If you think that a 200-page Agreement of Purchase & Sale could ever be considered “straightforward,” think again.
I have a client who was recently screwed over by a developer because of a uniquely-worded agreement.
The three words “for whatever reason” cost him thousands and thousands of dollars…
I consider myself to be a trusting person, but even I know who not to trust, and when.
Remember the episode of Seinfeld where Jerry feuds with his mechanic, David Puddy, and takes his car for repairs elsewhere?
Jerry remarks to George, “I think my mechanic is trying to screw me.”
George replies, “Why would Puddy screw you?”
And when Jerry informs George that he didn’t take his car to Puddy, and he in fact took it to somebody else, George says, “Well then OF COURSE they’re going to screw you! They could say, ‘you need a new Johnson-rod,’ and how are you supposed to know if you’re being screwed?”
Well, there are certain people and certain industries that I feel screw everybody, and clearly auto maintenance is one of them.
But unfortunately, pre-construction real estate also falls into that category. This is why I cringe when I think of people walking into the sales centre, gleamy-eyed and trusting, who end up buying from the sales-rep on site who is undoubtedly wearing a short-sleeve button-up shirt with a tie.
A client of mine named “Joseph” recently battled with a developer and it ended badly.
The end of the story goes like this: Joseph lost.
But let’s start at the beginning…
You’ve all heard of the “rescission period,” or the “cooling-off-period” which is a ten-day window following the signing of any offer in pre-construction. During this time, the buyer has the option of changing his/her mind and getting out of the deal.
It is during this time that the buyer should get his/her lawyer to look over the Agreement of Purchase & Sale and make sure there are no red flags.
I say “should” because many buyers simply use this as a ten-day window to sit and contemplate the world in which we live, and spend no time actually investigating the development that they just contracted to purchase in.
Joseph didn’t have his lawyer look over the Agreement of Purchase & Sale.
And it cost Joseph dearly.
At a condominium development that shall remain nameless, the builder is screwing every person he can, for any amount of money, with respect to any issue possible.
The latest screw-job has to do with the GST Rebate, which he has decided that Joseph does not qualify for.
If a property is to be used by an end-user as a principal residence, there is no GST payable on the sale of the property. If the property is purchased for investment, then the builder is required to submit GST to the government on behalf of the buyer, and charge the buyer appropriately.
In Joseph’s case, the builder decided that he did not qualify for the rebate.
Here is the exact wording in the Agreement of Purchase & Sale:
“If the Vendor believes, for whatever reason, that the Purchaser does not qualify for the Rebate, regardless of any documentation provided by or on behalf of the Purchaser (including any statutory declaration sworn by the Purchaser) to the contrary, and the Vendor’s belief or position on this matter is communicated to the Purchaser or the Purchaser’s solicitor on or before closing…”
The clause goes on to say that the purchaser shall be obliged to pay the GST.
Note the words “for whatever reason.”
How loosely worded is this?
I asked my real estate lawyer if he’s ever seen anything like this, and he said, “In my thirty-three years in the business…..NO.”
It was the builder’s contention that this unit would be used as an investment property by Joseph, and thus the builder decided that Joseph would be responsible for paying GST upon closing.
Joseph provided the builder with a lease for his current unit (showing that he would be moving out of his current residence and into the new one), as well as a statutory declaration swearing that the unit would be occupied by himself, but the builder refused to budge.
The builder didn’t have to budge, because if he believed, “for whatever reason,” that the Purchaser doesn’t qualify for the rebate, then he could do whatever he bloody-well pleased.
For whatever reason…
Any reason will do.
He doesn’t like the guy’s shirt.
He doesn’t like the guy’s cat.
He doesn’t like the guy, period.
Anybody who purchased a unit in this building, and there are one-hundred-thirty-eight of them, are at the mercy of the developer and his ability to legally screw people because of the wording in the Agreement that his crack team of lawyers drafted.
Joseph ended up paying $12,000 in GST on the closing date because he simply ran out of options.
The wording in the Agreement was clear, and although unfair, it was iron-clad. Joseph made as much noise as he could up to the closing date, including many empty threats, but the lawyers for the builder refused to budge and notified Joseph’s lawyer that they would slap him with a breach of contract if he didn’t close on time.
Joseph scrambled to get the additional $12,000 on time to close, and that is money that came out of his pocket and out of the money he expected to make on this condo.
Now there is a chance that Joseph can get the money back by applying for the rebate through the government, but the government didn’t get rich by writing a lot of cheques!
It’s a lot easier to not pay the money in the first place than to pay it and try to get it back!
The builder at this particular development has played hard ball with every owner in the building, on every issue. He has a list of material defects as long as my arm, but he simply refuses to fix them. His response is always the same: “Sue me.”
There are currently two lawsuits in going on that I know of, and who knows how many more are on the way.
Buyers are at the mercy of the wording in the contract that they sign, whatever that wording may be.
I’ve often heard people say that paying a lawyer to “read like a fifth-grader” is a waste of money. Who gets paid to read?
Well, it’s a lawyer’s job to spot red flags, and wording like “for whatever reason” is as big a red flag as any.
But for those of you that root for the underdog, and have grown to hate this evil developer that I speak of, consider that all is not lost.
I have it on good authority that more than seventy units have a different bathroom vanity from that which was detailed in all the Purchase Agreements, and this means that seventy people are entitled to receive what they paid for.
The builder may say “sue me” to one or two people, but if a class action comes against him from seventy people, what will he say then?Back To Top Back To Comments
at 2:30 pm
That is a pretty horrible story that I am sure is far too common – like any big purchase, it’s easy to get caught up in the emotion and gratification of something new, while overlooking the details. In this case those details proved to be quite significant.
One issue I took with your post is the line, “but the government didn’t get rich by writing a lot of cheques!” Come on Dave that is just lazy writing – trying to win sympathetic readers by bashing taxes. Do you honestly think the government is as you put it “rich”? Given that our government, from the municipal to federal level is massively in debt, I think it’s safe to say that the government isn’t going to be taking any swan dives, Scrooge McDuck style, into their pool of money!
at 10:25 pm
In line with McB’s comments, the CRA website points out the Taxpayer Bill of Rights and their Ombudsman who may be of some help if the developer’s playing ridiculous hardball.
I like right #1:
“You have the right to receive entitlements and to pay no more and no less than what is required by law.”
Sounds like your client’s position. He’d do well to contact the CRA and to speak with an agent about his situation, if his lawyer hasn’t done so already. Calling by yourself is no doubt cheaper than paying someone to do it for you, of course – and saying, “um, can you help me with this GST I was forced to pay which, by rights, I shouldn’t have to” is probably a decent opener if he doesn’t know what to say….
at 4:22 pm
“If a property is to be used by an end-user as a principal residence, there is no GST payable on the sale of the property. ”
Totally wrong in any cases.
If new home, GST/HST always payable (minus GST/HST rebate (if primary place of residence, credited by the builder or claimed directly – if for long-term rental, rebate claimed directly with the CRA ).
Used home, no GST/HSt in any case.