Last Updated on August 28, 2024 by CREW Editorial
New legislation has been passed by the Ontario government that will impose a statutory 10-day cooling off period for buyers after they sign a purchase agreement for a new freehold home. During debate on the matter, both Liberal and New Democratic Party MPPs backed the move.
In essence, the legislation, known as Bill 200, or the Homeowner Protection Act, 2024, will allow buyers to cancel an agreed-upon deal if they choose – without fear of a financial penalty. The change would match a similar review period for buyers of new condominium units.
However, there is a downside to all this.
The new regulatory changes will only add uncertainty, needless new paperwork and additional upfront and ongoing administrative costs to the already beleaguered new home sales market – at a time when it is already difficult to build houses people can afford to purchase.
Items such as updates to an addendum to an agreement of purchase of sale and creating information sheets that builders will have to provide to buyers of new freehold homes pose another logistical and financial hurdle, according to a government analysis of the regulatory impact of the changes.
Considering the hefty taxes, fees and levies that already add a third to the cost of buying a new home, it will only further boost the price tag of a purchase.
Changes will come into force in 2025
The legislation repeals and adds various definitions related to requirements for purchase agreements and construction contracts and sets out when a purchase agreement is binding on purchases of new freehold homes as well as provides for when a buyer can rescind an agreement.
To rescind an agreement, a buyer must give written notice to the vendor within 10 days of when the buyer receives a copy of the purchase agreement. The rules require the vendor to promptly refund, without penalty, all money received from the purchaser as well as interest. Builders violating the rules could be fined $50,000, matching the penalty under Ontario’s Condominium Act.
The legislation changes the New Home Construction Licensing Act, 2017 and the Ontario New Home Warranties Plan Act. It received Royal Assent June 6.
The government is now consulting on how to implement the regulations. The Ministry of Public and Business Service Delivery and Procurement is accepting feedback from the public until Sept. 16. The ministry is anticipating the changes will come into force sometime in 2025.
New rules will complicate matters
The Toronto Regional Real Estate Board (TRREB) and Ontario Real Estate Association (OREA) have applauded the cooling-off period for new freehold homes and thanked the government for not proposing to apply the same cooling-off period to resale homes. I find this strange, as their argument is that doing so would undermine certainty in resale real estate transactions.
Pardon me, but why is the new home sales market any different?
The same sentiment applied by TRREB and OREA to the resale market is also applicable to vendors of new freehold homes.
The regulatory changes will only complicate matters and throw a wet blanket over the sales process. Instead of a straightforward exercise, there will now be a loophole that creates uncertainty.
Developers and builders must finance the cost of land, labour, materials, equipment and myriad other items when building a new home. When a buyer signs on the dotted line, there needs to be assurance that the deal will go ahead. Under the new set of rules, that will not be the case.
While adding more costs for the new home buyer, the cooling-off period will further complicate the homebuying process. Instead of firm commitments, the deals will be subject to change.
Developers and builders are already at the mercy of myriad rules, procedures to follow, and hurdles to overcome when building and then selling a home. Making it more complex serves no one.
The homebuying process is already very open and transparent. Many new freehold home vendors make their agreement of purchase and sale available online to potential buyers for review before they even enter a sales office. This enables them to make clear and informed decisions.
By the time a buyer signs on the dotted line to purchase a new home, they have had ample time to assess their situation, ask questions, consult experts, and decide if they want to proceed.
Present system is working
There is some solid evidence that a new process is not needed and, in fact, would be a waste of money.
In B.C., for example, legislation was introduced Jan. 3 that gave buyers of resale homes three days grace to reconsider a property purchase,
The new Home Buyer Rescission Period in B.C. gives homebuyers who make a subject-free offer three business days to rescind an accepted offer on a property. If they decide to walk away, they pay 0.25 per cent of the offer amount. On a $2-million deal, the cancellation fee would be $5,000. Under the law, buyers are not required to give a reason for rescinding their offer.
Granted this applies to the resale housing market, but according to B.C. realtors there hasn’t been a single cancellation as a result of the new rescission period.
Why would the new home market be any different?
There is no need to rock the boat in Ontario by imposing a 10-day cooing-off period for buyers of new freehold homes.
If the system isn’t broken, why fix it?
Richard Lyall is president of the Residential Construction Council of Ontario (RESCON). He has represented the building industry in Ontario since 1991. Contact him at media@rescon.com.
Richard Lyall is president of the Residential Construction Council of Ontario (RESCON). He has represented the building industry in Ontario since 1991. Contact him at media@rescon.com.
