Rubina Khan v. Tarion Warranty Corporation, 2021 CanLII 127473

Date: 2021-12-08

Appeal from a decision of Tarion Warranty Corporation under the Ontario New Home Warranties Plan Act to disallow warranty claims.

Between:

Rubina Khan Appellant

-and-

Tarion Warranty Corporation Respondent

-and-

Modo Bowmanville Towns Ltd Added Party

DECISION

ADJUDICATOR: Laura Hodgson, Member

APPEARANCES:

For the Appellant: Self-represented For the Respondent: Ben Carino, Counsel For the Added Party: Adam Lifshitz, Counsel

Heard by Videoconference: November 23-24, 2021

Overview

1The appellant, Rubina Khan, bought a new home from the builder Modo Bowmanville Towns Ltd. – the added party (“Modo”). The transaction did not close. Ms. Khan’s claim for a deposit refund was denied by the Tarion Warranty Corporation (“Tarion”), in a decision letter dated May 18, 2021. Ms. Khan now appeals from this decision.

2For the reasons set out below the Tribunal confirms Tarion’s decision and denies Ms. Khan’s claim.

Issue

3To succeed with the claim for a deposit refund, Ms. Khan has the burden of proving, on a balance of probabilities, the required elements of section 14 (1) of the Ontario New Homes Warranty Plan Act (the Act). It reads as follows:

14 (1) Subject to the regulations, a person who has entered into a contract to purchase a home from a vendor is entitled to receive payment out of the guarantee fund for the amount that the person paid to the vendor as a deposit or other payment to be credited to the purchase price under the contract on closing if,

(a) the person has exercised a statutory right to rescind the contract before closing; or

(b) the person has a cause of action against the vendor resulting from the fact that title to the home has not been transferred to the person because,

(i) the vendor has gone into bankruptcy, or

(ii) the vendor has fundamentally breached the contract.

4Tarion, a non-profit corporation, created under s. 2 of the Act, administers the Ontario New Home Warranties Plan and the guarantee fund for payment of compensation under s. 14. According to Regulation 892 (“Administration of the Plan”) of the Act, the maximum deposit refundable in these circumstances is $40,000.

5A new homeowner may appeal Tarion’s decision with respect to section 14 compensation to the Licence Appeal Tribunal. Under section 14(19) of the Act the Tribunal’s powers are limited to directing Tarion to take action that the Tribunal considers it ought to take in accordance with the Act and the regulations. The Tribunal may substitute its opinion for that of Tarion.

Evidence

6Ms. Khan and Modo entered into an Agreement of Purchase and Sale for a new condominium unit in Bowmanville on February 12, 2017. As per the agreement, between February 12, 2017 and January 30, 2018, Ms. Khan paid deposits totaling $49,000.00.

7The Agreement had the Tarion ‘Statement of Critical Dates’ appended to it as a schedule. The critical dates in this form track legislative provisions permitting vendors to extend occupancy to a certain maximum date. Failure to provide occupancy of the unit by a certain date triggers a 30-day window in which a purchaser may terminate the Agreement and seek return of deposits paid. In this case the critical dates were listed as follows:

First Tentative Occupancy Date: February 28, 2018

Second Tentative Occupancy Date: June 28, 2018

Firm Occupancy Date: October 26, 2018

Outside Occupancy Date: June 28, 2019

8On April 30, 2019, Ms. Khan was advised of a closing date of June 20, 2019. She testified that, because of the multiple delays, she had not consulted a mortgage lender prior to this date.

9Section One of the Statement of Critical Dates contemplates ‘unavoidable delays’ (e.g., strike, fire or explosion) which are beyond the control of the vendor and permits the extension of occupancy dates. On May 9, 2019, Modo advised Ms. Khan of an ‘unavoidable delay’ as a result of a strike by residential electricians. On June 14, 2019, Modo notified Ms. Khan of the end of the “unavoidable delay” and that the revised critical dates were as follows:

Revised Delayed Occupancy Date: July 4, 2019

Revised Outside Occupancy Date: July 12, 2019

10Ms. Khan completed a Pre-Delivery Inspection (PDI) of the unit on July 3, 2019 and signed a PDI report that listed five items. Witnesses for Tarion and Modo testified that the listed items were minor in nature.

11Ms. Khan took interim occupancy of the unit on July 5, 2019. In her notice of appeal and at the hearing, Ms. Khan took issue with the state of the unit at this time. She testified that it was dusty, and the air conditioner malfunctioned. In cross-examination, Ms. Khan agreed that these issues did not prevent occupancy and were not listed in the PDI she had signed.

12Ms. Khan testified that on July 10, 2019, she was notified that final closing was scheduled for July 24, 2019. She testified that prior to taking interim occupancy she had been advised by a representative of Modo that the transaction wouldn’t close for two to three months. In Ms. Khan’s view, the 14-day notice to secure financing was insufficient. Her financing was further complicated by the fact that, in July and August of 2019, the unit was appraised by her lender at less than the purchase price. Modo’s construction manager testified that at the time of the closing (pre-pandemic) the industry standard was 10 to 14-day notice of final closing.

13On July 22, 2019 Ms. Khan’s lawyer wrote Modo requesting an extension of closing to August 30, 2019. On July 23, 2019 Modo provided terms and conditions of a final closing extension. The parties did not reach an agreement and on July 24, 2019, Modo notified Ms. Khan that the agreement would be terminated, and deposited monies retained. Ms. Khan was instructed to immediately vacate the unit.

