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Report To: Planning and Development Committee
Date of Meeting: June 25, 2018
Report Number: LGL -004-18 Resolution: PD -147-18
File Number: L2030-08-45 By-law Number:
Report Subject: Policy Options to Address the Pre -Construction Sale of Residential
Real Estate
Recommendations:
That Report LGL -004-18 be received for information.
Municipality of Clarington
Report LGL -004-18
Page 2
Report Overview
x This report provides various options for Council to consider in relation to consumer
protection in the new housing industry.
x This report contains one set of options for Council to consider on the general topic of
consumer protection for new home purchasers.
x A second set of options is included to address the more specific topic of the
prohibition of pre -construction sales through municipal regulation.
x This report also contains a brief summary of the practices currently engaged in by
Planning Services to discourage vendors from pre -mature sales practices.
x Supplemental legal advice has been provided in a confidential legal memorandum
circulated as a companion to this report.
1. Background
1.1 On May 14, 2018, Council directed staff to "report back to the Planning and
Development Committee meeting of June 25, 2018 on various options to help protect
consumers while purchasing their home and prevent builders from entering into
reservation and sale agreements until all zoning approvals have been granted".
1.2 Council's direction to staff was in response to pre -sale activity by Kaitlin Corporation of
its MODO Bowmanville Towns Ltd. project (the "MODO South Project"). It is undisputed
that Kaitlin entered into agreements with some of its customers for the purchase of
freehold townhouse units in the MODO South Project approximately two years prior to
Council's first opportunity to consider approval of the necessary zoning by-law
amendments.
1.3 There are two discrete issues embodied in the Council direction to staff. The first issue
pertains to general options available to the Municipality to protect consumers of new
homes. The second issue pertains to the legislative powers of the Municipality to
prohibit the pre -construction sale of new homes in the absence of all of the required
zoning approvals.
1.4 The first issue is addressed in Section 3 of this report. The second issue is addressed in
Section 4 of this report and in a confidential legal memorandum circulated as a
companion to this report.
2. Legal Context
2.1 Existing Provincial legislation does not dictate the precise timing of commencement of
new home pre -sales. The only strict requirement appears to be that any pre -
construction sale agreements that are entered into must be made expressly conditional
on the attainment of all required Planning Act approvals. A pre -construction sale
agreement that does not expressly include such a condition will not be legally
enforceable.
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Report LGL -004-18
2.2 Purchasers that enter into conditional agreements need to be aware that in the event
that such approvals do not materialize, their agreements are null and void.
2.3 However, vendors of new homes have a legal responsibility not to engage in unfair
business practices. In particular, vendors must not make representations that they have
obtained approvals for a housing project if in fact those approvals have not yet been
obtained_
3. Options to Protect Consumers
Option #1: File Complaints with Tarion & Consumer Protection Ontario
3.1 Protection from unfair business practices in the new housing market is primarily
available through the Tarion new home warranty program. The Tarion Warranty
Corporation was created by the Province of Ontario specifically to protect the
investment of new home purchasers. In particular, the Tarion warranty provides deposit
insurance up to a legislated maximum amount. It is important to note that the Tarion
warranty does not include coverage for "reservation payments" and purchasers should
inquire at the time of payment of a deposit or any other amount whether their funds are
eligible for Tarion warranty coverage.
3.2 In addition, the Ontario Ministry of Government and Consumer Services has created a
program known as "Consumer Protection Ontario" with the specific purpose of
investigating and in some cases prosecuting claims of unfair business practices.
3.3 Tarion and Consumer Protection Ontario are uniquely equipped to handle complaints
and issues of consumer protection in the new housing market.
3.4 If Council is concerned that a vendor of new homes has taken advantage of a
vulnerable consumer population, one available option is to request that one or both of
the above-mentioned organizations conduct an investigation into the sales practices of
the vendor.
Option #2: Awareness Campaign
3.5 A further option available to the Municipality is to create an awareness campaign to
educate consumers about some of the financial risks associated with pre -construction
sales agreements.
3.5 The messaging for a campaign could include warnings about the frequent use of
conditions in pre -construction sales agreements that entitle the vendor to cancel the
project for lack of approvals or for lack of satisfactory construction financing.
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Report LGL -004-18
3.7 The messaging could also include advice to prospective purchasers about consulting a
lawyer prior to paying any deposits, and about contacting Tarion about eligibility for
deposit insurance.
