HCRA Advisory – Price Escalations and Contract Terminations

Earlier this year, the Home Construction Regulatory Authority (HCRA) updated one of its advisories with respect to Price Escalations and Contract Terminations. Much of the advisory is not new, but it highlights HCRA’s focus on being the “watchdog” for consumers. This note will briefly discuss two items in the Advisory, being (1) Price Escalations, and (2) Adjustments; however, readers are encouraged to read the entire Advisory for further information and guidance from HCRA. The advisory can be found here.

The Advisory emphasizes that licensees must honour their agreements and must not try to coerce purchasers for more money than agreed upon – particularly by threatening to cancel the sale agreement if the purchaser does not pay more. The Advisory sets out that HCRA may have some leniency for a licensee to request a price increase with existing purchasers, but the licensee must (a) provide significant information about how the price increase was determined, (b) advise the purchasers of all their options – including to continue with the original price, (c) give the purchasers a reasonable time to respond, and (d) recommend that the purchaser obtain independent legal advice. Even complying with those guidelines, however, may result in HCRA determining that the licensee has not demonstrated necessary competencies to possess a license. The authors strongly recommend obtaining legal advice before sending any kind of notice requesting a price increase to existing purchasers.

The Advisory also updates HCRA’s guidance on adjustments in sale agreements. There are two key points here: (1) adjustments must be clearly communicated through the agreements; and (2) a summary of how the adjustments were calculated must be provided on closings.

1. Clear communication. Adjustment clauses in sale agreements must be drafted in a way that is clear to purchasers and, where possible, based on an objective and easily calculable method. Wording that is not sufficiently clear and specific may be determined to be an act of professional misconduct. We have all seen builder form adjustment clauses which are compacted into one difficult to read paragraph which leaves lawyers, purchasers, and the developers themselves scratching their head trying to understand what adjustments are chargeable. The HCRA has made it clear that this is not acceptable, and any existing builder form agreements should be updated with more clearly drafted adjustment clauses.
2. Summary of calculation. When collecting adjustments on closing, licensees are also required to communicate with purchasers clearly and in a timely manner. Purchasers should be provided, at minimum, a summary of how the adjustments were calculated and reasonable time to review the adjustments. In addition, for third party charges, such as municipal charges, the following information should be provided:

• The basis for the charge;
• How the amount was arrived at;
• When the licensee was informed of the charge from the third party; and
• Confirmation that the licensee is not imposing a mark-up on the charge.

Failing to abide by the Advisory guidelines may result in HCRA determining the licensee engaged in professional misconduct, and in short, HCRA may determine the licensee is not competent to possess a licence for new homebuilding. HCRA is looking to developers to not only abide by the legal terms of their agreements and the Addendum, but also engage in what HCRA considers to be moral and ethical consumer business practices. They may well take action if they feel that consumers are not being fairly treated even if the developer’s actions are technically within their legal rights.