Executive Summary – Key Legal and Evidentiary Issues

• Whether the Letter of Agreement (LOA) constituted a cost-plus contract or included any form of price guarantee.

• Dispute over whether Reid Developments guaranteed completion within the preliminary budget or within 15% of it.

• Assessment of oral communications and undocumented agreements, raising credibility concerns, particularly with Mr. Hopkins’ testimony.

• Evaluation of whether scope changes and cost overruns were properly authorized and communicated.

• Determination of the Hopkins' refusal to pay final invoices despite receiving the full benefit of the work.

• Examination of whether Reid Developments breached financial or project management obligations under the LOA.

Facts of the Case

Reid Developments Ltd., a custom home builder, was contracted by Eric and Kandace Hopkins to demolish their existing home and construct a new residence with a laneway house in Vancouver. The parties entered into a Letter of Agreement (LOA) in December 2019, formalizing their arrangement.

The contract followed a cost-plus model, where the Hopkins would pay the actual cost of construction plus a 10% management fee. Although the LOA referenced a preliminary budget estimate of approximately $1.47 million, it was based on early architectural plans and did not include final design details, structural plans, or specifications for finishes.

During construction, the Hopkins made numerous changes and upgrades to the scope of work—including higher-end finishes, structural modifications, and additional features. Delays and cost increases related to COVID-19, permitting issues, and hazardous materials abatement also impacted the project. Despite receiving monthly cost updates and detailed spreadsheets, the Hopkins refused to pay final invoices totaling over $650,000, claiming the builder exceeded the budget and breached oral cost assurances.

Contract Terms and Clauses at Issue

Key contractual provisions that were central to the dispute included:

• Nature of Agreement – Cost-Plus Contract:
  The LOA incorporated the CCDC-3 (1998) standard form cost-plus contract, and all parties acknowledged in testimony that it was not a fixed-price agreement.

• Preliminary Budget Not Binding:
  The contract referenced a preliminary budget but clearly allowed for changes in cost as construction progressed and selections were finalized.

• Change Order Mechanism:
  The LOA permitted the owners to change the scope of work, with corresponding cost adjustments. All extras were billed at cost plus 10%, and approval could be given orally or in writing.

• Payment Terms:
  The agreement required bi-weekly payments based on progress and actual costs. At the Hopkins’ request, this was later adjusted to align with their construction financing draw schedule.

• Completion Timeline and Excusable Delays:
  While the LOA set an expected completion date, it also listed acceptable reasons for delay—including permit issues, weather, and owner-caused changes.

• Interest on Late Payments:
  The LOA referenced a contractual interest clause from the CCDC-3 for unpaid amounts, tied to the Royal Bank’s prime rate. However, this clause was incomplete and not agreed upon, so the court declined to enforce it.

Outcome

Justice W.A. Baker ruled in favour of Reid Developments Ltd., concluding that the Hopkins breached the contract by refusing to pay for authorized work and services they received. Key findings included:

• The LOA was a valid cost-plus contract, and the preliminary budget was not a cap.

• The Hopkins' claim that Reid promised to keep the cost within 15% of the budget was not credible and unsupported by evidence.

• The homeowners were aware of and approved all additions and upgrades that increased the final cost.

• Reid Developments provided regular cost updates and met its contractual obligations.

As a result, the Court awarded:

• $650,209.55 in damages for unpaid invoices;

• Pre-judgment interest at the court-ordered rate (not the prime rate);

• Reimbursement for financing costs related to shareholder loans used to pay subcontractors;

• A builder’s lien against the Hopkins' property, recognized as a first charge.

The Hopkins’ counterclaim was dismissed entirely, and their credibility was found to be lacking throughout the proceedings.