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New Home Buyers – Know What ‘Warrants’ Your Attention

Legal_306173828
By Jenna Rucas

In 2011, construction had commenced on 193,950 new homes across Canada, comprising 82,392 single-detached homes, 32,017 semi-detached and row homes, and 79,541 apartments and other unit type homes.1 In Ontario alone, construction had commenced on 67,821 new homes, being the province with the most new home construction commencing in 2011, followed by Quebec and British Columbia.2 Many provincial governments have enacted consumer protection legislation which regulates builders’ and vendors’ obligations with respect to the construction and sale of new homes. In this article, I will provide an overview of the Ontario legislation that seeks to protect new home buyers. In particular, I will detail two mechanisms engrafted in this legislation which serve to advance its consumer protection purpose: (1) statutory warranties, which are deemed to exist in every agreement of purchase of a new home in Ontario and (2) mandatory builder and vendor registration.

Background

In 1976, the Ontario government enacted the Ontario New Home Warranties Plan Act3 (the “ONHWPA” or the “Act”). In short, the ONHWPA sets out the responsibilities of new home builders and vendors and prescribes a number of warranties that are deemed to be provided to consumers of newly built homes.

These statutory warranties do not replace common law and contractual warranties provided to the consumer, but are in addition to them.4 The Ontario courts maintain that the ONHWPA is consumer protection legislation with a remedial purpose5 and all analyses made thereunder should proceed with broad and liberal interpretation to effect this purpose.6

Section 2 of the Act provides for the designation of a corporation to carry out its legislated objectives. In 2004, Tarion Warranty Corporation (“Tarion”) was designated to assume this role. In this connection, Tarion performs the following four functions: (1) administration of the ONHWPA, (2) establishment and administration of a guarantee fund which provides compensation to those requiring remediation under the ONHWPA, (3) assistance in the conciliation of disputes between vendors and owners and (4) engagement in undertakings to improve communications between vendors and owners.7

In order to obtain protection under the Act, a buyer must purchase a new home in Ontario that falls under one of the following three main categories: (1) a self-contained one-family dwelling, detached or attached to one or more others by a common wall, (2) a building composed of one or two self-contained, one-family dwellings under one ownership, and (3) a residential condominium unit (which includes its common elements)8. Additional dwelling types may be caught under the Act if prescribed by regulation.

The most common examples of the types of homes that are covered under these categories are fully detached and semi-detached houses, townhouses and condominium units.9  Some examples of homes that are not covered under the Act include units in condominium conversions (being a conversion of an existing building into condominiums), previously occupied homes, and homes built on existing foundations.10 For the purposes of the remainder this article, any reference to a ‘home’ assumes coverage under the Act. Statutory Warranties11

The ONHWPA ensures that every vendor of a newly constructed home is deemed to have provided certain warranties to the purchaser of the home and the parties cannot contract out of such warranty protection.12 Where the vendor fails to honour these warranties, Tarion will step in to ensure that items under warranty are remedied as necessary. However, Tarion’s duty to step in and honour the statutory warranties is not automatic; Tarion’s duty only arises after the purchaser has submitted a claim within the applicable time period. These time periods vary depending on the applicable warranty.

One of the main groupings of warranties prescribed by the Act is that the home is constructed in a workmanlike manner, is free from defects in materials, is fit for habitation and is constructed in accordance with the Ontario Building Code.13 These warranties last for one year from the date of possession. Of course, liability under these warranties is not unlimited and a claim made for breach of one of these warranties is subject to a maximum of $300,000.14 If a claim relates to incomplete items, Tarion’s liability is limited to the greater of 2% of the sale price or $5,000.15 Although these warranties are broad in their descriptions, they are subject to 12 exceptions listed in the Act, including subsidence of the land around the building (other than subsidence beneath the footings of the building), normal wear and tear, normal shrinkage of materials caused by drying after construction, certain acts done by the owner, and damage resulting from acts of God, among others.16

Another warranty prescribed by the Act is that there is no water penetration through the basement or foundation of the home. Additional protection is afforded under warranties that the home is constructed in a workmanlike manner and is free from defects in materials including windows, doors and caulking such that the building envelope of the home prevents water penetration; that the electrical, plumbing and heating delivery and distribution systems are free from defects in material and work; that all exterior cladding of the home is free from defects in material and work resulting in detachment, displacement or physical deterioration; and that the home is free from violations of the Ontario Building Code affecting health and safety.17 These warranties last for two years from the date of possession and liability is also subject to a capped maximum.

