By Jonathan Oke

The pandemic has thrust a handful of legal issues to the fore

Time is of the essence when it comes to building a new home, or taking possession of it, or repairing it. But in a pandemic-afflicted world, time has slowed. Safety protocols, shutdowns and supply line interruptions have made builders less efficient than they were pre-COVID. But the clock hasn’t stopped on many deadlines. And that has kept lawyers busy in addressing multiple legal issues plaguing builders and homeowners alike. Five lawyers weigh in on the issues that have become most prevalent.

Christine Kellowan 
Associate
Goldman Sloan 
Nash and Haber LLP

THE ISSUE:  STATE OF REPAIR

“A lot of the concerns I’m fielding are related to builder repair periods and dealing with potentially unwarranted claims. There’s a lot of confusion as to whether the homeowner submitted a Tarion warranty claim form in time—confusion because Tarion extended the time frame for people to submit. And second, there’s the question of chargeability of conciliations. Normally, Tarion would make a decision about workability at the conciliation inspection, and then, if it’s warranted and there’s not any exception to apply, the builder would get dinged and receive a chargeable conciliation on their record. So Tarion created this extension period where, rather than making the call on chargeable conciliation at the time of the initial conciliation, that decision is now instead being made at the claims inspection. Because there’s confusion, I have a lot of clients trying to resolve outstanding warranty claims, but they’re not sure if they have time to perform the repairs and, second, enter into some sort of resolution with the homeowners. 

“The delays caused by the pandemic have definitely created some backlogs. Even yesterday counsel from Tarion contacted me, asking if they could hold off on exchanging materials, which I agreed to.

“But even though there’s a backlog, what builders have to appreciate is that just because you’ve submitted your appeal, or told Tarion you’re ready to appeal, that’s not stopping Tarion from having their system auto-generate invoices relating to the subject matter of the appeals. So we’re getting panicked calls from clients saying, ‘I thought I appealed this! Why am I getting this bill or invoice?’ So we’re having to contact Tarion’s collections department to advise them that until the outcome of the appeal, our client is not going to pay these invoices.

“I’m going through a backlog of builder arbitration forms appeals, and there’s a recurring issue of documenting changes of instruction or changes relating to the agreement of purchase and sale. You have to document all communications with homeowners, because at the end of the day, Tarion looks to the written documentation as opposed to ‘he said, she said’ about what went down with these warranty claims. Always get your changes in writing. Also, try to see if there’s any exception to chargeability that may apply to you as a builder. I’m coming across builders with these appeals who could have availed themselves of these exceptions but for the fact that they didn’t follow these procedures. I always remind them, ‘The next time you’re denied access, make sure you’re sending your notices. Put in an offer to settle, in writing, within a certain time frame. And make sure your quotes are based on retail value instead of the cheaper quote you can get because you‘re a builder.

“I think the first two quarters of this year there will be a lot of backlogs being resolved, then we’ll get caught up after that.

“The issues of increased or unforeseen costs have also become more prevalent. One case we have is for work that was not allowed to proceed (after the initial shutdowns), where the owner hired someone else to come in and complete the contract. Our client, the general contractor, says they have an unpaid account, and the owner is saying they don’t have to pay anything because they had to go out and hire someone else. But performing that construction work at that time should have been illegal. The first contractor was simply complying with the law. It’s a strange situation to have arisen, but I wouldn’t be surprised if that issue was more widespread than this one case. Most are probably more discreet about their non-compliance. When the (essential businesses) list first came out, we were fielding a lot of calls about who makes it on the list, because when you started reading all the provisions, some companies could fall within the permitted work that you didn’t initially assume would. So most people were very concerned about making sure their contract acknowledged that it was permitted under the emergency order. But I haven’t heard of any penalties for anyone acting illegally yet.
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Mark Weisleder, 
Senior Partner and
Notary Public at Realestatelawyers.ca

 

THE ISSUE: THE NEED TO WORK WITH HOMEBUYERS

“As a result of the pandemic and the uncertainty about occupancy closings and final closing dates, buyers are, in many cases, given a very short window to finalize their mortgage requirements. Some of these buyers have seen their financial situations deteriorate during the pandemic and often need to ask for an extension due to the lack of sufficient notice. Although builders in general will grant a request for an extension, in many instances it involves significant extra charges. 

