What Happens If Your Pre-construction Project Gets Cancelled?
Purchasing a pre-construction property can be exciting, but what happens if the project you’ve invested in gets cancelled? Project cancellations, though uncommon, can happen for several reasons, including the builder’s inability to sell enough units, secure financing, or obtain the necessary municipal approvals. These reasons are typically outlined as early termination conditions in the agreement of purchase and sale, allowing the builder to cancel the project within a specified timeframe. Additionally, projects may be cancelled if the builder faces bankruptcy.
What Happens If Your Project is Cancelled?
If your pre-construction project is cancelled, it can be a disappointing experience, especially if you were looking forward to living in the new space. You might also face financial setbacks due to rising property prices since your original purchase. Fortunately, in Ontario, buyers have certain protections under the Tarion Warranty Corporation.
For projects purchased from a Tarion-registered builder, the builder is required to refund your deposit with interest. If the builder fails to refund your deposit due to bankruptcy, you may be eligible for protection through Tarion. This protection covers up to $100,000 for freehold properties and up to $20,000 for condominium units. In some cases, buyers also have the option to sue the builder or join a class action lawsuit to recover losses.
How Can You Minimize Risk?
To reduce the risk of facing a project cancellation, it's essential to take the following steps:
1. Research the Builder: Before signing any purchase agreement, thoroughly investigate the builder’s track record. Look for a builder with a history of successful projects and financial stability.
2. Legal Review: During the 10-day cooling-off period, have a real estate lawyer review your agreement. This ensures that you understand the early termination conditions and other terms, allowing you to make a well-informed decision before moving forward.
By taking these precautions, you can better protect yourself against the risk of a project cancellation while investing in pre-construction real estate.
Author:
Firoozeh Rose Bahrami B.Sc. LL.B.
Senior Partner