The Burn Your Mortgage Podcast: Buying a Pre-Construction New Home in Ontario has its Appeal, but Watch for Potential Pitfalls with Barbara Captijn

Full  Transcript

Sean Cooper  

Hi, Barbara, how are you doing today?

Barbara Captijn  

I'm good. Thanks, Sean.

Sean Cooper  

Wonderful to chat with you today. I was introduced to you by Ellen rosebud. She mentioned that you're an advocate for reconstruction properties birth, both condos as well as freehold. So yeah, definitely interested to hear your story today and help educate consumers about things that they can do to protect themselves when buying those properties.

Barbara Captijn  

Yes, thank you. Thanks for having me on the show and giving me this opportunity. I'm a consumer advocate for new homebuyers. So that includes freehold homes and condos. And today we're going to talk about pre construction, new homes and some of the pluses and negatives and caveats that I can put out there for new home purchasers. Would you like me to tell your listeners why I came to this table? And a little bit about my background? 

Sean Cooper  

Yes, that would be great. Personal stories are always powerful. So if you wanted to start by discussing what inspired you to get involved in this space, then that would be great.

Barbara Captijn  

Good, I was a new home buyer myself at one point. And I came to the conclusion that the processes which are set up to protect consumers in buying new homes are not sufficient. And I would like to try to impart to your listeners what they should look out for, what are some of the things that they need to know, buying pre construction, you'll never hear me say don't do it, because there are certain advantages to doing that. And there are certain disadvantages, which we'll discuss. And there's a whole area of advocacy, where I'm involved now as a volunteer on a totally volunteer basis, in order to try to advocate with the government to make better protections for consumers in those areas. 

Barbara Captijn  

So I was, as I mentioned, at one point, myself, a buyer of a pre construction unit. And it occurred to me that this contract that I'm being asked to sign looks very lopsided, there's everything, it was over 50 pages long, it had everything in there to protect the developer, but nothing to protect me as the consumer. And then my attention by the lawyer was drawn to a mandatory document called the Tarion addendum. Now, it's called the addendum, it's a mandatory document, very difficult to understand 12 pages long. And I said, there's nothing in there, first of all, that I understand. And second of all, nothing in there that I see protects me on the purchase side. And I wanted to make amendments to the contract. 

Barbara Captijn  

And the lawyer said to me, you know, the developer is not going to accept that because they'll just move on to the next purchase or wait in line, who's prepared to sign without making amendments to the contract. So speaking to lawyers is costing you every time you pick up the phone, or you email them, it's either $400 An hour or $800 an hour and the clock is ticking. So I believe that what catapulted me into this area of consumer advocacy is, hey, this system is broken. This is lopsided, it's unfair. And who's responsible for this? It's our people who make the laws in Queens Park, consumer protection is a provincial responsibility. 

Barbara Captijn  

So let's go knock on the doors of the people who make the loss. Well, I've been doing that for 15 years. There are a lot of doors, they keep changing. And the progress has been at a glacial pace, I would say, for the consumer. So that's why I'm still active in this area. Well,

Sean Cooper  

thanks so much for sharing your story, and maybe something in between a glacial pace in a breakneck pace somewhere in the middle would be nice, but I guess certainly, I'm glad there's people out there like you advocating for the consumer because find that the developers and other people definitely well funded but the voice of the consumer definitely doesn't get through enough. And yes, I just want to be clear. 

Sean Cooper  

Some of the stuff that we're talking about today. Yeah, definitely. There are some takeaways for people across Canada but we'll mention stuff like carry on and other stuff specifically about the government. We're speaking about it from a material perspective, but definitely if you're buying pre construction across the country, whether you're in BC or Alberta or elsewhere, I definitely think this episode, those be some good takeaways from this episode, so be sure to still tune in but just be aware when we mentioned some of these things. 

Sean Cooper  

It may be just agencies and other things like that just apply just in Ontario, so I just wanted to be clear with that. So yes, perfect. Thank you for sharing your story there, Barbara. And I just wanted to ask Skew about how we were discussing this offline here. But you mentioned that there are what are called weasel clauses in some of these contracts here that you sign when you're buying a pre construction property. And yes, as a mortgage broker, I've seen these contracts that can be quite lengthy, like what they purchase with a standard purchase agreement for a resale property. 

