Coping strategies for extensions & hidden clauses
By Jayson Schwarz

Today's article is intended to bring to your attention some specific problems that you must anticipate when entering into that great big Agreement of Purchase and Sale.

Many new homebuyers, whether buying a freehold home or condominium, have come to my office in the last few months in a panic over the fact that there have been so many extensions on the completion of their home that the time period on the mortgage commitment has expired. What does this mean? First of all, most of the time the banks will not renew at the old rate if there has been a rate increase. Secondly, if the commitment has expired, you need to worry about re-qualifying. Why? If you were originally very close in the ratios of income to payment, the fact that rates have gone up may put you in the horrible position of not qualifying anymore because the cost of debt service has increased. Remember, even if there is no problem with re-qualification -- and provided that there has been no other intervening factor (pregnancy leave, dismissal, accident etc.) -- if the rates go up, you will have less disposable cash.

Now that I've told you the downside, we need to consider your options. 1. Remember that most builders complete on time, or at least close, as it is in their interest to do so.

2. You have a 10 day window (subsequent to the expiry of 120 days from the "confirmed occupancy date" in a condo, and the closing date for a freehold) in which you have the right to advise the builder in writing of your intention to terminate the contract.

3. If you go into the second 120 day extension period, the contract will automatically terminate unless both you and the builder agree to extend if you have not closed or taken possession (condo) by the end of that period.

4. Try and negotiate with your bank up front to deal with these exigencies, and agree to extension terms ahead of time. Remember, in the beginning the bank really wants your business and there is lots of competition, so you can negotiate from a position of strength, not weakness.

5. Try to negotiate a clause in the Agreement of Purchase and Sale that, if the builder extends past the pre-agreed time of your commitment, the builder will make up the difference in any rate change as an adjustment on closing for a set term of your mortgage or part thereof. I know this isn't a happy topic, but it's very important that you understand all of the risks: forewarned is forearmed.

The other thing I want to do today is complain about builder's lawyers. I review a lot of Agreements of Purchase and Sale and, for the life of me, cannot understand why some lawyers think they are doing their clients a favour by burying all kinds of hidden costs and other stupid clauses that they know a reasonable purchaser's lawyer will delete. Many builders have read my articles and, I suppose, got tired of making the same amendments over and over and, as a result, have made positive changes to their Agreements of Purchase and Sale. I look forward to the day that all I have to do is explain the Agreements to my clients, without making changes. Here are some of the items to look out for, and I hope all you lawyers out there take note and clean up your offers:

a) costs may be fine; but insist on a schedule with maximums

b) mortgage discharge statements and directions must be available if no discharge on closing

c) you don't always want to take the builder's mortgage; insist on getting the option

d) ensure that deposits over $20,000 go into escrow accounts or that deposit insurance is obtained

e) refuse to hand over your money without obtaining a deed in exchange

f) find out whether the driveway has one or two coats

g) find out the minimum useable square footage in condominiums

That's all for today, and remember: only a lawyer can provide the legal advice you need. Happy home hunting.

Jayson Schwarz is a senior partner with the firm Schwarz Gillen Barristers and Solicitors. He can be reached at (416) 486-2040.