3.8 The awareness campaign could also include the prominent display of a telephone
contact at the Municipality that consumers can dial to inquire about the approval status
of a particular development.
3.9 Appropriate media channels for an awareness campaign would include both print and
online sources.
3.10 Corporate Communications has taken some preliminary steps to better publicize the
risks involved with pre -construction sales agreements. Our staff in Corporate
Communications are prepared to incorporate the direction of Council in the creation of a
communications strategy.
Option #3: Requirements for Advertising
3.11 Another approach to consider would be to regulate the advertising of pre -construction
sales to underscore to consumers the need for municipal approvals.
3.12 For example, the Town of Whitby recently amended its Temporary Sign By-law to
address the issue of pre -construction sales. The Whitby by-law now requires that any
sign that advertises a development that is in the pre -approval stage must include the
statement "development requires municipal planning approval" in prominent view.
3.13 If this approach is adopted in Clarington, it would be particularly useful that it apply to
signage in the vicinity of new home sales offices.
3.14 Council may also wish to consider imposing a requirement for a similar warning
statement to appear on brochures and other marketing materials that are distributed by
vendors to their potential customers. Further consultation may be needed to work out
the details of implementation.
Option #4: Request Action by the Provincial Government
3.15 Council might ultimately conclude that the Province is in a better position to take the
lead on issues of consumer protection in the new housing market. If it is Council's
preference, it is open to the Municipality to submit a letter to the Ministry of Government
and Consumer Services to request that they review the circumstances surrounding this
report and implement any necessary reforms to the industry.
3.15 The City of Vaughan has recently taken this approach when it considered the impact to
its residents of the cancellation of a high profile condominium high rise project within its
municipal boundaries.
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Reoort LGL -004-18
4. Options to Prohibit Pre -Construction Sales Agreements
4.1 A confidential legal memorandum has been circulated as a companion to this section of
the report. The memorandum contains additional legal advice related to the options
below.
Option #1: By-law Prohibition
4.2 Council may want to consider whether to invoke the legislative powers contained in the
Municipal Act, 2001 to enact a by-law to regulate the use of pre -construction sales
agreements.
4.3 Pursuant to such a by-law, Council could seek to prohibit the use of pre -construction
sales agreements until such time as the required zoning permissions have been fully
approved.
4.4 Such a by-law could provide for the creation of offences and a system of fines as a
penalty for infractions of the by-law.
4.5 A system of fines may establish escalating fines for a second and subsequent
convictions for the same offence.
4.5 The maximum fine that may be imposed by a municipal by-law is $100,000.00.
Option #2: Conditions on Development Approval
4.7 Another approach would be to prohibit the use of pre -construction sales agreements
through conditions inserted into development agreements. Such development
agreements are frequently entered into at the earliest stages of the approval process
before the proposal for individual lot arrangement has been submitted.
4.8 The Clarington Planning Department is already following this practice and has been
doing so for many years.
4.9 Currently, it is regular practice for the Municipality to insert a condition in its subdivision
agreements to require that no residential units be offered for sale to the public until such
time as architectural control guidelines and the exterior architectural design of each
building model has been approved by the Director of Planning Services_
4.10 Planning staff also routinely caution subdivision applicants not to commence home
sales until all issues affecting the number and configuration of units in the development
has matured to the appropriate stage.
4.11 Despite best efforts, these conditions are sometimes overlooked or otherwise disobeyed
by some applicants.
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Report LGL -004-18
4.12 These and similar conditions will continue to be inserted into development agreements
at the early stages in the approval process, and the scope for modified conditions is
currently under consideration by staff in the Planning Services Department.
5. Concurrence
This report has the concurrence of the Director of Planning Services.
6. Conclusion
This report contains various options to address the concerns raised by Council about
consumer protection in the new home industry. Council may want to direct staff to
undertake further research or action once a preferred approach has been selected.
7. Strategic Plan Application
Not applicable.
Submitted by:
Robert Maciver, LL.B., MBA, CS
Municipal Solicitor
Reviewed by:
Andrew C. Allison, B. Comm, LL.B
CAO
Staff Contact: Robert Maciver, LL.B, MBA, CS, Municipal Solicitor, 905-623-3379 ext 2013 or
rmaciver@clarington.net