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Strict Compliance with Builder-Developer Charge-Back Clauses

In a recent case heard by the Ontario Court of Appeal, the key issue was whether a developer was validly entitled to charge-back repair costs that it was invoicing builders for under the terms of the agreement between them.  The Court ultimately concluded that in order to qualify for repayment the developer had to abide by the clear and strict wording of the contract, which it had not done.
 
The facts involved written Lot Sale Agreements between a developer and various builders, which contained a provision allowing the developer to make repairs on behalf of those builders, and then invoice them for the costs. The builders had each provided letters of credit to serve as security deposits, and these allowed the developer to draw from them at the bank without obtaining the builder’s approval. However, the Lot Sale Agreement required the developer to give written notice of any damage or default for which it intended to make the builder liable, and gave the builder seven days within which to remedy the problem itself.
 
Work proceeded on the subdivision, and the developer started submitting invoices to the builders for various work it had done without giving the requisite notice.  These items included cleaning the subdivision, removing garbage, installing and cleaning catch basins, installing signs and fencing, various landscaping, repairing damaged curbs and sidewalks, and cleaning mailbox pads. The builders paid some of the invoices, but refused to pay others.  The developer drew on the letters of credit; the builders refused to reinstate the security deposit and the matter came before the court.
 
Although the court determined that all of the tasks were performed and the charges were reasonable, it held that the developer was still not entitled to invoice the builder for them.  Rather, the Lot Sale Agreement between the parties was clear:  simply stated, it only allowed the developer to be reimbursed if it had given the required notice.  If the necessary notice was not given, then the developer could not insist on payment and had no right to draw from the letters of credit.  In the end, the court found that the developer had been acting in accordance with its own, misguided interpretation of the notice provisions, and in this case, it unfortunately did so at its own risk.  See Tas-Mari Inc. v. DiBattista*Gambin Developments Ltd., 2009 (ONCA).