Sean Cooper  

I mean, yeah, there are a few pages they can go on for like five pages or more, but these builder purchase agreements can go on for like dozens of pages or 100 pages or so so that they can definitely be a bit intimidating there. So I would imagine if they are buried in the fine print, there are what are called weasel clauses. So yes, what are these weasel clauses you're referring to? And where can people find them in the contracts? And what did they need to be aware of when signing a contract?

Barbara Captijn  

Well, you're quite right, these pre construction sales contracts are written by the developers and their lawyers. I have two of them in front of me here from major developers, they're over 40 pages long. And the mandatory government addendum is 12 pages long. So that's a lot of material to even try to understand when you're going into the pre construction home purchase. But what are weasel clauses which may be embedded in there? One of them is and I object to these and I've been advocating that these should not be in the pre construction home contract, for example, there is a clause in some of these contracts, not all saying that the purchaser cannot start or join a class action lawsuit. 

Barbara Captijn  

Now let's say that you go into a development and there are a number of purchasers, yourself included who are dissatisfied with how things are going, this clause precludes you from what would otherwise be your right. And that is to, if you have no money, take some of the issues of dispute to a court or to a class action. I don't think that should be in these contracts. Another weasel clause, which I think should be outlawed by the regulator, is a clause saying that if a dispute arises between the developer and the purchaser, that the purchaser may not speak out about that dispute, I think that also is like a gag order. 

Barbara Captijn  

That should not be in any contract, you can't contract somebody out of rights they have under other laws in the province, you can't contract somebody out have the right to speak free speech in a cab contract, or you shouldn't contract somebody out of their right to commence a class action, if they so wish. So those are two examples of weasel clauses. And another clause, which has caused a lot of problems to some purchasers I've spoken to is in the Tarion addendum, the 12 page complex document I was just mentioning, in there, there are rules and regulations, which are set by the government. So carry on, and now it's HCRA. 

Barbara Captijn  

Who are their agencies, setting out the reasons under which developers can cancel or delay projects. And one of those is a statement saying, Well, if the hard services to the site are not completed at a certain date, then the developer can cancel the contract. Now, there's a lot of weaseling around that you can do if you want to cancel the contract, let's say and then potentially sell the units to somebody else at a higher price. Developers can sometimes say, Well, you know, the hard services like the source to the site were not completed on time. So therefore, I'm canceling. I know cases in which that has been used. 

Barbara Captijn  

And then some of the developers a few weeks later, all of a sudden started to build again and resold the unit to other purchasers at higher prices, and got them to sign non-disclosure agreements about that resale. Now, that's supposed to be forbidden. But the purchasers I know who've made a complaint about that to the regulatory agency have been told, Oh, no, that's allowed. Because that addendum says, yeah, the builder can cancel because of that. Was it in good faith that the builder acted with honesty and integrity? The regulator has said, Yeah, we're gonna give this a pass. 

Barbara Captijn  

We're going to let this go. And to me, there are too many loopholes and weasel rooms in there for the language to be secure and vague, and it can be manipulated to the advantage of, I suppose, whoever has the best lawyer, or whoever can afford to put forward to assert their rights. And normally, individual consumers don't have the money for these lengthy, complex legal battles. And they often give up and just say, Okay, I give up and I have to move on. And sadly, that's what's happened. In some cases, not all cases, not all developers are using that. But you don't want to end up the victim of tactics like that. 

Barbara Captijn  

And that's one of the things that I'm still advocating with the government that the regulator should take a stronger stance on that, and simply outlaw that kind of game playing with contracts. And, you know, again, builders write these contracts with their lawyers, they can delay the delivery and timing of the construction, I think they have the right at least three times to do that. And they can change the layout somewhat. That's often written into the contract. And now, this is shocking. I'm against it, I'm advocating against it. 

Barbara Captijn  

But developers can even escalate the price of the unit that's been sold. And they can come back to their purchases and say, oops, you know, what, the price of labor and materials has gone up. And therefore, I can't afford to build that house anymore at that townhouse, let's say, for a price of 700,000, it's now gonna have to be 900,000. And so here are the invoices that show that I'm incurring those costs. So you have to pay an additional 200,000. I'm against that, I think that a contract sets out the price that both parties agree on.

