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Report
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Report To: Planning and Development Committee
Date of Meeting: September 10, 2018
Report Number: LGL -007-18 Resolution: PD -17 81
File Number: L2030-08-45 By-law Number:
Report Subject: Pre -Construction Sale of Residential Real Estate - Update on
Industry Consultation
Recommendations:
1. That Report LGL -007-18 be received; and
2. That Staff be authorized to collaborate with the Building Industry and Land Development
Association and the Durham Region Home Builders' Association and its members to
develop and implement a new home purchasers' guide and a one-page information
sheet to be provided to new home purchasers.
Municipality of Clarington
Report LGL -007-18
Page 2
Report Overview
x An industry consultation meeting occurred on July 31, 2018.
x The policy options contained in Report LGL -004-18 were canvassed at the meeting
and input was obtained.
x There is an industry preference for an awareness campaign.
x There is industry opposition to a regulatory by-law.
x The Report recommends implementation of a new home purchasers' guide and a
one-page information sheet for distribution to new home purchasers.
1. Background
1.1 On June 25, 2018, the Planning and Development Committee was presented with
Report LGL -004-18 entitled "Policy Options to Address the Pre -Construction Sale of
Residential Real Estate".
1.2 A copy of Report LGL -004-18 is found at Attachment 1 of this Report.
1.3 At the same meeting, the Committee resolved to direct staff to consult with the
development industry regarding the options presented in Report LGL -004-18 and to
report to the September 10, 2018 meeting of the Committee with the results of the
consultation.
2. Results of Industry Consultation
2.1 A consultation meeting was convened on July 31, 2018 at 40 Temperance Street. The
home building industry was represented at the meeting by the following organizations:
Building Industry and Land Development Association, Durham Region Home Builders'
Association, Kaitlin Corporation, Delpark Homes, Far Sight Homes, Infinity Custom
Homes, and Tribute Communities.
2.2 The list of meeting attendees is found at Attachment 2 to this Report.
2.3 The duration of the meeting was approximately 2 hours during which Staff canvassed
the input of everyone present with respect to each of the policy options contained in
Report LGL -004-18.
2.4 There was also an opportunity during the meeting for participants to raise their own
questions and concerns, as well as to inform Staff about their sales practices and the
realities and challenges faced by the industry. Meeting participants also provided helpful
suggestions to compliment the policy options contained in Report LGL -004-18.
2.5 It emerged during the meeting that there was a broad consensus among the industry
representatives about which policy options would be effective and which ones would be
ineffective and/or problematic for the industry.
Municipality of Clarington Page 3
Report LGL -007-18
2.6 There was a consensus at the meeting that purchasers of new homes need to be
educated about the process of purchasing a home at the pre -construction phase, and
need to be aware of the conditions contained in the agreements that they sign as
purchasers. The industry representatives all indicated that they make every effort to
educate their customers, but that they are also open to improving their customer
communication.
2.7 Of the policy options presented, the industry representatives agreed that an awareness
campaign would be the most effective method to achieve consumer protection. This
approach is also preferred because of its minimal negative impact on the industry.
2.8 Meeting participants made several helpful suggestions about how to raise the
awareness of purchasers about the home buying process. Many of these suggestions
came out of their experiences in other municipalities.
2.9 Meeting participants suggested that a new home purchasers' guide should be produced
and made available at the Municipality's customer service counter. The guide could also
be made available at the sales offices of the various builders in our community. In a
follow up to the meeting, BIL❑ has provided several examples of a purchaser's guide
that have been produced by other municipalities in the Province.
2.19 Meeting participants also unanimously agreed to work with Municipal staff to develop a
one-page information sheet that would be provided to all new customers that would
prominently display messages about any required municipal approvals and other
cautionary statements that need to be brought to the attention of home buyers.
2.11 One suggestion that was made during the meeting that was not included in the list of
policy options in Report LGL -004-18 was that Council might potentially benefit from an
information session during which industry representatives could make presentations
about their sales practices and efforts to protect consumers. The agenda for the session
could also include information about the Tarion New Home Warranty and the
protections available to new home purchasers. If there are other topics that Council
would be interested in hearing about, our industry representatives would be pleased to
address those topics as well.
2.12 Throughout the consultation meeting there was a clear and unanimous opposition from
the industry to the idea of the municipal regulation of the timing of commencement of
real estate sales. Many concerns were raised about the prospect of a by-law to regulate
this activity including the impact it would have on their financing arrangements, the red
tape and potential delays that would be created by an additional layer of governmental
regulation, and the increased cost both to the industry and to new home purchasers.
2.13 At the conclusion of the meeting, all participants committed to work with Municipal staff
to develop the concept of a new home purchasers' guide for use in Clarington as well as
to develop the content of a standardized one-page information sheet that would be
distributed to all new home purchasers at the time they sign their purchase agreement.
Municipality of Clarington Page 4
Report LGL -007-18
2.14 It is recommended that Staff be authorized to collaborate with the Building Industry and
Land Development Association and the Durham Region Home Builders' Association
and its members to develop and implement a new home purchasers' guide and a one-
page information sheet to be provided to new home purchasers.
3. Concurrence
This report has been reviewed by the Director of Planning Services who concurs with the
recommendations.
4. Conclusion
It is respectfully submitted that Staff should be authorized to continue to develop the
ideas contained in this report with a view to implementation of its recommendations.
5. 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, LLA, MBA, CS, Municipal Solicitor, 905-623-3379 ext 2013 or
rmaciver@clarington.net
Attachment 1 — Report LGL -04-18
Attachment 2 — Attendees list
List of interested parties to be notified of Council's decision is on file in the Legal Services
Department.
Municipality of Clarington
Attachment 2 to
Report LGL -007-18
Meeting with Home Building Industry on Pre -Sales Options
July 31, 2018
Attendees:
David Crome, Director of Planning Stacey Hawkins, DRHBA
Rob Maciver, Municipal Solicitor Eddy Chan, Delpark Homes
Carlo Pellarin, Mgr. Development Review Louise Foster, Tribute Communities
Cynthia Strike, Principal Planner
Karen Richardson, Manager of Dev. Eng
Anne Taylor Scott, Senior Planner
Enzo Bertucci, Kaitlin Corp.
Devon Daniell, Kaitlin Corp.
Bob Shickedanz, Far Sight Homes
Paula Tenuta, VP Policy GovRelations, BILD Johnathan Schickedanz, DRHBA/Far Sight Homes
Carmina Tupe, Policy GovRelations, BILD Emidio Dipalo, DRHBA / Infinity Custom Homes
Denise Baker, WeirFoulds LLP for BILD
Clarington
Legal Services
Report
If this information is required in an alternate accessible format, please contact the Accessibility
Coordinator at 905-623-3379 ext. 2131.
Report To: Planning and Development Committee
Date of Meeting: June 25, 2018
Report Number: LGL -004-18 Resolution:
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.
Municipality of Clarington Page 3
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.
Municipality of Clarington Page 4
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.
Municipality of Clarington Page 5
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.
Municipality of Clarington Page 6
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