October 11th - 2013

Legal Beat: Increase in development fees passed on to buyer

Ontario municipalities charge builders and developers fees for things such as building permits and development costs.

Ontario municipalities charge builders and developers fees for things such as building permits and development costs. These fees are increased frequently and developers of projects must decide whether to pay the current fees while applying for permits or to wait and pay a potentially higher amount.

Some developers attempt to pass on any increase to a buyer. To do this, they insert clauses into their agreements of purchase and sale such as the following:

"If there is an increase after the date of execution of this Agreement by the Purchaser in any levy, development charge, education development charge, impost charge, fee or assessment (collectively, the 'Existing Levy') imposed as of that date by the municipality, regional municipality, the public or separate school board or any other authority having jurisdiction, or (b) any of the aforesaid authorities impose a new or any other levy, development charge or education development charge, impost charge, fee or assessment (collectively, referred to as the 'New Levy') under the Development Charges Act, the Education Act, or any other legislation of a similar nature or purpose after the date of execution of this Agreement then, the Purchaser shall pay the increase to the Existing Levy and/or amount of the New Levy, as the case may be, as an adjustment on the Unit Transfer Date plus any goods and service tax exigible thereon. If the increase to the Existing Levy or the amount of the New Levy is assessed against, charged or imposed against the Condominium as a whole and not against the whole or any part of the Unit separately, then the Vendor shall be entitled to a proportionate reimbursement on the adjustments apportioned among the residential dwelling units as contemplated in l4(c) above."

In this case, the developer paid the current fees and later passed on the increase to the buyers. These buyers subsequently issued a lawsuit to recover the money. The buyers won their case since the new fees were set by the municipality but never levied against this Markham project and never paid by the developer.

Sterjovski v Rouge Residences

MERV’S  COMMENTS
It is not unusual for buyers of new building projects to sign extensive agreements of purchase and sale prepared by developers without first getting the documents examined by a REALTOR® or lawyer. In this case the additional amount was $11,000.  These buyers must have experienced sticker shock when they saw the closing adjustment costs!

The Ontario government has now passed a regulation for future APS clauses, which states the following: In connection with any agreement of purchase and sale of a home signed on or after January 1, 2011, the registrant shall not charge, as an adjustment or readjustment to the purchase price of the home, any amount as reimbursement for a sum paid or payable by the registrant to a third party unless the sum is ultimately paid to the third party.  If the registrant charges an amount to the owner in contravention of this paragraph, the registrant shall forthwith readjust with the owner. (Ontario New Home Warranties Plan Act R.R.O. 1990, REGULATION 894.)

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For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246