for Critical Dates will allow your purchaser to terminate the Purchase Agreement. 1. Statement of Critical Dates a) Completing the Statement of Critical Dates for a Firm Closing Date Transaction There are three dates to insert on the Statement of Critical Dates when using the Firm Closing Date option. You must select a calendar date which is a Business Day (as described on page 15) for each of the following: Firm Closing Date You must first select and agree with your purchaser on a Firm Closing Date the date by which you agree to complete the home and have it ready for possession. 14

20 Outside Date For Closing This date is 365 days after the Firm Closing Date and is the latest possible Delayed Closing Date you can set without risking the termination of the deal by your purchaser. End of the Purchaser s Termination Period This date is the end of the 30 day period during which your purchaser may terminate the transaction if the home is not ready by the Outside Date for Closing described above. b) Completing the Statement of Critical Dates for a Tentative Closing Date Transaction For the Tentative Closing Date transaction, you will insert six dates on the Statement of Critical Dates. You must specify a calendar date which is a Business Day (as described below) for each of the following Critical Dates. First Tentative Closing Date You must first select and agree with your purchaser on a First Tentative Closing Date the date you anticipate the home will be completed and ready for possession. On the Statement of Critical Dates, the remaining dates are derived from the First Tentative Closing Date and each one is the latest possible date computed as follows: Second Tentative Closing Date This is the First Tentative Closing Date plus 120 days. Firm Closing Date This is the First Tentative Closing Date plus 240 days. Outside Date for Closing This date is 365 days after the latest possible Second Tentative Closing Date described above. Notice of a Closing Delay Date This date is 90 days before the First Tentative Closing Date. This is the date by which you would need to notify your purchaser, if you are unable to meet the First Tentative Closing Date, to set a later Closing Date. End of the Purchaser s Termination Period This date is the end of the 30 day period during which your purchaser may terminate the transaction if the home is not ready by the Outside Date for Closing described above. c) Critical Dates must be Business Days Critical Dates and notice dates must be Business Days. The definition of Business Day is slightly different for Critical Dates and notice dates. Business Days For Setting Critical Dates To ensure purchase and sale transactions are completed on banking days and days when the registry system is available, Business Days for setting Critical Dates must fall on Monday to Friday and must exclude all banking holidays. Note that if an Outside Date for Closing would otherwise end on a Sunday, it is moved forward to the next Monday a Business Day. Business Days For Giving Notice Notice can be given on any weekday that is not a statutory holiday. Note that if a notice period ends on a Saturday, it is moved back to the prior Friday a Business Day. 15

21 For more details on notice dates and delivery of notice, see the section on Providing Written Notice on page 19 of this Guide. d) Critical Dates Calculator and Calendar Tarion has prepared electronic and paper-based tools to assist you in completing the Statement of Critical Dates. These tools have been set up to account for all non-business Days. Electronic Critical Dates Calculator The Tarion Builder Portal includes a feature called Completing the Statement of the Critical Dates. To use this feature, you will first choose either: The Firm Closing Date option and a Firm Closing Date; or The Tentative Closing Date option and a First Tentative Closing Date. The calculator will then derive all the other dates that must be inserted in the Statement of Critical Dates. You can then choose to print the Statement and the calculator will insert the dates for you. A screenshot of the calculator is shown in Appendix G. Monthly Statement of Critical Dates Calendar Tarion will also publish, from time to time, monthly paper calendars for builders and their staff without access to the internet. Two sets of calendars are available one for the Firm Closing Date Option and one for the Tentative Closing Date option. For the Firm Closing Date option, you will use the Calendar for the month that coincides with the Firm Closing Date you have agreed on with your purchaser. For example, if the Firm Closing Date is July 15, 2009, you will use the Firm Closing Date Calendar for July, Find July 15 in the first column and read across that row to find the other dates that need to be inserted into the Statement of Critical Dates. For the Tentative Closing Date option, you will use the Calendar for the month that coincides with the First Tentative Closing Date you have agreed on with your purchaser. For example, if the First Tentative Closing Date is September 30, 2009, you will use the Calendar for September, Find September 30 in the first column and read across that row to find the other dates that must be inserted into the Statement of Critical Dates. A sample page from the calendar has been attached in Appendix H. TIPS: Use the Tarion tools to save time figuring out all the Critical Dates for your Purchase Agreements. Provide access to Tarion s Builder Portal in your sales office and your sales staff can more easily print off completed Statements of Critical Dates. 16

