The Ontario Court of Appeal recently held that the Ontario New Home Warranties Plan Act does not preclude home buyers from taking legal action against builders for breaches beyond the statutory warranties provided by the Act. This landmark decision has significant implications for home buyers and builders alike.

Fundamental Breach of Agreement of Purchase and Sale (APS)

For a fundamental breach of an Agreement of Purchase and Sale (APS) by the vendor to occur, the deficiencies must be so severe that they cannot be remedied, or there must be a significant breakdown of trust between the contractor and homeowner. In 2002759 Ontario Ltd et al. v Koropeski et al, it is established that fundamental breach is a high threshold; mere deficient work does not entitle a party to terminate a contract. The deficiencies must constitute a breach of contract or demonstrate that the contractor is unwilling or unable to perform their work.

Currently, there are no cases that discuss the breakdown of the contractor-homeowner relationship resulting in a loss of trust or faith as grounds for the transaction not proceeding. The prevailing case law focuses on severely deficient work. Minor deficiencies do not justify stopping the transaction; the deficiencies must be substantial.

Caveat Emptor

“Caveat emptor,” meaning “buyer beware,” is a basic contractual principle. However, there are exceptions in the context of building deficiencies due to the disparity in information, knowledge, and expertise between vendors and purchasers. Builders are in the best position to understand the building’s integrity, which most purchasers cannot detect, even with an inspection. Some of these exceptions include:

  • The building being incomplete at the time of sale.
  • Fraud on the part of the vendor.
  • The building being substantially different from the building that was the subject of the contract of sale.

The vendor has an obligation to satisfy material obligations under an APS agreement, ensuring the building is up to par and consistent with what was agreed upon.

Reasonable Opportunity

The law requires contractors to be given reasonable opportunities to correct their deficiencies and mistakes before the vendor can claim against them in the courts of law. This is supported by TIF Mechanical Limited v Ortolli v Lobello, which states that contractors should be afforded these opportunities unless they are in breach of contract. Contractors deserve a fair and reasonable opportunity to correct their mistakes, as a deficiency alone does not constitute a breach of contract. Without this opportunity, contractors cannot be denied payment for their work.

In Rocksolid v Bertolissi, it is established that a vendor cannot prevent a contractor from entering the property after uncovering a deficiency, as this could be considered a breach and repudiation by the vendor. However, contractors must remain ready, willing, and able to fix these deficiencies and complete the contract. If the vendor does not allow for reasonable opportunity for correction, it could negatively impact their outcome in court.

However, if there are numerous deficiencies that render the property non-compliant with the terms of the APS, this may be determined to be a fundamental breach of the contract. This would exempt the owner from providing the contractor a reasonable opportunity to correct the deficiencies. Examples of such deficiencies include overlapped corners being improperly trimmed, insufficient overlap being improperly staggered or offset, elements not being bonded or burnt resulting in excessive bleed-out, and the perimeter being inconsistently installed with loose and open corners.

Terminating APS Due to Fundamental Breach

If a purchaser wishes to terminate the APS, it is beneficial to obtain a detailed consultant’s report and photographic evidence setting out all the particulars of the deficiencies. This will aid the owner in rebutting the presumption that the contractor must be provided a reasonable opportunity to correct the deficiencies.

A breach can also be found when there are numerous deficiencies, some of which may be building code violations. The magnitude of the deficiencies is a critical factor as well. Large encumbrances could increase the likelihood of terminating the APS. Some examples of large deficiencies can be examined in Sommerville v Ashcroft, where the purchaser experienced ‘sick house syndrome’ due to water infiltration in the basement, toxic exhaust gases entering the home, poor air circulation because of undersized ductwork, and a lack of venting in the master bathroom causing excessive mould to develop.

Conclusion

It is crucial for purchasers to exercise caution and avoid hastily terminating an agreement, as this can lead to complications if they later decide to sue the contractor. Purchasers should ensure they provide contractors with the opportunity to address and fix deficiencies before pursuing legal action. Establishing fundamental breach could be grounds to terminate an APS agreement; however, it must be considered that this is a high threshold and will not be simple to establish.

Written by: Maya Kawale