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QUICK HITS
- Several Ontario homebuyers challenged a developer’s attempt to add tens of thousands of dollars in surprise utility-related charges just before closing, arguing those costs weren’t clearly allowed in their contracts.
- The court agreed, finding that the Agreement of Purchase and Sale only permitted charges for certain utility costs paid directly to municipalities or utility providers, not to private contractors.
Over the past few years, there have been several media reports of developers in Ontario attempting to levy charges against buyers for various matters that were not included in the original purchase price.
Such issues may arise during the process of construction or at the time of closing, and buyers may be left feeling that they have no choice but to agree to the charges or lose their deposit.
Whether a seller is legally entitled to demand additional payments from a buyer generally comes down to the wording of the Agreement of Purchase and Sale (APS).
Buyers challenges surprise closing costs
In Bellisario v. 2200 Bromsgrove Development Inc., several buyers of units in a townhouse complex challenged a developer’s attempt to charge them certain adjustment amounts on closing. The buyers had entered into their respective APSs for amounts varying from $400,000 to $700,000 before the units were constructed.
In the APSs, there were provisions for adjustments to the purchase price related to matters, including utilities, to be calculated and paid as of the closing date. A few days before closing, the developer delivered final statements of adjustment that included alleged “Utility Meter Installation Charges” for electrical, gas, water/sanitary and permits/fees.
These charges also covered amounts paid to various contractors and trades for work on utilities, construction management, and landscaping. In some cases, the additional charges were as high as $86,000.
In response to one buyer’s request for evidence, the developer provided a “Certificate” outlining costs reflected in the statement of adjustments. The certificate included only total amounts under various subheadings for the entire project, which were then divided among the buyers based on their proportionate share.
The buyers closed the transactions but challenged the developer’s position afterward.
What the contract actually said
The clause at issue in the APS stated that the developer was entitled to reimbursement for:
- the cost of any water and water check/sub meter costs, installation and connection charges and hydro and gas/BTU check/sub meter costs, installation and connection charges; and
- a proportionate share of all electricity, gas, water, sanitary, drain and sewer infrastructure, installation, connection and energization costs (or security relating thereto) paid by the Vendor to or deposited by the Vendor with the Municipality or utility service provider.
Differing views on interpretation
The developer argued that the above term permitted it to charge the buyers for all costs associated with the engineering, installation, and connection of the necessary utility services, irrespective of who such amounts were paid to. Such costs were unknown at the time that the parties entered into the APSs. While the term expressly referenced the developer’s ability to pass along amounts paid to a “Municipality or a utility service provider”, the developer argued that the term “utility service providers” was not defined and therefore included third-party contractors and trades.
The buyers’ position was that the developer was attempting to recoup costs that it should have borne as part of the overall infrastructure development costs and that these costs could not be passed on to individual buyers at the time of closing. The buyers argued that there was no basis to interpret “utility service provider” to include trades and others paid by the developer in respect of the utility infrastructure costs.
The judge applied general principles of contract interpretation, such as avoiding unjust or unreasonable results, and resolving ambiguities in favour of the party that didn’t draft the contract.
In the application judge’s view, the plain and ordinary meaning of the words in the APS term at issue supported the buyers’ position. The APS provided that the developer was permitted to charge buyers for the cost of installing meters for the services in their respective units, but this did not include infrastructure and energization costs. The APS did not provide the developer with the right to charge for matters that related to the utility infrastructure if these amounts were not paid to the municipality or to utility service providers. There was no ambiguity in that regard, but even if there was, it ought to be resolved in the buyers’ favour.
The developer argued that the buyers had agreed to amounts in the certificate and that the APSs provided that the Certificate shall “constitute sufficient evidence” for the purpose of calculating the adjustments. However, the application judge noted that “evidence” can always be challenged or rebutted with other evidence and this did not mean that the Certificate was conclusively binding.
Further, the application judge was satisfied that the Statement of Adjustments and Certificates provided by the developer were misleading and amounted to bad faith, such that it would be inequitable to permit the developer to rely upon a Certificate that included charges that it was not entitled to pass on to the buyers.
Lastly, the developer attempted to rely on a limitation of liability clause in the APS which purported to limit a buyer’s remedies to return of the deposit. The application judge found the limitation clause to be inapplicable for several reasons, including an overriding public policy interest in preventing developers from escaping liability “where they secretly and not transparently charge for amounts to which they are not entitled”.
Court sides with buyers
The court concluded that the developer could only charge for meter installations and infrastructure costs paid to municipalities or utility providers. A further hearing was ordered to determine what amounts, if any, should be reimbursed to buyers.
This case illustrates that buyers may have recourse when they believe a developer has added unauthorized charges to the purchase price. It underscores the importance of closely reviewing the wording of the APS when disputes arise.
James Cook is a partner at Gardiner Roberts in Toronto and has been with the firm since he articled there in 2002. As a litigator in the firm’s Dispute Resolution Group, he has experience in a broad range of commercial, real estate and professional liability litigation. Phone 416-865-6628; email jcook@grllp.com. This article is provided for educational purposes only and does not necessarily reflect the views of Gardiner Roberts LLP.