Residential New Build Agreements

Buyer beware...Residential New Build Agreements typically include an “HST” clause stating that the purchase price includes the net amount of the HST, but NOT the rebate portion of the HST. The clause also states that if the residential unit will be occupied by the original buyer as their principal residence then the builder will take an assignment of the rebate amount from the buyer on closing and the buyer will not be required to pay the rebate amount to the builder. Finally, the clause also states that if the builder has any reason to believe that the original buyer will not occupy the unit as their principal residence then the builder can decline an assignment of the rebate (which would come from the government) and insist that the rebate amount be paid in cash on closing in addition to the purchase price.

Recently, CRA has taken the position that if the ultimate buyer is different from the original buyer identified in the agreement they will automatically deny the rebate to the builder. As a result, many builders have now taken the position that if the original buyer asks that their name be replaced on closing with the name of someone else (even a family member) then, in addition to treating this as an Assignment of the Agreement (requiring consent and payment of additional fees), the builder will automatically add the rebate amount to the purchase price to be paid on closing. The buyer will have to scramble to find this additional cash for closing and would then have to make their own application to CRA for a refund of the rebate portion which may or may not be successful depending on the circumstances.