A third warranty prescribed by the Act is that the home is free of major structural defects.18 This warranty lasts for 7 years and is also subject to a capped maximum. ‘Structural defects’ are defined at length in the regulations to the Act and include any defect in work or materials that result in failure of load-bearing portions of the building, major cracks in basement walls, and serious roof structural issues (however, note that the structural defects defined in the regulations are also subject to their own exceptions and exclusions.)19

There are also additional warranties prescribed by the regulations which provide that the vendor will not make substitutions of materials or finishings from those that the purchaser has selected without receiving the purchaser’s prior written consent20 and that provide for remediation in the event of a delayed closing.21
Warranty protection is afforded only to an ‘owner’ under the Act which is defined as the first person that acquires a home from a vendor for occupancy and that person’s successors in title.22  Thus, a valid warranty that has not expired is enforceable by subsequent owners of a home. Since the warranties run with the land, the previous owners of a home can no longer seek damages or continue a claim once they have sold the home and title has passed. The Courts are clear that the statutory warranties prescribed under the Act are for the benefit of the person who owns the home and vest in such person when title passes.23

Builder and Vendor Registration

Tarion’s duty to administer the ONHWPA carries with it an ancillary duty to monitor compliance of builders and vendors under the Act for the protection of new home consumers. To ensure effective monitoring, the Act requires every builder and vendor of a new home in Ontario to register with Tarion’s appointed registrar prior to acting in such role. 24 This registration procedure is so crucial to the overall functioning of the system prescribed under the Act that failure to do so can attract a fine of up to $25,000 for individuals and $100,000 for corporations.25  Builders are then responsible to enrol every new home that they plan to construct in Ontario in the Ontario New Home Warranty Plan forthwith upon being issued the relevant building permits.26

The Act defines a vendor as “a person who sells on his, her or its own behalf a home not previously occupied to an owner and includes a builder who constructs a home under a contract with an owner”. The Act defines a builder as “a person who undertakes the performance of all the work and supply of all the materials necessary to construct a completed home whether for the purposes of sale by the person or under a contract with a vendor or owner”27 [emphasis added]. The question of whether or not a person is considered a ‘builder’ under the Act when they do not perform all of the work necessary to construct a completed home is one that has recently received attention in the Ontario Court of Appeal.

In Tarion Warranty Corporation v Kozy, 28 Kozy had been contracted to construct a home on a property that was owned by the prospective homeowners. Kozy was not registered as a builder under the Act. Although Kozy performed the majority of the construction work, the prospective homeowners arranged to have certain items constructed by other service providers, including the installation of a septic system, the installation of a well and water system and the construction of two fireplaces. Tarion brought an action against Kozy for acting as a builder without being registered under the Act.

The first two decisions rendered on the matter found that Kozy fell outside of the definition of the term ‘builder’ as a result of the prospective homeowners’ involvement in the coordination and payment for the well and septic system outside of their contract with Kozy. The Courts reasoned that the coordination and payment for the fireplaces by the prospective homeowners would not have itself taken Kozy outside of the term ‘builder’ because a home could operate without a fireplace. A home could not, however, operate without proper water and septic systems in place. In other words, since Kozy had not worked on all of the essential elements of the home, he was removed from the requirement to register as a builder under the Act.

On further appeal by Tarion, the Court of Appeal took a broad and liberal approach to its interpretation of the meaning of the term ‘builder’, ultimately overturning the lower court decision.29 The Court stated that one must interpret the term ‘builder’ to be consistent with consumer protection legislation and within the context of the other provisions of the Act.30 Through this interpretative lens, the Court of Appeal determined that the term ‘builder’ must cover persons who build a home but leave some work to be performed by the owner, as it is generally accepted that owners will perform some of the work related to the construction of their new home.31 The Court of Appeal found that Kozy was considered a ‘builder’ under the Act as he performed “almost all of the construction work” on the home.32 The Court allowed the appeal and ordered a new trial on the matter.