Barbara Captijn  

 And once that contract has been signed, well, you can't come back to your purchaser and say, oops, I didn't forecast properly, and the house is going to cost more. Any person manufacturing a product knows that they have to take into account that prices are going to go up and the prices of material and labor go up. I don't think they go down, or I'm not ever familiar with a situation where they go down. So therefore this can't come as a surprise. But the home construction regulatory authority, who is responsible for regulating this kind of builder conduct, has said that this is okay. Developers can do this, if they act with integrity and honesty. 

Barbara Captijn  

And if they show the purchaser where the increases have occurred, but I think, what would a developer then listen to a consumer, or the purchaser who came to them and say, Look, I lost my job. Look, I have a health issue. I can't pay 700,000 for this townhouse. Would you be willing to accept 400? Or five? 

Sean Cooper  

No, of course not. I mean, it should go both ways. If the developer can do that, I should go both ways. But based on what you're telling me, it sounds kind of one sided? 

Barbara Captijn  

Well, you're right. There's a concept I think in law and in contracts, that is called reciprocity. Whatever is fair for one side has to be balanced and fair for the other side, otherwise, the contract is out of balance. But as we mentioned from the outset, these preconstruction home contracts are written by developers and their lawyers. The consumer is not involved in this, and regardless of what the home construction regulatory authority, and Tyrion will tell you, the agenda is not a consumer protection document, at least if it was intended that way. It's not protecting consumers. And that's a big area of my advocacy. 

Barbara Captijn  

I think that needs to be simplified, and it needs to be balanced, to make sure that homebuyers are not being disadvantaged. I mean, developers can already change the price, the layout and the timing of the building of the new home. So where are the rights for the consumer that are balanced there? Well, I think you can look a long time before you find any. And these contracts are out of balance. Nevertheless, I'm not saying don't buy pre construction, because there are significant advantages to consumers for looking at the pre construction option. 

Barbara Captijn  

And that could be, I mean, I've heard many consumers tell me, Well, I want to buy a home I can afford, and here's the price that's being offered for that. At home, I don't have competitive bids coming in and hiking up the price. This is the price of 800,000 for a townhouse. It's located next to transit, which I wanted. It's located close to my work and my family. And I don't have multiple bidders coming in on it. So I know from the beginning that I can afford this house. And that this is within my budget, in addition to the location, and perhaps even the amenities, somebody may need two bedrooms, or three instead of two, whatever. 

Barbara Captijn  

But sometimes people in a very tight market, which we're in now, where housing options are limited, and scarce, many buyers could look at pre construction as a very viable option for them.

Sean Cooper  

I guess what you're saying is like, if you do decide to buy pre construction, make sure you do your homework when doing that, like if I was buying pre construction myself, I would definitely do my homework and make sure that I mean, this isn't a guarantee, but make sure that I'm buying from a reputable builder and developer who has history of developing on time and doesn't have a history of having this happen. 

Sean Cooper  

I mean, I would definitely Google their name and see if they're in the media for complaints and stuff like that. I mean, it's not foolproof, but I definitely think that's a good step by which I try to avoid developers that are always mentioned in the media stories for or maybe not treating their clients the best.

Barbara Captijn  

Well, that's true, Sean, and people should do as much research as they can. But even top developers have some tricks up their sleeves. You know, some of the consumers I've had come to me for help have bought from reputable builders. And I'm not saying all developers are doing this, I'm saying the loopholes are there. And these people are smart. And if the government who's responsible for protecting consumers is not going to step in, and we can't expect developers to self regulate. I mean, that's just the reality of it. 

Barbara Captijn  

They have the power to write these contracts, they see where all of the sort of wiggle room is, and they're going to use it. That's probably just business, isn't it? I mean, it's sad that consumers are being put in this situation, but the government needs to fix the loopholes, which are in these contracts and protect buyers. And that's not a question for you, are I doing our research? By the way, the key research tool, which these government agencies keep telling us to look at is something called the Ontario builder directory, that is administered by this agency, HCRA home construction, regulatory authority and carry on. 

Barbara Captijn  

And it's supposed to show you build a record, but it is not accurate. You can use it as a telephone book to sort of see who owns this company. When they start building you'll get a kind of top line review of those builders, what the builder has built and if they've had any home warranty issues with Terry on but it's very, very, very minimal. 

