2020.07

Builders: Providing notice of an Unavoidable Delay due to COVID-19

By: Romena Pinto

Given that COVID-19 has been declared as a Pandemic, by the World Health Organization, a concern is centered around the effects that the Pandemic has on Builders being able to meet obligations under the Agreement of Purchase and Sale.  Tarion administers the Ontario’s New Home Warranty Plan and registers all new home builders in Ontario.  This agency sets the regulatory framework and procedures for new home construction in two major areas: 1) the delay in closing dates; and, 2) warranties for construction deficiencies.  Tarion has provided certainty by responding quickly to regulate builders’ Agreements of Purchase and Sale as to closing dates in light of COVID-19.

In accordance with Tarion Warranty Statement of Critical Dates and Addendum, it includes an event such as a “pandemic” in its definition of an Unavoidable Delay.  As such, Builders will be able to extend critical dates and follow the guidelines set out in Section 5 of the Tarion Addendum (to the Agreement of Purchase and Sale – Delayed Closing Warranty).  

Builders should first review the Addendum and its rules and consider how the Pandemic can affect delivery of homes.  They are required to send out a first notice, at the earlier of: i) 20 days of the delay (i.e. from the date it was declared as a Pandemic), and ii) the next critical date, inclusive of the following:

  1. Describe the Pandemic as the reason for the delay, inclusive of its effects on the delivery of the home; and,
  2. Provide an estimate of the total delay (if known at this point)

The Builder would need to consider the remobilization period which consists of any additional delay that occurs because of the Pandemic.  For example, delays in delivery of supplies, backlog of work by trades, and municipal inspections. 

The Builder needs to account for the length of the direct impacts of the Pandemic upon the home, and consider the add-on time or remobilization period as noted above.  This is vital for the second notice which will advise the homeowner of the delay period being tagged onto the construction schedule (i.e. the combined number of days covering the period of the Pandemic plus the Remobilization Period).  Upon knowing the full period of the delay and when the direct impacts of the Pandemic are over, the Builder would then need to send out the second notice.  In accordance with Tarion online advisories as a general ‘rule of thumb’, the Builder should use at least 30 days, if not more, to assess the remobilization period. 

The second notice content consists of 1) a description of the Pandemic as the reason for the delay; 2) explaining the end date of the delay period which is the number of days of the direct impacts on the Pandemic itself and the remobilization period; and, 3) setting out the new critical dates which can be extended by an unavoidable delay period wherein the Builder can add to the new dates the number of days of the unavoidable delay.  Any notice of critical dates given by Builder shall include an updated revised Statement of Critical Dates.  The second notice must be sent out within 20 days of knowing the delay period has ended, as long as the Firm Closing date or delayed closing date are extended by 10 days after giving notice.

If the above notice requirements are not met, then the notice is ineffective and delayed closing compensation in accordance with Section 7 of the Addendum is payable from the existing Firm Closing date.

The Unavoidable Delay provisions of the Addendum do not permit a Builder to start the Critical Dates framework all over again.  An example outlined by Tarion is that, if you are at the point where you set a Second Tentative Closing Date, then you cannot go back to a First Tentative Closing Date.  Instead take the cumulative total of the delay, for example, 90 days of the Pandemic plus 100 days of Remobilization Period for a total of 190 days, and add the 190 days to your Second Tentative Closing Date and all remaining critical dates.  The usual Addendum sequence will then work in the same way from those extended dates.

If the Builder does underestimate the total delay and is not able to meet the newly set Critical Dates, a homeowner may be entitled to make a delay compensation claim.

For further information, please contact Romena Pinto by phone at (416) 238-7402 or by email at rpinto@businesslawyers.com 

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