COVID-19’s Effect on New Construction
After visiting numerous model homes and reviewing various floor plans, you entered into a Purchase Agreement to buy your dream home. Construction begins, you pick your finishes, and you can see your home taking shape. Your excitement grows, as you enter the final stretch to the closing date. Then, the World Health Organization (“WHO”) declares a global pandemic in regards to the COVID-19 Coronavirus and numerous business closures occur and residential construction restrictions are put in place. What does this mean for you and your dream home?
Attached to your Purchase Agreement is the Tarion Statement of Critical Dates Addendum (the “Addendum”), which sets out various deadlines for the builder to complete your home and transfer ownership to you. If the builder does not meet these deadlines, there are consequences that may follow, one of which is the payment to you of Delayed Closing Compensation. However, the Addendum provides that the builder is allowed to unilaterally extend the closing or occupancy date, if there is an unavoidable delay.
The Addendum defines Unavoidable Delay as “an event which delays closing which is a strike, fire, explosion, flood, act of God, civil insurrection, act of war, act of terrorism or pandemic, plus any period of delay directly caused by the event, which are beyond the reasonable control of the vendor and are not caused or contributed to by the fault of the vendor.” The WHO’s declaration of a global pandemic falls within this definition. However, there must actually be a delay directly caused by the pandemic, which the builder will need to determine.
How will you know if your closing is delayed due to the pandemic? If the builder determines that a delay in construction has occurred or will occur, Tarion requires that the builder send 2 written notices to you. The First Notice (which should be sent within 20 days of the determination) is to advise you that an unavoidable delay has occurred, with a brief description of the delay caused by the pandemic (such as material shortages, work stoppages/delays or inability to obtain construction permits); together with an estimate of the duration of the delay (if possible). If the duration is unknown at that time, the builder will state that.
Once the pandemic is declared over or the circumstances causing the delay have stopped, the builder will need to assess whether or not there is any additional delay caused (such as a backlog for permit applications to be approved). This is referred to as the Remobilization Period. Although there is no set amount of time for this period, Tarion indicates that 30 days is reasonable.
After the builder has determined what the total amount of delay is (i.e. delay caused directly by the pandemic, plus the remobilization period), the Second Notice will be sent to you. It will provide a brief description of the delay, the end date of the unavoidable delay period, and the new critical dates for your closing. You will be required to accept the new closing date, and the total number of days’ delay caused by the pandemic will not form part of any calculation for delayed closing compensation.
A delay in your closing date is not the only impact the pandemic may have on the purchase of your new home. It has also affected some of the processes that occur both prior to and after closing. For instance, Tarion does not consider it a requirement that the Pre-Delivery Inspection (“PDI”) must occur prior to closing; so in light of the pandemic, recommends that builders conduct the PDI on your behalf, documented with photos. Then, you are asked to conduct your own inspection, after taking possession.
The warranty submission deadlines (i.e. 30 days, one year, two year, etc.) have been suspended until the pandemic is over. So, you will have more time to submit your warranty claim forms, if necessary. Similarly, the builder’s repair timelines have been suspended until the pandemic is over, except for emergencies or matters of health and safety.
You will not be required to allow the builder’s trades people or suppliers into your home after closing to complete repairs or work, if you are not comfortable doing so. The builder’s trades people or suppliers will also not be required to enter your home to complete repairs, if they are uncomfortable.
The full effects of the pandemic are yet to be determined, however, it is evident that it has had an impact on new construction. The above information is a general overview of some of the impacts.