The Courts have been clear that in order to promote the Act’s consumer protection purpose, builders and vendors are required to register under the Act. This allows Tarion to screen builders and vendors on the criteria of financial responsibility, integrity and technical competence.33 In fact, if a builder or vendor does not ‘make the grade’, registration can be refused. 34  The effects of registration are then twofold. First, they provide consumers with some comfort that they are purchasing a home from a reputable vendor.35 Second, if the consumer experiences problems, mandatory registration ensures that the consumer maintains some kind of recourse against the vendor. The Courts’ approach to interpreting definitions under the Act broadly contributes to these consumer protection objectives. As was seen with the term ‘builder’, a broad interpretation ensures a wider group of individuals are caught under the Act, and are therefore governed by it.

Conclusions

While this has only been a brief overview of some of the protections afforded to new home buyers under the current ONHWPA, it outlines two main goals of the Act that promote its consumer protection objectives. The first is that consumers should be granted a number of standard warranties when purchasing a new home to offset the risks that accompany such a purchase. The second is that mandatory builder and vendor registration assists Tarion in verifying the credibility and competence of builders and vendors and subsequently monitoring their activities in the new home market. Registration also ensures that builders and vendors remain accountable to those people that buy new homes from them.

Needless to say, if you are buying a newly constructed home in Ontario, you should look into the protections provided to you under Tarion’s Ontario New Home Warranty Plan. It is important to understand what timelines, monetary caps, and options are available in the event that you experience a problem with your new home or with its vendor. Knowing what ‘warrants’ your attention when purchasing a newly constructed home can go a long way in determining your rights and ultimately, giving you peace of mind when finally settling in.

The content of this article is intended to provide general information to the reader and is not intended as advice or an opinion to be relied upon in relation to any particular circumstance. For specific applications of the law to a particular set of circumstances, the reader should seek professional advice.

Jenna Rucas practices corporate and commercial law with McLean & Kerr LLP, a law firm based in Toronto.

1. “Canada Mortgage and Housing Corporation, housing starts, under construction and completions, all areas” (25 April 2012), online: Statistics Canada <http://www.statcan.gc.ca>.

2. “Housing starts, by province” (25 April 2012), online: Statistics Canada
<http://www.statcan.gc.ca>.

3. RSO 1990, c O.31.

4. Carleton Condominium Corp No 109 v Tartan Development Corp (1995), 22 OR (3d) 718 (Gen Div).

5. Mandos v Ontario New Home Warranty Program, 1995 CanLII 3158 (ONCA).

6. Tarion Warranty Corporation v Boros, 2011 ONCA 374 (CanLII).

7. Supra note 3 at s 2(2).

8. Ibid, s 1.

9. “Types of New Homes”, online: Tarion: Protecting Ontario’s New Home Buyers <www.tarion.com>.

10. “Types of Homes Not Covered”, online: Tarion: Protecting Ontario’s New Home Buyers <www.tarion.com>.

11.Certain portions of the Act and its regulations set out specific provisions for condominium units and their common elements which may differ from the discussion herein. For further information, a review of the ONHWPA is recommended.

12. Supra note 3 at s 13(6).

13. Ibid, s 13(1)(a).

14. RRO 1990, Reg 892, s 6(3); the $300,000 limit pertains to homes with possession dates on or after July 1, 2006.

15. Ibid, s 6(7).

16. Supra note 3 at s 13(2).

17. Supra note 14 at s 14.

18. Supra note 3 at s 13(1)(b).

19. Supra note 14 at s 1.

20. Ibid, s 18.

21. O Reg 165/08.

22. Supra note 3 at s 1.

23. Liddiard v Tarion Warranty Corporation, 2009 CanLII 65801 (ON SCDC).

24. Supra note 3 at s 6.

25. Ibid, s 22.

26. Supra note 14 at s 1.1; condominium units are excluded from this provision.

27. Supra note 3 at s 1.

28. 2011 ONCA 795 (CanLII) [Kozy].

29. Ibid at para 13.

30. Ibid at para 20.

31. Ibid at para 14.

32. Ibid at para 21.

33. Supra note 6 at para 33.

34. Supra note 3 at s 7(1).

35. Supra note at para 33.

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