On April 3, 2020, the Ontario government ordered that further non-essential businesses must close by April 4, 2020 at 11:59 p.m. including closing down most construction sites in order to flatten the curve of the COVID-19 pandemic. The number of essential businesses was reduced from 74 to 44. The revised list of essential businesses can be found here.
Construction sites related to the healthcare sector, provincial infrastructure such as transit, and projects related to the production of ventilators and other products directly related to fighting COVID-19 were permitted to remain open. Residential construction sites were permitted to remain open where: (i) a footing permit has been granted for single family, semi-detached and townhouses; (ii) an above grade structural permit has been granted for condominiums; or (iii) the work was related to renovations and started before April 4, 2020.
Given the expansive definition of essential residential construction sites, it appears that most existing residential construction sites are permitted to continue operating. It is important to note that although the government order allows residential construction sites to remain open during the pandemic, the government order does not require residential construction sites to stay open.
In fact, some construction sites had already temporarily shut down prior to the announcement due to health and safety concerns to the public and their employees. In the previous weeks, there was public outcry over the lack of adequate health and safety practices on construction sites including the inability to maintain a distance of six feet between workers and improper sanitation practices. A construction worker tested positive for COVID-19 which led to the immediate shut down of the construction site. Premier Doug Ford stated that all construction sites remaining open would continue to be inspected to ensure compliance with proper health and safety practices.
With COVID-19 closing down many residential construction sites, it is important to consider the possible delay on the construction schedule in new construction freehold and condominium properties and whether the closing dates are automatically extended. The first step is to review the Tarion Addendum which is statutorily required to be included in the Agreement of Purchase and Sale of every new construction home.
Tarion Addendum – Extending Closing Dates Due to Unavoidable Delay
The Tarion Addendum includes a force majeure clause in the section entitled “Extending Dates – Due to Unavoidable Delay”. Force majeure clauses deal with what happens when certain triggering events make the performance of contractual obligations impossible. A force majeure clause will often excuse non-performance of contractual obligations and address issues related to compensation and time for performance after the period of the force majeure.
The Tarion Addendum defines an “Unavoidable Delay” to mean an event which delays closing and expressly lists a “pandemic” as a triggering event, and also includes any other period of delay directly caused by the “pandemic” which are beyond the reasonable control of the builder and not caused by the builder (the “Remobilization Period“).
What is the Procedure to Unilaterally Extend the Closing Date?
The builder may unilaterally extend the closing date without having to pay delayed closing compensation provided it follows the procedure outlined in the Tarion Addendum. The builder must ensure that it adheres to the time periods, method of delivery and other requirements in the two written notices that must be sent to the purchaser, otherwise the notices are deemed to be ineffective and the closing date remains unchanged.
The First Notice must be sent to the purchaser within 20 days of when the builder has determined that an Unavoidable Delay has occurred, or at least by the next closing date.
While COVID-19 has caused havoc in many industries, supply chains and the overall economy, the builder should consider the actual effect of the pandemic on the specific property it seeks to invoke the force majeure clause. It is possible that the pandemic has not delayed the closing of a particular property at all. It is also possible, and more likely, that the pandemic has caused labour and material disruptions and shortages, and permits and inspections to be unavailable. The First Notice must be in writing and must set out: (1) a brief description of the Unavoidable Delay – the COVID-19 pandemic; and (2) an estimate of the duration of the total delay – it is unlikely the builder can estimate the duration of the total delay under the circumstances, and it is not expected that the builder will be bound to the estimate.
The Second Notice must be sent to the purchaser as soon as reasonably possible, but no later than 20 days after the builder has determined the expected length of the Remobilization Period.
Tarion has advised that it is reasonable for the builder to take 30 days (or more) after the direct impacts of the pandemic have concluded in order to assess the Remobilization Period. The builder must be able to prove that the Remobilization Period was caused by COVID-19 and cannot rely upon other events to unilaterally delay the closing date. The builder should only send the Second Notice when it has determined the “Unavoidable Delay Period” which is defined as the number of days between the First Notice and the end date of the Remobilization Period. The builder cannot unilaterally change the closing date again after sending the Second Notice. The Second Notice must be in writing and must set out: (1) a brief description of the Unavoidable Delay – the COVID-19 pandemic; (2) the end date of the Unavoidable Delay Period; and (3) the new critical dates.
How Can We Assist You?
The Tarion Addendum and its various clauses require a proper legal analysis in consideration with the specific facts of your case. It is recommended that the parties to any real estate contract seek legal advice when issues arise. If you require legal advice or legal representation in respect to real estate litigation matters, please contact us for an initial consultation. Our lawyers have expertise and experience in real estate litigation matters including new construction properties, extension of closing dates, failure or refusal to close on transactions, etc. We can assist you in resolving your legal issues and finding a practical solution in these difficult times.
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