Case snapshot
At a glance
- Case
- Construction Contract Extras and Unauthorized Substitutions in Ontario
- Court / Tribunal
- Ontario Superior Court of Justice
- Citation
- 2026 ONSC 4472 ↗
- Date
- July 31, 2026
- Area of law
- Litigation Law
- Key issue
- Whether a builder materially breached a construction contract by installing a heating system with fewer manifolds, zones, and circuits than the approved mechanical drawings required, and whether unsigned extras and third-party quotes could support damages claims.
- Outcome
- The court awarded damages for approved change orders and the basement addition, disallowed certain unsigned extras, applied a conservative per-square-foot rate for the unauthorized mechanical substitution, excluded hearsay contractor quotes from quantum, and held Tarion jointly and severally liable for minimal damages with a right to indemnity from the builder.
- Why it matters
- Homeowners and builders in Ontario need to understand that deviating from approved mechanical drawings — even silently — can trigger liability, and that unsigned extras and unsworn contractor quotes will not reliably support a damages claim in court.
Legal principle
The rule from this case
When a construction contract incorporates mechanical drawings by reference, a builder is bound to install the system those drawings specify. Installing a simpler system — one with fewer manifolds, heating zones, or circuits — without written approval is a material departure from the contract. Courts will assess damages for that departure even when precise repair costs are hard to pin down, using a conservative benchmark rate (here, $15 per square foot) rather than dismissing the claim entirely. For extras and change orders, the written-approval requirement in a construction contract is strictly enforced. Work done without a signed change order is at the contractor's risk. Third-party repair quotes filed without supporting affidavits or the opportunity for cross-examination are treated as unreliable hearsay and will be given no weight when calculating what a fix would cost. On the warranty side, Tarion can be found jointly and severally liable with a builder for failing to investigate a homeowner's complaint about an unauthorized substitution, though Tarion retains the right to recover that amount from the builder.
Important limits
What this does not mean
This decision does not mean that every deviation from construction plans automatically entitles a homeowner to the full cost of a brand-new replacement system. The court here assessed damages conservatively, using a per-square-foot rate rather than the higher figures suggested by the homeowners' expert, precisely because the evidence of actual repair costs was unreliable. Larger or more complex remediation claims still require properly sworn evidence and qualified expert opinion. The ruling also does not mean Tarion is a deep-pocket insurer for every construction defect. The court found Tarion liable only because it failed to investigate a specific, identifiable complaint about a missing manifold and unauthorized substitution under the Ontario New Home Warranties Plan Act. Tarion's exposure was minimal, and it was granted full indemnity from the builder. Homeowners should not assume Tarion will automatically cover defects that were never properly reported through the statutory claims process.
What happens when a builder installs a different heating system than the plans required?
A builder who installs a heating system with fewer manifolds, zones, and circuits than the approved mechanical drawings specified has materially departed from the contract — and can be held liable for the difference in value. That is the core finding in L.S.I. Engineering Limited v. Morales et al., 2026 ONSC 4472 (CanLII), a recent Ontario Superior Court decision that touches on construction contract interpretation, hearsay evidence, and Tarion’s warranty obligations.
The case arose from a residential construction project where the heating system that was actually installed differed significantly from what the mechanical drawings called for. The homeowners sought damages for the shortfall. The builder also claimed payment for extras and a basement addition. The court had to sort through all of it.
Are mechanical drawings part of a construction contract in Ontario?
Yes — when a construction contract incorporates mechanical drawings by reference, those drawings become binding on the builder. The court found that the approved mechanical drawings were incorporated into the contract and that the builder was therefore obligated to install the system they described.
This matters because builders sometimes treat drawings as aspirational guides rather than firm commitments. Ontario courts do not see it that way. If the drawings are referenced in the contract, they define what the homeowner is entitled to receive. Departing from them without written approval is a breach.
Do construction contracts require change orders to be in writing?
Yes, and Ontario courts enforce that requirement strictly. The contract in this case required that any changes and design fees be approved in writing. The court disallowed certain extras that lacked a signed change order, even if the work may have been done.
This is a critical lesson for both sides. Contractors who perform extra work without a written change order take on the full risk of non-payment. Homeowners who agree verbally to extras may still dispute them later. The written-approval requirement is not a technicality — it is the mechanism the parties chose to control scope and cost, and courts will honour it.
How did the court calculate damages for the unauthorized heating system?
When precise repair costs are difficult to establish, courts can use a reasonable benchmark rather than dismissing the claim. Here, the court assessed damages using a conservative rate of $15 per square foot to reflect the difference between the system that was designed and the system that was actually built.
The homeowners’ litigation expert had relied on third-party contractor quotes to argue for a higher figure. The court gave those quotes no weight. Because the quotes were filed without supporting affidavits and without any opportunity for cross-examination, they were unreliable hearsay. The principle from Sanwalka v. Regional Municipality of Peel was applied: contractor quotes used to prove quantum must meet basic reliability and necessity standards before they can be treated as evidence. Unsworn, untested quotes do not clear that bar.
The court also considered whether there was any risk of double recovery given that a Pierringer agreement had been reached with other defendants. Following the approach in Laudon v. Roberts, the settlement was set off against the damages awarded.
What are Tarion’s obligations when a homeowner reports an unauthorized substitution?
Under the Ontario New Home Warranties Plan Act, Tarion has a statutory duty to investigate homeowner warranty claims. The court found that Tarion failed to properly investigate the homeowners’ complaint about the missing manifold and the unauthorized substitution of the heating system — a breach of its obligations under sections 4.2 and 5 of the Administration of the Plan Regulation and section 13(1)(a)(c) of the Act itself.
As a result, Tarion was found jointly and severally liable with the builder for the damages flowing from that failure. The amount was minimal. Tarion was also granted a right of indemnity against the builder, meaning the builder — not Tarion’s fund — ultimately bears the cost. Homeowners should take note: Tarion’s liability here was tied directly to a specific, documented failure to investigate a specific complaint. The statutory process matters.
Practical takeaways for homeowners and builders
- Get every change in writing. Verbal agreements about extras, upgrades, or scope changes are difficult to enforce and easy to dispute. Insist on a signed change order before any additional work begins.
- Keep your mechanical drawings. If your contract references approved drawings, those drawings define what you are entitled to receive. Compare the as-built system to the drawings before you accept the work.
- File Tarion claims properly and on time. Tarion’s liability in this case was triggered by a failure to investigate a properly filed complaint. If you have a warranty issue, report it through the formal process — do not assume Tarion will act without a documented claim.
- Use sworn expert evidence for damages. Contractor quotes filed without affidavits will not support a damages award. If you are claiming the cost of remediation, engage a qualified expert who can testify and be cross-examined.
- Understand Pierringer agreements. If multiple defendants are involved and one settles, the settlement amount will be set off against any damages you recover from the remaining defendants. Factor this into your litigation strategy early.
Our Ontario litigation lawyers regularly advise clients on construction disputes, contract interpretation, and warranty claims. Whether you are a homeowner dealing with a deficient build or a contractor facing a payment dispute, understanding your rights before litigation begins can make a significant difference to the outcome. If your dispute involves the Hamilton or Burlington area, our Burlington litigation team and Hamilton litigation team are available to help.
This article is automated commentary on a public court decision and is for general information only — not legal advice. Decisions rely on facts unique to each case. If you are affected by a similar issue, contact a lawyer for advice specific to your situation.
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