If you live in Ontario and have bought a new home, then you’re familiar with Tarion Warranty Corporation, a private corporation financed entirely through the fees paid by its members (residential building contractors). For the past 40 years, Tarion Warranty Corporation has overseen the warranty program for newly built homes in Ontario as well as regulating new homebuilders in the province.
But all that is about to change.
In an announcement by Minister of Government and Consumer Services Tracy MacCharles, she stated that the Ontario government will essentially be splitting Tarion in half and establishing a stand-alone regulator to oversee the province’s home builders. This will mean removing those responsibilities from the company, which has overseen nearly all facets of the home building sector.
Tarion will continue to maintain administration of the warranty program while the government establishes a new regulator. The current system lends itself to a potential conflict of interest – perceived or otherwise – between buyers of new homes and home builders, MacCharles said, and the split is designed to improve accountability and increase transparency for home buyers.
“Tarion is too far removed from government; its unique structure doesn’t give my ministry the same oversight tools that it has for our other administrative authorities,” MacCharles said. “We believe that consumers can be better protected by giving government the lead in making rules and setting standards.”
In a statement, a spokeswoman for Tarion says the firm has “serious concerns” with the move.
In November 2015, the government appointed Douglas Cunningham, the former associate chief justice of the Ontario Superior Court, to lead a comprehensive review into consumer protections for new home owners. For this evaluation, which included a review of the Ontario New Home Warranties Plan Act (that outlines the warranty protection that new home and condominium builders must provide by law to their customers) and the Tarion Warranty Corporation to identify opportunities to improve consumer protection measures, Cunningham met with more than 200 individuals from across the province, including homeowners and industry professionals.
Ontario has released his final report, and will move forward with the recommendations to further protect owners of newly built homes across the province. In addition to separating the provider of the new home warranty program from the new home builders regulator to increase consumer confidence, the province will also make the dispute resolution process easier for homeowners if they discover a problem in the construction of their new home (a homeowner does not have to prove the cause of a defect, for example), give government responsibility in making rules and setting standards and introducing modern oversight measures to improve accountability and transparency, and immediately ask Tarion to introduce new deposit protection measures to better reflect today's home prices and deposit requirements.
In MacCharles’ remarks, she acknowledged that Cunningham had found fault with Tarion’s complex structure and over-arching mandate, adding that the retired judge had heard that both builders and homeowners questioned Tarion’s objectivity.
In a statement sent to The Canadian Press on Tuesday, Tarion spokeswoman Laurie Stephens took issue with Cunningham's recommendations.
“We worry that the recommendations will have the effect of seriously weakening consumer protection; increasing costs for the administration and regulation of the warranty, new costs that ultimately new home buyers will have to pay; and creating barriers to entry for builders that could further impact a marketplace already struggling to keep pace with consumer demand,” Stephens said.
Years earlier, the province's ombudsman had slammed the private company in a report and described it as a “puppet of the building industry.”
“If we were doing this in 2017, would we give an organization all these multiple roles? The short answer is no,” MacCharles said. “Why? Well, as Justice Cunningham noted in his final report, Tarion’s multiple roles and responsibilities can give rise to a perception of conflict of interest, and could result in actual conflicts of interest.”
The Residential Construction Council of Ontario said it is pleased to see that the report calls for dismantling Tarion’s monopoly over new-home warranty service and moving to a multi-provider insurance system.
“Competition will give new-home buyers more options,” president Richard Lyall said in a statement.
“Justice Cunningham's report encourages the Ontario government to enable new private-sector warranty-surety providers to enter the marketplace, just like British Columbia, Saskatchewan and Alberta,” Lyall said. “This recommendation aligns home builders with consumer advocates.”
Strengthening consumer protection is part of Ontario’s stated plan to create jobs, grow the economy, and help people in their everyday lives. According to the government of Ontario, more than 57,000 new homes were enrolled in the warranty program in 2015 – 40 per cent of which were condominium units. The warranty can be for one, two, or seven years, and covers homes in the event of poor workmanship, water penetration, and major structural defects. This warranty also covers delayed closing and deposit protection.
Coverage varies depending on the type of home you buy. For example, homes built on existing footings or foundations are not covered. Down payments are covered, up to $20,000 for a condo and $40,000 for a single-family home; visible construction defects and unapproved substitutions are covered for a period of one year; water infiltration and defects in the electrical, plumbing and heating systems, as well as in the roof and siding, are covered for two years; and major defects in the structure are covered for seven years. The maximum coverage for a single-family house or a condo is $300,000. Common portions of condominium buildings are covered for $50,000 multiplied by the number of units, up to $2.5 million.
“Our government is committed to protecting what is for most people the largest investment they will make in their lifetime — the purchase of a newly built home,” MacCharles said in a statement. “Our plan strengthens consumer protection and the consumer experience so people in Ontario can make this purchase with confidence. We know that the affordability of housing is something that is top of mind for people across the province, which is why our government is reviewing all options to make it more affordable. We will be sharing more information on our plan in the weeks to come. Making it easier and more affordable for the people of Ontario to purchase a newly built home is part of our larger plan to be a leader in consumer protection.”
Legislation to establish the new regulator is expected to be introduced in the fall.
The ins and outs of home warranties
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