22 2. Completing the Addendum The correct Addendum should be completed and placed right after the Statement of Critical Dates. There is a separate Addendum for each of the Firm Closing Date and Tentative Closing Date transactions, however the information that must be completed by you for each transaction is the same for either option. a) Completing the Vendor, Purchaser and Property Description Section The first page of the Addendum has space for you to fill in the names, addresses and contact numbers for you and your purchaser, as well the municipal address and short legal description of the property. This information will help you communicate more easily with your purchaser. Multiple contact numbers will assist you in ensuring prompt delivery of notices and other communications with your purchaser. The description of the property should be as complete and accurate as possible. TIP: As this is a legal document, care should be taken to ensure names and addresses are spelled correctly. Obtain as many contact numbers as possible and be sure they are entered correctly. b) Completing the Information Regarding the Property Section The next section of the Addendum requires you to inform your purchaser about the development status of the property and the date you expect to start construction of the home. This section helps to ensure your purchaser is made aware of any issues that may lead to delays. Development Approvals: You must disclose in the Addendum the following information relating to the status of development approvals: Whether the property is within a plan of subdivision or proposed plan of subdivision; Whether the plan of subdivision is registered or draft; and Whether you have received confirmation from the relevant government authorities that there is sufficient water capacity and sewage capacity, and the details of the nature of the confirmation that has been received (for example, a letter). If the availability of water or sewage capacity is uncertain, you must disclose to the best of your ability the issues that need to be resolved. TIP: It is in your interest to receive some written confirmation from the approving authority regarding water and sewage capacity. You may also wish to provide a copy of the written confirmation to your purchaser. 17

23 Construction Status: You must also disclose in the Addendum the following information relating to the status of construction: Whether a building permit has been issued for the property; and Whether construction has started or the date that construction is expected to start. If construction has already started, check the appropriate box on the Addendum. If construction has not yet started, you must estimate an expected start date. Once construction starts, you must inform your purchaser by written notice within 10 days. Commencement of Construction generally means commencement of construction of foundation components such as footings. c) Completing the Early Termination Conditions Section Section 2 of the Addendum provides space for you and your purchaser to describe any agreed upon Early Termination Conditions, as well as the dates by which any such conditions must be satisfied. More details regarding allowable conditions can be found in Schedule A of the Addendums which are attached as Appendix A and B of this Guide. Each applicable Early Termination Condition must: Be set out separately; Be reasonably specific as to the type of approval which is needed; Identify generally who the approving authority will be; and State how long will be needed to satisfy the condition. The date for satisfying Early Termination Conditions must be at least 90 days before either: the First Tentative Closing Date under the Tentative Closing Date option; or the Firm Closing Date under the Firm Closing Date option. If you fail to specify a date for satisfaction of a condition, or the date is later than is permitted, the date for satisfaction defaults to 90 days before the First Tentative Closing Date or the Firm Closing Date, as the case may be. Information on termination due to not satisfying an Early Termination Condition is provided on page

24 CHAPTER FIVE ONGOING COMMUNICATION AND NOTICES REQUIRED UNDER THE DELAYED CLOSING WARRANTY As a builder, you communicate with purchasers for a variety of reasons after a Purchase Agreement is signed and before they take possession of their home. This chapter provides details of required written communication and notices under the Delayed Closing Warranty. 1. Communication and Customer Service Customer service, after sales service and communication are important factors in the success of new home builders. Home buyer surveys have consistently shown that timely, ongoing and helpful communication from the builder helps to create a positive relationship between a builder and home buyers. The Delayed Closing Warranty provides builders and home buyers with clear direction regarding communication on matters related to the Closing Date for the home. By setting clear standards and expectations for communication during the pre-construction and construction process, both your purchaser and you are kept well-informed about the status of the new home. 2. Trigger Events for Written Notice There are four main types of trigger events under the Addendum which require you to provide written communication or notice to home buyers after the Purchase Agreement is signed and before closing: Commencement of Construction Notice; Early Termination Condition Satisfaction Notice; Notice for Changing Closing Dates; and Notice to Confirm Readiness for Occupancy. TIP: It is important to note that the points of communication covered in this section are a minimum. Your program for ongoing communication with your purchasers is quite likely more extensive. 3. Providing Written Notice For each of these types of trigger events, written notice must be provided according to the rules set out in the Addendum: 19

