Homebuilders should publish sales contracts: Virc
By Tony Poland, AdvocateDaily.com Associate Editor
Virc, a lawyer with Steinberg Title Hope & Israel LLP, says the contracts used by builders can be lengthy and confusing, which is unfair to buyers.
However, she says if the contract was readily available in the developer’s advertising or online, for example, “buyers could see the agreement before they start getting excited” about a possible purchase.
“It wouldn’t hurt builders to publish their standard form contracts so that people with relatively little resources and bargaining power can see the document before they have wasted their time viewing the actual property, picking their finishes and finding which unit they actually want. The agreement of purchase might be a nonstarter, so why waste everyone's time?” she says. “That's what I would recommend for consumer protection legislation.”
Virc says builders will sometimes “super-lawyer a contract to make it terribly beneficial to them and not so great for the purchaser.”
“They’ve got a lot of money to over-lawyer the agreement,” she says. “Then you have a purchaser who’s going to have to pay a lawyer to read a very lengthy agreement. A buyer doesn't want to pay somebody $2,000 to find out that this is a super builder-friendly agreement.”
Buyers are less inclined to commit to such an agreement “because, if things go bad, everything is in the builder's favour,” Virc says.
“You think, ‘Man, I just got burned here with $2,000 in legal fees because the agreement of purchase and sale was 60-pages long, and now I'm not even interested in this transaction,'” she says.
Virc says builder agreements are pretty standard, “but every now and then they will try and sneak in something really arduous.”
“If you have a couple of unusual terms buried in a lengthy document it might not be found that easily,” she says.
“However, if you are already emotionally committed to the purchase you're just crossing your fingers hoping that the development is going to proceed, that the builder is not going to get into financial trouble, and it is not going to avail itself of one of these oppressive or unusual conditions.”
Virc pointed to two court cases that illustrate the importance of bringing contractual clauses to the attention of those who are bound by the agreement.
In the first case, the Supreme Court of Canada found “there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations.”
She says in a second case involving a mass-produced or standard form contract, the court found that the person who signed it was not made aware of the “onerous provisions in small type.”
“It seems to me, the imposition of a duty of good faith in contractual negotiations would require a blending of those two cases,” Virc says. “This would be groundbreaking and hard-fought litigation, with plenty at stake for the developer.”
She says homebuyers are sometimes influenced by the ‘fear of missing out,” and can feel pressured into signing an agreement.
“The builder will often create a narrative that makes the buyer think that if they don't sign then and there someone right behind them will be ready to sign,” Virc says. “Sometimes that's true, and sometimes it's not.”
She points out that a corporation looking to sell securities to the public must file a disclosure document with regulators who check to see if it’s fair. Virc would like to see the same type of stringent disclosure for builders' sales agreements.
“They say sunlight is the best disinfectant,” Virc says.