Reviewing New Home Builder Contracts

Reviewing New Home Builder Contracts In Alberta

Buying a brand new home is exciting and often a little intimidating. People decide to buy a brand new home for a number of reasons. For example, some people want a place where no one else lived. Other want somewhere with no concerns of existing problems to fix. Finally, some people want the chance to customize every aspect of the home. The one thing that buying a new home always entails is a contract. New home contracts are very different than the ones that real estate agents use in Alberta. Not surprisingly, these contracts, are more favourable to the builder. The real estate lawyers at Kahane Law Office (we have offices in both Calgary and Edmonton to make things easy for people throughout Alberta) understand the importance of reviewing new home builder contracts. Understanding the full costs and risks is key for anyone looking to buy new.

Why Reviewing New Home Builder Contracts Is Important

As stated above, reviewing new home builder contracts is important because the contract is drafted in favour of the builder. This is important to you since you your rights and obligations remain based on this contract. We find that many misconceptions about these contracts exist. We expand on some of the common clauses in these contracts below, however all builder contracts favour the builder. A degree of extreme exists in the contracts. This means that some are more moderate while others are extreme. In every case though, once you understand the contract, it allows you to make an informed choice. As lawyers, we know there is no right or wrong for a contract. The key factor is for you to determine if any specific contract is right or wrong for you.

We help you understand the details of these agreements when reviewing new home builder contracts to allow you to make that choice for yourself.

New Homes And New Condominiums

It is important for people to understand legally binding contacts they enter into. This is true for new build homes. While many parts of new build condominium and home contracts remain similar, several differences exist. Reviewing your contract with your lawyer helps ensure you remain surprise free during the whole process. Always remember, with a new build condo, several years may pass between signing the contract and taking possession.

Key Terms / Clauses Of Concern With Builder Contracts

Please note: The following is in no way a full picture of the terms that may impact you in your purchase. While each builder and / or project contract varies greatly, the following terms often find their way into builder contracts. In some instances, important terms exist in an addendum or amending schedule. Reviewing the entire agreement is key to protecting yourself. In addition, not all the details fall under the specific headings. In every contract, you must review each word in every paragraph to understand your risks and liabilities. For example, a few key ones include:

Interest Rate

Two different interest rates usually apply. Firstly, is if the builder lacks the ability to give title. This is non-punitive and is usually what interest amount owing under your mortgage. Secondly, The interest rates builders charge when the cause in the delay in payment does not fall on them is high. Builders do this to ensure prompt payment. Generally, interest rates range from 15-26 % payable for each day, on the full purchase price, until you pay the full purchase price. Consequently, if your closing falls on a Friday and you miss one day, that means paying that high interest rate over a weekend or long-weekend.

Solicitor Client Costs

This means, if you fail to perform under the contract and the builder sues you, you then owe (if you lose) their actual legal fees instead of only court costs. This is a significant financial consequence. Typically, builders give themselves that right but do not extend it to their clients.

Delays In Build

Usually builders exclude any liability in their contracts for any delays in construction. For example, this means that if you lose your interest rate, need to pay for a hotel or storage of your things, you need to eat in restaurants as you have no kitchen, if your situation changes and you no longer qualify for a mortgage, etc. you lack any ability to sue the builder for your loses.

Condition Waivers

Unlike real estate agent contracts, builder contracts require you to give them proper notice (as defined by your contract) if you no longer wish to buy the home within your condition period. Real estate agent contracts require you to give notice if you want to waive the condition to make the contract binding.

Ability To Terminate The Contract

Some builder contracts provide an “out clause” so that the builder retains the ability to cancel the deal without any penalty to them. Others have two types of terminations. One allows them to keep your deposit and one does not, depending on the circumstances. For example, some contracts allow for this if: costs increase, the builder cannot secure financing, construction conditions change, ect.

Ability To Change What You Get

Many builder contracts also allow the builder to unilaterally change the design or layout of your home.

Limited Ability To Make Changes Or Decide Your Design

Many builder contracts limit you in terms of how long you have to decide on colours or finishing. In addition, several “custom” home contracts limit your options for customizing. Often financial or contractual penalties exist if you miss your deadline. In addition, the steps needed to make changes vary from contract to contract.

Reviewing New Home Builder Contracts For Things Not Included In The Contract

When reviewing new home builder contracts, the things that we find missing from contracts is as important as the terms included in it. When we review the contract with you, we will point out missing builder obligations that impact you and your new home. Determining essential missing terms requires a greater skill set that reviewing the contained provisions. Experience and knowledge are the key aspects to knowing what to look for when searching for missing terms.

Why Lawyers For Reviewing New Home Builder Contracts

The advantage of lawyers reviewing new home builder contracts is the experience in reading, understanding and communicating the impact on you. For example, some contracts contain headers that explain certain paragraphs. Sometimes, terms that negatively impact a buyer are detailed in a paragraph where the heading appears normal. Further, when clients want to sue builders, they often failed to understand the actual legal impact of a term of the contract. For example, interest owing under a new build contract, remains payable until the full release of the purchase price to the builder. What people fail to understand is that land titles registration times vary. This mean that as of the writing of this page, people look at interest for 6-10 weeks. If the higher contracted interest rate applies (15-26%), a substantial amount of interest remains owing under the contract. This is but one example.

Legal Fees For Reviewing New Home Builder Contracts

Unlike the standardized contracts that real estate agents use, new home builder contracts vary greatly. These contracts are also much longer than the real estate contracts (The real estate contracts are drafted by the Alberta Real Estate Association). Another aspect that varies with builder contracts, is the length. As with many of our services, we always attempt to flat rate fee these reviews. Normally, these reviews range from $325-525 depending on how long the contract is. Included in the fee for reviewing new home builder contracts is the review itself plus 30 minutes to go over the contract with you page by page. In addition, we answer your questions. In most instances, if you have a few follow up questions, we answer those as well via email to ensure you have a complete picture of the agreement you.

Why Answering “Quick Questions” On The Phone Does Not Work

People often want to avoid the cost of reviewing new home builder contracts. We understand this and always try to keep our fees reasonable and flat rate to avoid surprises for you. It is not possible to answer most “quick questions” on the phone because our answer will always be “It depends on what the contract says”. Without reviewing the contract, which sets out all your rights and obligations contractually, it is impossible to answer. Often, we say to people that “generally” or “often” the contract contains a term that includes a specific provision, but each builder contract is different. Even with the same builder, they often use different contracts for different projects. In some cases, the differences in contract with the same builder is extreme in terms of client risks. Without reviewing the specific contract, we just cannot give you details of your risks.

Hiring Lawyers For Reviewing New Home Builder Contracts

Our whole real estate team is here to help you. Email us today to start the process of reviewing your contract. We usually need 2-4 days to complete the review and go over it with you. Since most contracts include a limited time for these reviews, ensure you leave enough time. Since we require the contract emailed to us, email often works the best and the fastest to set up your review. Email our real estate team here. If you want to call, please call 403-225-8810. We are always happy to let you know the process.