New Freehold Home Cooling-Off Period – What Builders and Developers Need to Know

Overview

The Ontario government passed the Homeowner Protection Act, 2024 (Bill 200) (the “Act”) on June 6, 2024. The government created the Act to strengthen consumer protection for homeowners and buyers of new freehold homes. Notably, the Act introduces a new 10-day cooling-off period for freehold home buyers, though the cooling-off period will not come into effect until proclamation at a later date. Nevertheless, the upcoming cooling-off period will be significant for developers and builders.

This new legislation will afford similar protection for new freehold home buyers as exists for buyers of new-build condominiums, who already enjoy a 10-day cooling-off period. Upon proclamation, the Act will amend section 53 of the New Home Construction Licensing Act, 2017 to introduce this new mandatory cooling-off period.  

Cooling-Off Period

During the 10-day cooling-off period, buyers of new-build freehold homes may terminate their purchase agreement without penalty. To terminate the purchase agreement, the buyer must provide written notice of rescission to the seller (the developer or builder, as applicable) within 10 days following the latest of:

1. The date the buyer receives the prescribed information in respect of the home;
2. The date the developer or builder, as applicable, has satisfied any prescribed requirements as may be set out by such prescribed information; and
3. The date the buyer receives a copy of the purchase agreement, executed by both parties.

Under the New Home Construction Licensing Act, 2017, “prescribed” means prescribed by the regulations. Recently, the government released proposed regulations with respect to the cooling-off period; however, these regulations are not yet in effect and do not necessarily identify all requirements the final regulations will include. The government has stated that the cooling-off period and final regulations are expected to come into force some time in 2025.

Proposed Regulations

On July 31, 2024, the Ministry of Public and Business Service Delivery and Procurement released proposed regulations to govern the 10-day cooling-off period. These regulations are not yet in effect, though they might signal what is to come.

The proposed regulations would add the following requirements to implement the 10-day cooling-off period:

1. Updating the addenda to the agreement of purchase and sale; and
2. Creating an information sheet that builders would have to provide new freehold home buyers.

The government notes that the addenda changes and information sheet will increase operational and administrative costs for builders and developers.

The proposed regulations also set out several other provisions regarding the cooling-off period. First, the regulations prescribe the following interest rate on money that builders must refund to buyers who terminate their purchase agreement:

• From April 1^st to September 30^th of each year, 2% per annum below the bank rate at the end of March 31 of that year; and
• For the period from October 1^st  of each year to March 31^st in the following year, 2% per annum below the bank rate at the end of September 30^th immediately before that October.

Additionally, the proposed regulations provide for the public disclosure of new freehold home purchase agreement terminations on the Ontario Builder Directory.

Finally, developers and builders should be aware of the possible sanctions set out in the proposed regulations. For non-compliance with the Act and its regulations – for example, failing to provide the information sheet – the Home Construction Regulatory Authority (HCRA) could impose an administrative penalty of $50,000.

Overall, developers and builders should keep in mind that during the new 10-day cooling-off period, they should be prepared to return the buyer’s deposit with interest. They should likewise be prepared for increased costs and administration requirements, including the information sheet and changes to the Tarion addenda. The government’s final regulations, when released, will define how the cooling-off period and other additional requirements will affect developers and builders and should provide welcome clarity. 

If you have any questions regarding the new freehold home cooling-off period, the authors and other lawyers in our Real Estate Group would be pleased to assist.

The authors would like to acknowledge Torkin Manes Articling Student, Sarah McGregor, for her contribution to drafting this article.