An Ontario Court just sent a strong message to developers in Ontario: the cost of building belongs in the purchase price, not as a last-minute surprise on the homebuyer’s closing Statement of Adjustments.
The recent decision by the Ontario Superior Court of Justice in Bellisario et al. v. 2200 Bromsgrove Development Inc. is a wake-up call for developers, builders, and purchasers alike. The Court recently ruled that a developer could not pass along millions in unexpected or unforeseen construction costs to homebuyers, especially when these costs were never clearly disclosed in the Agreement of Purchase and Sale (“APS”).
In a typical real estate deal, closing adjustments are meant to "balance the books" on predictable, prepaid costs like property taxes or condo fees. For a new build, this extends to standard one-time fees for a TARION warranty or utility meter connections. However, as the Bellisario ruling makes clear, they are not a backdoor way for developers to offload fundamental construction expenses on unsuspecting purchasers.
The Golden Rule: Price It In, Don't Pass It On
The dispute in Bellisario involved a group of townhouse purchasers challenging the developer’s attempt to impose massive last-minute charges at closing, characterized as being for “utility and infrastructure.” At the heart of the decision is a simple but crucial distinction: legitimate pass-through fees versus the developer’s own cost of doing business. Under the industry standard form contract, it is acceptable to charge adjustments for costs paid directly to a municipality or utility provider, but it is not acceptable to use adjustments to recover expenses paid to your own trades and contractors.
On-site work, such as excavation, concrete forming, and laying pipe to connect to the municipal grid, leads to predictable costs that should be included in the home’s purchase price rather than appearing unexpectedly on the Statement of Adjustments. The ruling in Bellisario confirms that a court is unlikely to accept that a homebuyer should be on the hook for the developer’s project management and construction expenses. Instead, developers are advised to treat the cost of building their project as a hard cost, and factor it into their new home pricing.
Limitation of Liability Clauses: A Paper Shield?
Faced with a claim of improper closing adjustments, developers may be tempted to attempt to use limitation of liability clauses to shield themselves against subsequent claims by purchasers. Such clauses, however, may be subject to judicial scrutiny, especially if they conflict with mandatory supplemental provisions contained in the “TARION Addendum,” a document required to be included in every new home sale in Ontario. One of the important functions of the TARION Addendum is to detail all additional costs a homebuyer may face at closing.
If the terms of the APS and the TARION Addendum conflict, the latter prevails. The decision in Bellisario is a case in point. The Court found the developer’s limitation of liability clause unenforceable for three reasons: (1) it was in conflict with the TARION Addendum, (2) it was unconscionable given the unequal bargaining power between developers and homebuyers, and (3) it violated public policy by shielding the developer from claims arising from improper closing adjustments. The takeaway is clear: a boilerplate liability clause should not be relied on to “contract out” of the fundamental contractual duty to act in good faith and adhere to the terms imposed by the TARION Addendum.
Developers must ensure their Statement of Adjustments, any supporting certificates, and internal accounting are all aligned and accurately reflect only those costs expressly permitted by both the APS and the TARION Addendum.
The Bottom Line: Transparency Is Your Best Defence
Surprising a purchaser with massive, unexpected charges just before closing is a recipe for litigation, and the financial consequences can extend well beyond simply returning the improperly charged amounts. A developer can face a lengthy and expensive legal battle, a court-ordered accounting of their project costs and significant damage to their professional reputation.
If you’re a developer, builder, or purchaser navigating these issues, don’t take chances. Contact RAR Litigation Lawyers for strategic advice representation before real estate and construction disputes occur.
