The ideal storyline for new home purchases goes something like this: purchaser signs on the dotted line, plunks over a sizeable deposit, closes deal, moves in and lives happily ever after.
The flipside is not so pretty. Although certainly not the norm, worst-case scenarios do happen, as unlucky buyers found out early this year after their builder Urbancorp went belly up. This week, our post looks at what buyers can expect when a new home deal falls through and their purchase deposit hangs in the balance.
Deposits on new home builds are protected by Tarion – the province’s new home building industry watchdog and warranty backstop.
When Does Coverage Kick In?
Purchasers can make a claim on their deposit in one of three scenarios:
- Builder goes bankrupt
- Builder fundamentally breaches the purchase agreement
- Purchaser exercises a statutory right to terminate the agreement before closing
How Much Is Covered?
Coverage has been in place for years – but it also hasn’t changed in as much time. With superheated markets catapulting prices and deposits sky high in recent years, more and more buyers could find themselves out of luck because once Tarion limits have been maxed out, litigation may be the only hope left to recover remaining amounts.
For the present, Tarion covers deposits up to a maximum of $20,000 for new condo projects. Any excess must be held in trust, as stipulated by the provisions of the Condominium Act – although unscrupulous builders have, at times, failed in this requirement, leaving buyers high and dry for amounts they paid over $20,000.
For all other types of new homes, the limit is $40,000.
What’s Excluded?
Deposit protection typically doesn’t extend to payments made to the builder for upgrades and extras. Check the agreement, as there may be a clause specifically stating exclusions.
Moneys paid to hold your place before signing an official agreement are also not covered. If you make such an arrangement, make sure that your money will be held in trust and that you get a receipt.
Contemplating a new home purchase?