25 Written notice can be given personally or sent by , fax, courier or registered mail to the purchaser or the vendor at the address/contact numbers identified on page 1 of the Addendum or a replacement address/contact numbers which has been provided subsequently by proper written notice to the other party. Time periods have been identified for when each delivery method would be considered received : Method of Delivery Personally Fax Courier Registered Mail * Or next Business Day if delivered on a non-business Day Considered Delivered Same Day* Same Day* Same Day* 2 Business Days after date sent 5 Business Days after date sent Notice periods are calculated using calendar days. For notice periods prior to a certain date, if the latest date by which a notice must be given is a non-business day, the date shall be moved to the next earlier Business Day. For making claims, if the latest date by which the claim must be made is a non-business day, the claim may be made on the next Business Day. TIP: When deciding on a method of delivery, consider convenience to you and your purchaser, but also ensure you maintain a record of delivery. a) Commencement of Construction Notice You are required to provide your purchaser with written notice of the Commencement of Construction within 10 days after construction actually starts. Commencement of Construction means starting the foundation components or elements, such as footings, rafts or piles, for the home. A sample Notice of Commencement of Construction is attached in Appendix I. TIP: Sometimes construction of the foundation components does not mean there will be ongoing continuous construction from then on. For example, you may install foundations to get ahead of frost conditions. If this is so, a clear explanation about that to your purchaser will help you to manage his or her expectations and prevent any possible frustration on his or her part if the site remains idle after the foundation is in. b) Notice Regarding Early Termination Conditions If you have included any Early Termination Conditions in the Purchase Agreement, you must provide written notice to your purchaser as to whether the conditions have been satisfied. This notice must be sent and received prior to the stipulated outside date for satisfying the condition specified by you in Section 2(c) of the Addendum. 20

26 The confirmation that an Early Termination Condition has been met must provide reasonable details and sufficient backup information or materials and must also state that, as a result of the satisfaction of the condition(s), the Purchase Agreement is no longer subject to the Early Termination Condition(s). A sample Notice of Satisfaction of Early Termination Condition is attached in Appendix J. TIP: Monitor the progress of the steps required to satisfy the Early Termination Condition(s) so you can ensure you meet them. Builders are expected to take all commercially reasonable steps within their power to satisfy the condition(s). It is also possible that the Early Termination Condition is not satisfied. In that event, you will need to send a notice confirming the condition has not been satisfied, providing reasonable details and background information regarding this non-satisfaction of the condition and confirming that the transaction is terminated. This notice needs to be sent and received prior to the stipulated outside date for satisfaction of the condition. A sample Notice of Termination of Purchase Agreement Non-Satisfaction of Early Termination Conditions is attached in Appendix K. TIP: Note that failure to satisfy Early Termination Conditions means the deal is terminated. The only exceptions are: a condition regarding the financial strength of your purchaser can be waived by you; and a condition regarding a walkout basement can be waived by your purchaser. a) Notice for Changing Closing Dates There are five ways to change Closing Dates under the Delayed Closing Warranty. All five methods can be used with the Tentative Closing Date option, while the three ways marked with an asterisk (*) can be used with the Firm Closing Date option. Closing Dates can by changed by: Mutual Agreement with the Purchaser*; Setting New Closing Dates under the Tentative Closing Date Option by: - Setting a Second Tentative Closing Date; - Setting a Firm Closing Date; Setting a Delayed Closing Date*; and Setting New Closing Dates Due to Unavoidable Delay*. Instructions for using each of these methods follow. (i) Changing the Closing Date by Mutual Agreement with the Purchaser There may be circumstances where it is beneficial to both you and your purchaser to change the Closing Date. Whether you have used the Firm Closing Date or the Tentative Closing Date option, you and your purchaser may at any time after signing the Purchase Agreement agree in writing to change the Firm Closing Date or Delayed Closing Date to a new specified calendar date. 21