14Ms. Khan and her husband testified that they lost access to the unit when the locks were changed on or around July 10. According to Modo, and noted in an email to Tarion dated June 23, 2020, the locks were changed on August 16, 2019 after Ms. Khan was in default of her obligations under the agreement.

15Between July 23 and November 25, 2019 there were multiple efforts by parties to reinstate the agreement and extend the closing date. Ms. Khan requested numerous additional extensions to secure financing and requested a change in terms of the extension (which included, as per the Agreement, a delayed closing fee of $400.00 per day). Ms. Khan testified that the delay penalty was a ‘time bomb’ and a ‘gun to the head’.

16Modo, on a number of occasions, agreed to reinstate the Agreement and extend the closing dates but was unwilling to change the terms and conditions. On August 19, 2019, Ms. Khan agreed to new terms to reinstate the agreement and a final closing of date of September 3, 2019. An additional $15,000 deposit was paid by Ms. Khan. Ms. Khan ultimately failed to meet the terms of the revived agreements and failed to provide closing funds on September 3 or on any of the other proposed extension dates. She never acquired title to the home.

17Ms. Khan was represented by a real estate agent when the Agreement was signed in February 2017. Ms. Khan had legal representation throughout the period of the interim occupancy and while negotiating the closing extensions in 2019.

Law and Analysis

18As noted, section 14 provides grounds by which a person may receive a payment out of the Tarion guarantee fund. Under section 14(1)(a) they may be entitled to payment if they have exercised a statutory right to rescind the contract before closing. Ms. Khan testified that, after multiple delays, she told a representative of Modo that she “wanted her money back”. Although represented by counsel at the time there was no written request for termination. In fact, correspondence from Ms. Khan’s counsel indicated that Ms. Khan was ready and willing to close the contract. Further, when Ms. Khan spoke with a Tarion representative in October 2020, she agreed that she never sought termination of the agreement. There is no documentary evidence supporting Ms. Khan’s assertion that she exercised a statutory right to rescind the purchase agreement.

19A purchaser may also be entitled to a deposit refund if, as per section 14 (1)(b)(ii) they can establish that title did not pass because the vendor fundamentally breached the contract. Ms. Khan has made broad allegations of fundamental breach of contract. None, however, were substantiated by evidence or meet the high threshold for fundamental breach.

20Initially, Ms. Khan appeared to suggest that the contract was fundamentally breached because she took interim occupancy without an occupancy permit or having inspected the unit. Documentary and testimonial evidence established that the home was substantially complete, and an occupancy permit had been issued by the municipality on July 2, 2019. She attended an inspection and signed the Pre-Delivery Inspection report on July 3, 2019. Ms.Khan failed to provide any reliable evidence that construction to the home was not substantially complete.

21Ms. Khan also suggested that there was a fundamental breach because she was given verbal assurance that the she would have two months to prepare her finances for closing. The applicant provided no documentary evidence of this assurance. There is no clause in the agreement that speaks to a minimum notice period for closing and, according to Modo’s evidence, industry standard at that time was 10 to 14 days notice. Ms. Khan signed the agreement in 2017 and prior to the ‘unavoidable delay’ understood that the closing would be in June of 2019. She simply cannot argue that she had insufficient time to arrange financing.

22Lastly, Ms. Khan submits that the locks on the unit were changed prior to the initial closing resulting in a fundamental breach. Ms. Khan and her husband testified that, in their recollection, the lock on their unit was changed on either July 10, 14 or 15, 2019. There is no indication, as would be expected if it indeed happened, that either Ms. Khan or her lawyer notified Modo or Tarion of a lock change at this time. There was testimonial and documentary evidence from Modo that that the lock was not changed until August 16, 2019. There is insufficient evidence to establish that the unit’s locks were changed prior to the closing date.

23As noted by Tarion, even if Ms. Khan established that one of the allegations amounted to a breach, none could be considered a fundamental breach said to have “deprived(d) the innocent party of substantially the whole benefit of the contract”: see Spirent Communications of Ottawa Ltd. v. Quake Technologies, 2008 ONCA 92. Ms. Khan has not established that Modo fundamentally breached the Agreement. There was no conduct that deprived Ms. Khan of substantially the whole benefit of the contract – substantial completion of the unit and Modo’s readiness to close the transaction and transfer title at closing.

24The Tribunal appreciates Ms. Khan’s frustration with the multiple changes in occupancy and closing dates. The occupancy extensions were, however, permitted by the addendum to the Agreement. Recently, the Court of Appeal for Ontario has characterized the Tarion addendum as “consumer unfriendly”, “convoluted and confusingly long” and also a “trap for the unwary”: see Ingarra v. 301099 Ontario Limited (Previn Court Homes), 2020 ONCA 103. While the Tribunal agrees with these characterizations, it also notes that Ms. Khan was represented throughout the relevant period of this transaction and should have been aware of her rights and obligations.

25Similarly, the Tribunal can appreciate how the terms of the proposed extensions created a significant financial barrier for Ms. Khan (i.e., the quickly ballooning $400 per day delay fee). Again, these fees were set out in the Agreement signed in 2017 and should have been known to her.

26Ms. Khan contracted for a home that, ultimately, she was unable to pay for. She has not established on a balance of probabilities the elements required under section 14(1) of the Act and is therefore not entitled to a deposit refund.

ORDER

27The Tribunal confirms Tarion’s denial of a deposit refund as set out in the Decision Letter dated May 18, 2021.