Legal Blog

Builder Beware

A typical clause in a builder’s agreement allows the builder to alter the plans and specs as a result of municipal requirements. Is the clause sufficient to protect a builder when the alteration results in a smaller home or when the requirements are not new? The builder received the answer to this question in Pavlic v. Town-Wood Homes Ltd. (1993 O.C.G.D. Thomas J., upheld 1997 C.A.).

Fast and Loose

The purchasers wanted to buy a particular home model. There were no remaining lots in Phase 1 that were large enough for the model. Accordingly, the purchasers waited for the release of Phase 2 and chose an appropriate lot. The agreement of purchase and sale incorporated the plans and specs for that model. One month before closing, the purchasers, who suspected that something was amiss, measured the house being built on their lot and found that it had a gross floor area substantially smaller than the floor area advertised for the model that they had chosen. The builder stated that the floor area had to be reduced because, due to an easement, the lot was not sufficiently large to support that model.

The purchasers closed the deal regardless, because they had already sold and moved out of their previous home. Their lawyer asked for an abatement on closing and was refused. The lawyer wrote to the builder’s solicitors and informed them that, although the purchasers would still close the deal, they reserved their rights to commence an action for damages. That is exactly what the purchasers did.

Pay Up

The builder relied on the municipal requirement clause in the agreement. The judge made short shrift of that argument because the municipal requirement had not changed between the date of the agreement and closing. The lot had never been large enough to support the model referred to in the agreement. The builder was liable for damages.

We would also have argued that the clause is not intended to cover a major reduction of floor area. We believe that the court would, if necessary, interpret the municipal requirement clause to cover only interior alterations, elevation changes, and minor discrepancies in gross area. What purchaser would sign an agreement if the purchaser knew that the vendor could reduce the gross floor area by, say, 20% without the option of rescinding the agreement or at least receiving an abatement of the purchase price?

The purchasers led expert evidence regarding the replacement cost of the house. The judge rejected this evidence deeming it “not particularly helpful”. Why the plaintiff did not adduce evidence as to the value of the actual house and lot in comparison to the agreed upon house and lot is beyond us. The court, having no other evidence, awarded damages of $21,500 for 9.2% of reduced floor area. The original purchase price was $214,000 so that, in essence, the judge reduced the purchase price almost proportionately to the reduction in gross floor area.

Purchasers’ Lawyer

The judge held that the agreement did not merge with the transfer because the purchasers’ lawyer wrote to the vendor’s solicitors and notified them in advance of the closing of the purchasers’ intended claim for damages. The purchasers’ lawyer did his job.