Barbara Captijn  

I would not use that as your criteria to look at which builder to buy from, but the tricks of the trade can be used by the good builders, the reputable ones and the somewhat marginal ones, because this has to do with Ontario law. In my opinion, it's our lawmakers who are responsible for hardly amending the laws, fixing the loopholes, getting rid of these weasel clauses and stepping up to the plate to protect New homebuyers. 

Barbara Captijn  

We keep hearing this government say let's build more homes faster. But you've also got to sell them to people like you and me. And where is the political will to protect buyers? I don't see a lot of it. I see a lot of talk, a lot of window dressing. And I see the government not only this one but the previous one dropping the ball on consumer protection when there's some very obvious things they could do today. For example, they could say that buyers of freehold homes for example, a townhouse reconstruction, could have a 10 day cooling off period to look at the contract. 

Barbara Captijn  

Believe it or not, freehold homebuyers don't even have that protection. That protection exists for condo buyers and timeshare buyers. but not for freehold homebuyers. For example, somebody buying a pre construction townhome, or a single family home. Why that is still allowed to go on is baffling to me. Another area that the government could act on today is that they could say that all of the deposits for freehold homes have to be held in trust by a lawyer. 

Barbara Captijn  

That is not mandatory. For the buyers of freehold homes, it is mandatory for the buyers of condos, because of the condo act, and because of certain protections that were brought in for condo purchasers, but freehold homebuyers have been left in the cold on these two major gaps in consumer protection. And that's not the fault of lawyers. It may not even be the fault of developers, to be honest with you. It's the fault of those people at Queen's Park who make our laws. Well,

Sean Cooper  

I mean, I'm glad there are good people like yourself out there to advocate in terms of the voiceless, so to speak, because I mean, these are definitely important issues. And I mean, hopefully, someone from the government is listening to this podcast here and tells their people to look into this stuff here. But I'm sure you're getting this through the right channels, and all that there. But I mean, I'm sure most people don't learn about this stuff until they run into an issue.

Barbara Captijn  

Until it's too late. Yeah, you're right. Yeah, absolutely. Right.

Sean Cooper  

 So yeah, thank you for sharing all that. With me. We're just getting a bit close to time here. So I'm just curious if there's one or two key takeaways you could just summarize in a minute or two here just with somebody like we're not saying you shouldn't buy preconstruction. But yeah, for anyone buying pre construction, what would you say are one or two key takeaways, if you could just summarize in a minute or two, here are what people could do to better protect themselves? Well,

Barbara Captijn  

you know, Sean, if I knew that, I would certainly be on tour all the time writing government participating in consultations, doing everything I possibly can, the only thing you can do, I think, is just consider whether the risk outweighs the reward in terms of your particular situation, look at the advantages that are going to come to you in buying pre construction, look at the record of the builder, although bat, you won't find probably much information and see if these disadvantages, which I've outlined here outweigh for you in your personal situation, the advantages. 

Barbara Captijn  

I mean, it's like any other investment, you would discuss with people, you know, there are risks involved in this. I think the government could easily handle those risks and should do that, to try to make sure the risks are lower for purchasers. But that's a long term goal. And I think that purchasers have to say, you know, I'm prepared to take on that risk profile, because the advantages that I hope to get by buying that property, in terms of location, amenities, price, etc, are to my advantage. 

Barbara Captijn  

But I would say don't let the developer railroad you into a price escalation after you have purchased because that's supposed to be not done, except under exceptional circumstances. So be aware of that. And be aware of these two agencies, Terry and the construction regulatory authority HCRA, who are supposed to be advocating for you as a consumer, and I think we should make them do their jobs.

Sean Cooper  

Great. Well, thanks so much for being on the podcast. Barbara. It was great having you on and educating us about the preconstruction home space.

Barbara Captijn  

Thank you, Sean. Thanks for having me.

Sean Cooper  

Thanks for listening to another episode of the Burn Your Mortgage podcast. Besides being a podcast host, I’m also an independent mortgage broker. If you or anyone you know, family, friends, co workers or neighbors could ever use any unbiased mortgage advice or a second opinion, feel free to reach out. Email me at sean@burnyourmortgage.ca or call or text me at 647-867-3711 for a free mortgage consultation.

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