“Also, the changes in a buyer’s ability to finance may also result in that buyer having to assign their agreement to another buyer to avoid forfeiting their entire deposit and facing unwanted legal proceedings. In many cases these buyers are not looking to sell for a profit, just to recover their costs. Yet builders in general will not permit the home to be advertised on any MLS system, making it more difficult for the buyer to sell.

“We speak of working together in a pandemic to get deals closed. Builders, lawyers and buyers should be able to do this in an atmosphere that is not adversarial.”

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Leor Margulies
Head of Real Estate Group at
Robins Appleby Barristers + Solicitors

 

THE ISSUE:  HOW LONG WILL YOUR DELAY BE?

“There’s not the burning stuff every five minutes that we had in the spring. But what we’re dealing a lot with now is the back end of Tarion-delayed closings and force majeur issues. 

“When the vendor has made a determination that the disruptions related to the pandemic (e.g., labour or supply disruptions and/or disruptions to governmental approvals) are likely to or will have an impact upon the construction schedule of the home, then according to the terms of the (Freehold Tentative Closing Date) Addendum, the First Notice should be sent to the purchaser within 20 days thereafter. It’s not 20 days from when the event occurs; it’s 20 days from when the impact is fully ascertained. And that’s the challenge, since you don’t really know how long that delay will be. You may not know for months. Each project is different—low-rise or high-rise, the stage you’re at in your development, how long it will take to remobilize.

“We have a client with a low-rise project that was impacted in multiple ways. We put together our notice in compliance with the bulletin and the addendum, and said, ‘OK, there’s a pandemic. Here’s the impact on your specific project in terms of things being delayed: permits, labour shortage, etc. etc.’ You’re supposed to, as best you can, tell the purchasers when it’s being moved to. But we couldn’t, because we had no idea. There’s two parts. There’s the direct event. Then, around the end of June when permits were being issued, you could start doing work again. But there were other impacts in terms of labour and lumber shortages. 

“So you’re supposed to look at the overall impact, now that we’re back to some semblance of normality, and determine how long it will take for remobilization and to get back to being operational. You have 20 days from the date you’ve been able to realistically assess the total impact on your project—to say, ‘OK, your move-in date was Jan. 1, 2021; it’s now been moved seven months based on the following delays.’ The challenge is that it’s not like a strike; it’s an ongoing pandemic and the impacts are so broad. We have a case right now where we sat down with the developer and said, ‘It’s time, you have enough information. You need to put it together.’ 

Then they ask, ‘What happens if there’s another lockdown?’ The Tarion bulletin doesn’t specifically say, but I think the proper analysis is this: When you went back to work and calculated everything, you had to plan for some-thing reasonably foreseeable, but you can’t plan for every eventuality. For example, another complete shutdown is not reasonably foreseeable. That’s a new unavoidable delay. You can’t wait until the cows come home, though. 

“Then you have builders asking, ‘What happens if the prices drop? Everyone will be looking for a way out of the deal and to negotiate a new deal. They’ll come and look at my notice and say I should have sent it out earlier, or that it’s not reasonable.’ But we can only do what we can do. We don’t know if there’s going to be a third wave to the pandemic. And what if the vaccine doesn’t work? 

“That’s why I advise my builders to be vigilant and identify all the reasonable potential problems. They know their municipality, where their project was and where they are now. If it’s an educated guess, a judge will understand. 

“But you also can’t use this as an opportunity to correct problems that occurred prior to the pandemic. If you were three months late before it occurred, and lost another six months because of the pandemic, you can’t say, ‘Let’s make it a year and a half to be safe.’ The timing has to look reasonable to a judge.

“But you don’t want to push that new date out too far either. You can’t say it’ll be two years, then, after it only takes a year, write to the purchaser and say you want them to close now, because they’ll say, ‘No, I’m happy to wait the extra year and wait for the market to get better.’”

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Sahil Shoor
Partner, Gowling WLG (Waterloo)


THE ISSUE: BILL 218 WILL HELP, BUT…

“I’m a dispute resolution lawyer and there are definitely new issues in the construction world, including a lot of delayed claims being advanced by contractors. One of the things that’s sometimes challenging is satisfying the needs of the employees/workers—there’s only so much space you can have between people, and with several trades working on a site at any given time, it’s having a real impact on scheduling.

