Cash Allowances and Homeowner Liability in Canadian Residential Construction Contracts
Allowance or Liability? Navigating Cost Overruns in Canadian Homebuilding
In Canadian construction law, the concept of a “cash allowance” is often misunderstood—particularly by homeowners entering into residential building contracts. While many assume these allowances represent fixed prices for specific components of the work, such as wells, septic systems, driveways, or fixtures, the legal reality is far more nuanced. Under standardized contracts like the CCDC 2 – Stipulated Price Contract, cash allowances are provisional estimates, not guarantees. They are designed to accommodate uncertainty at the time of tender and are subject to adjustment once actual costs are known. This distinction carries significant legal and financial implications, especially when cost overruns occur.
The Ontario Superior Court of Justice clarified this principle in Gregor Homes Ltd. v. Woodyer, 2022 ONSC 4089. In that case, the homeowners disputed overages on several cash allowances, alleging they had been misled about the scope and pricing of the work. However, the Court found that the homeowners had approved the additional costs during construction and were therefore liable for the excess. It rejected claims of negligent misrepresentation and promissory estoppel, emphasizing that the builder had not misrepresented any facts and that the homeowners had knowingly authorized the changes. This ruling reinforces the enforceability of contractual terms and the principle that once a homeowner approves work beyond the stated allowance—whether formally or informally—they assume financial responsibility for the difference.
Similarly, in ASC (AB) Facility Inc v. Man-Shield (Alta) Construction, 2018 ABQB 130, the Alberta Court of Queen’s Bench examined the role of cash allowances under a CCDC 2 contract. Justice Antonio affirmed that these allowances are flexible instruments, not fixed commitments. If actual costs exceed the allowance, the owner is responsible for the overage; if costs fall below, the contractor must credit the owner. The Court deferred to the Consultant’s determinations, noting that the parties had agreed to rely on professional oversight rather than litigate every cost detail. This case underscores the importance of understanding the contractual mechanisms that govern cash allowances and the weight courts give to expert certification in managing them.
However, recent jurisprudence has introduced a statutory overlay that complicates this framework—particularly in direct-to-consumer residential construction. In The Fifth Wall Corp. v. Tonelli 2022 ONSC 599, the Ontario Superior Court applied the Consumer Protection Act (CPA) to a residential construction contract, significantly limiting the builder’s ability to recover cost overruns. The builder had exceeded budgeted amounts by over $400,000, and the homeowners argued they had not approved these increases. The Court accepted that the CPA applied and held that, under the statute, suppliers cannot charge more than 10% above an original estimate unless the consumer explicitly agrees to amend that estimate. This ruling introduces a critical limitation: even if a contract includes a cash allowance, the builder may be legally restricted from charging beyond it unless the homeowner has provided informed and documented consent. For reference, while the CPA in Ontario does provide for a specific percentage, being “more that 10%” (section 10(1) of the CPA), the Saskatchewan legislation (The Consumer Protection and Business Practices Act, SS 2013, c C-30.2) does differ in that it reads – “substantially higher than an estimate”
This statutory safeguard does not invalidate the concept of cash allowances as provisional sums, but it does refine the legal analysis. While Gregor Homes and ASC v. Man-Shield affirm homeowner liability under traditional contract law, Fifth Wall v. Tonelli demonstrates that consumer protection legislation can override contractual flexibility in certain contexts. Builders working directly with homeowners must now ensure that cost increases are not only approved but documented in a manner that satisfies statutory requirements. Failure to do so may result in unenforceable claims for overages, even if the work was completed and the costs were reasonable.
Moreover, the Ontario Divisional Court’s decision in Jessco Structural Limited v. Gottardo Construction Limited, 2016 ONSC 2189, adds another layer to this analysis. In that case, a subcontractor performed extra work without formal written change orders, as required by the contract. The appellate court found that the general contractor’s repeated acceptance of the work—without insisting on formal documentation—constituted a waiver of the written requirement. The subcontractor was entitled to payment. This ruling reinforces the idea that courts will look beyond the paperwork to assess the parties’ conduct, particularly when it reflects a pattern of approval or acquiescence.
Taken together, these cases form a nuanced legal framework. Under construction contracts, like the CCDC, cash allowances are estimates subject to adjustment, and homeowners are generally liable for cost increases when they approve additional work. However, in residential contexts governed by consumer protection legislation, that liability may be capped unless the homeowner has explicitly agreed to exceed the original estimate. Builders must navigate both contractual and statutory obligations, ensuring that approvals are not only obtained but properly documented.
For homeowners, the takeaway is clear: cash allowances are not fixed prices. They are provisional sums that reflect uncertainty, and once actual costs are incurred and approved, the financial responsibility typically falls on the homeowner. But where consumer protection laws apply, homeowners may have a legal shield against unapproved cost overruns. To avoid disputes, both parties must engage in clear communication, maintain thorough documentation, and understand the legal landscape that governs their contractual relationship.
In conclusion, while the prevailing legal doctrine supports homeowner liability for increases to cash allowances, The Fifth Wall Corp. v. Tonelli introduces a statutory constraint that tempers this liability in consumer-facing residential projects. Builders must adapt their practices to ensure compliance with both contract law and consumer protection statutes, and homeowners must remain vigilant in reviewing and approving changes. The courts have shown a willingness to enforce both formal terms and informal conduct—but only when the legal requirements are met.
*The law may have changed since this article was first published. You should consult with your lawyer to confirm the current state of the law*