License to Sell: How Failing to Get a Vendor’s License When Selling a Home Can Lead to Costly Fines and a House of Cards
Imagine that you build the home of your dreams for you and your family. Construction is nearly complete but then you receive some bad news: you lost your job. You can no longer afford this dream home that you built from the ground up. What happens next? Do you sell? Tread carefully… that decision could cost you a fortune.
In Ontario, the New Home Construction Licensing Act requires that all individuals who sell a new home to a third party must obtain a vendor’s license. Sellers of new home builds also need to enroll the home in the Tarion new home warranty plan. The Home Construction Regulation Authority (“HCRA”) is a provincial government organization that enforces this mandate and ensures that all Ontario sellers comply with the law. When sellers do not comply, HCRA routinely issues administrative fines for contravening the law, which can include the seizure of any monetary benefit gained from selling the property.
The monetary benefit from selling the property will vary. In many cases, this amount can be between $100,000 to $500,000, or even higher. The Ontario government will often take the entire profit if you neglected to obtain a vendor’s license.
An important exception to this rule is that sellers are not required to obtain a vendor’s license if they meet the definition of an “Owner-Builder.” An Owner-Builder is an individual who constructs or manages the construction of a residential dwelling for their personal use and occupancy. In other words, before selling the home, it must have been previously occupied by the seller.
Any legal disputes about the government’s decision to take your money, or what constitutes occupancy, will go to the courts or tribunals. The Ontario Superior Court in Melo v Hiebert, 2024 affirmed that that a vendor’s intention prior to selling the home is not relevant. The focus of the analysis is whether the home was previously unoccupied at the time of the sale. The Court does not consider reasons (such as job loss) as to why it was unoccupied or whether the vendor intended something different when the home was first built. If you choose not to obtain a license, and you want to avoid the hefty fines, you will need to prove that you lived in the home before selling it.
In Tarion Warranty Corp. v. Mikhael, the Court confirmed there is no minimum prescribed period an owner-builder must live in the subject property for the exception to apply. In Tarion Warranty Corp. v. Oppedisano, the defendant was only occupying the property for three months. However, the Court found that the definition of occupancy was satisfied.
In Tarion v. Stefko, the Court stated, “for ‘occupancy to occur there must be an element of residency or tenancy. Simple possession does not and should not suffice.”
Generally, relevant factors demonstrating occupancy include:
a) Whether an occupancy permit was obtained;
b) Whether the home was completed at the time of occupancy;
c) Whether the home was furnished; and
d) Whether the seller ate, slept, and showered at the home.
It is not necessarily the seller who needs to have occupied the property. The property just needs to be “used” at the time of the sale. This is why sellers of used residential properties do not need to obtain a vendor’s license.
So, what does this all mean? In Ontario, selling a never-lived-in home without a vendor’s license can turn into the most expensive “Oops” moment of your life. The Court is not interested in your intentions—just whether you ever unpacked a box.