“I have had a few cases with COVID on construction projects, where a contractor’s or subcontractor’s employee brought COVID on to the site and they had to completely shut down that part of the project for 14 days. 

“But if the employer has been acting in good faith, that’s where the Bill 218, Supporting Ontario’s Recovery and Municipal Elections Act, can help. It was passed to provide some comfort to companies, so that if you’re acting in good faith, you have protection as it comes to COVID-related items as they pertain to litigation and dispute resolution. 

“For claims of force majeure or schedule extension or compensation, the original contracts for some projects didn’t really address the issue. In common law, if those issues are not addressed in your contract and you don’t have a force majeure clause, you have to look at Doctrine of Frustration, which basically says there is a supervening event that has taken place which the parties at the time of the contract never considered—a new event that has changed the course of doing business, meaning the parties can no longer perform the contract. However, the threshold and evidence needed to prove the theory are very high. 

“But it’s important to note that just because a contract becomes expensive to perform, such as if the price of wood or steel goes up, you cannot claim frustration. You cannot get out of it just because you’re living in the COVID world. 

“In terms of lessons learned, for new contracts being entered into, you cannot not say the pandemic is going to have an impact. It’s at the forefront of everybody’s negotiations and how much risk they’re willing to take on. And it’s the underlying contract that the parties have signed that is going to dictate what their legal rights are and what remedies are available to them. For example, if I’m representing a developer, I will advise them to send a notice immediately upon the occurrence of COVID on the site, so that the parties are fully aware of the situation and that you’re trying to mitigate the damage, and here’s the mitigation plan.

“Finally, and this is big in the construction world, it’s about relationships. How long have the two parties worked together, and are they able to battle COVID together and deliver the project together?

“Unfortunately, though, I think some are using this opportunity to get out of bad deals.”

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Robert Mullin
Partner, SV Law


THE ISSUE:  THE NEW REALITY OF CONDO AMENITIES

“The immediate effect I’ve seen in my practice is with existing condos. I refer to them as the canary in the coal mine. They react quickly and are very sensitive to the changing environment. Some of the big issues I’ve seen pop up have been how to deal with amenities. Amenities that include items like pool, gyms, storage, bike rooms. We’re now seeing pools reaching 30 to 40 years old, with dramatic infrastructure upgrades required. On top of the exceptional maintenance costs, you now layer in the pandemic. So you’ve taken a weakened system and added the extra strain of COVID-19. Many condos have shut down those amenities, so many of my clients are now having a conversation about the value of these amenities. It’s become a bit of a white elephant. It was already an extensive piece of infrastructure, and one that left us more exposed as a result of potential virus transmissibility. 

But I’m getting daily emails from some, asking, ‘What’s your legal opinion about reopening the pool? Or the gym, or the library?’ Needless to say, with increased sanitization costs, hygiene protocols and increased cleaning, those maintenance costs are going to go up. So COVID-19 is putting significant strain on the ability of condos to deliver those amenities to the unit owners in a cost-effective and safe manner. 


“And that might have a long-term effect with respect to developers. I could see the breadth and depth of amenities dwindling in the future. At the very least, the delivery and planning of amenities will be more ‘surgical’ and perhaps more mindful of the long-term implications of the the costs the condo will eventually bear. I think developers—and no discredit to them—have had a different yardstick by which they measure a development, measuring marketability and profitability and sales. But I think you’ll see developers put into their calculus, ‘What will be the long-term ramifications of this amenity on the condo’s budget 15 years from now?’ And if you’re a long-term builder in a particular jurisdiction, you want a solid reputation that follows you, where that building is looked upon as an asset to your brand reputation as opposed to a detriment. Some builders have been aligned to this for a generation, but some are just coming to this realization; that just looking at the construction, sales and exit of a condo should probably not be the only calculus in determining how to be a good, vibrant community member for generations to come.

“And you’re seeing an increased message from the courts in the past year to developers that this is an enhanced relationship where you have to try harder to make sure that the consumer is protected.”

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