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ENSURING BUILDERS ARE EQUIPPED FOR SUCCESS

A well-built home begins with a skilled builder. As the province’s new home building regulator, we require builders to meet mandated standards to demonstrate that they have the knowledge, skill, capacity and financial resources to not only construct homes but also service the homes they build.

New home builders in Ontario must be registered with Tarion to legally build in the province. An important part of the registration criteria is seven educational requirements for new applicants building residential freehold and low-rise condominium construction under Part 9 of the Ontario Building Code. Based on the Canadian Home Builders’ Association’s National Education Benchmarks for residential construction, these seven core competencies include:

  • Business planning and management;
  • Financial planning and management;
  • Project management and supervision;
  • Legal issues in housing;
  • Building codes in Ontario;
  • Construction technology; and
  • Customer service and Tarion requirements.

In 2018, 195 new builders fulfilled these criteria. To underscore the importance of compliance, those failing to meet these criteria were denied registration.

While registration requirements help ensure only those builders with the technical competence and financial resources are able to legally build, our Start Right program gives new builders the information and advice they need to understand their responsibilities under the New Home Warranty Program. First launched in 2017, Start Right offers newly registered builders the resources and support they need to navigate the warranty process before they ever receive their first warranty form. Through the program, Tarion Stakeholder Relations representatives connect with registered builders at key milestones – such as the receipt of their first warranty form – to ensure they are aware of the steps required.

243 builders participated in Start Right in 2018. Start Right educational sessions have become an important part of new builder orientation with the goal of improving both consumer protection and customer service.

Protecting Consumers From Illegal Building

Illegal building puts homeowners at risk, not only because they may be unaware of their warranty rights, but also because their homes may not meet the Ontario Building Code. Builders who fail to register with Tarion or do not enrol their homes in the New Home Warranty Program are in violation of the Ontario New Home Warranties Plan Act and are considered to be illegal builders.

Ontario is the only jurisdiction that provides warranty protection to homebuyers that are victims of illegal building. In 2018, Tarion paid out $4 million in claims to Ontario homebuyers who bought defective homes from unregistered illegal builders.

Over the past year, Tarion has continued to evolve its approach to the prevention, investigation and prosecution of illegal building in the province. It begins with raising awareness in the community regarding the ‘red flags’ of illegal building. In cooperation with the Ontario Home Builders’ Association and the Ontario Building Officials Association, we conducted media tours and sweeps across the province to help educate consumers and engage municipalities in illegal building prevention. During visits to communities around the province, Tarion’s Stakeholder Relations staff met with local building officials, local homebuilders’ associations and media to highlight the consequences of illegal building on homebuyers, the local economy and the building industry as a whole.

These outreach efforts garnered an increase in leads coming to our Compliance and Investigations team from the public. By implementing a more robust and standardized intake system for these calls, we have ensured that staff collect all the necessary details to evaluate a lead and initiate an investigation when warranted.

Some leads begin with a search of the Ontario Builder Directory. In 2018, Tarion added a new search function for homebuyers, real estate professionals, municipal officials and others to look up the enrolment status of a home. Launched in May, the enrolment search uses a municipal address or lot and plan number to pull up information on the enrolment date and warranty start date of a home. If a home is not listed, it may be illegally built.

Some illegal builders may deliberately flout the law, while others may be unaware of their legal obligations to register and enrol their homes with Tarion. As a deterrent to those who act willfully, effective January 1, 2018, fines were increased under the Ontario New Home Warranties Plan Act. Builders found in violation of the law may now face fines up to $50,000 (double the previous fine) as well as imprisonment for not more than two years, less a day (twice the previous jail time). Corporations building new homes will face the heaviest penalties, with maximum fines of $250,000, up from the previous $100,000. Even directors and officers of these delinquent companies are subject to penalties up to $50,000.

In 2018, Tarion’s Compliance and Investigations team obtained 108 convictions in provincial courts. A total of $331,775 in fines, including victim surcharge fees, were levied by the provincial courts in those matters. However, not every investigation leads to a prosecution. Through a broadened approach to enforcement, we are putting greater emphasis on bringing builders into compliance with the act to ensure homeowners receive the warranty coverage they are entitled to. With higher fines in place, we expect to see fewer convictions but, at the same time, a greater number of illegal builders being brought into compliance.

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Case Study

Kings Custom Homes

In January 2017, Tarion received a complaint from a realtor regarding a home which was listed for sale. The purchasers had provided $40,000 in deposits, but the home was not enrolled in the New Home Warranty Program.

This was a red flag and led to an investigation by the Compliance and Investigations team, which uncovered that the builder had collected deposits for 29 new homes in the surrounding area. Construction hadn’t started on any of the homes, nor were there any building permits issued.

Based on the findings of the investigation, Peterborough-area builder Kings Custom Homes Inc. and owner Corey Savary were convicted of illegal building and were fined $76,625 by the Ontario Court of Justice.

In addition to the charges, Tarion revoked the registration of Kings Custom Homes Inc., which means the company and Mr. Savary are no longer allowed to build or sell new homes in Ontario.

In the end, Kings Custom Homes Inc. had collected more than $1.1 million in deposits after entering into 29 agreements of purchase and sale for homes that were never built. As the purchase agreements were signed prior to January 1, 2018 (the date when the new deposit protection levels took effect), each purchaser was eligible for a maximum of $40,000 in deposit protection under the Ontario New Home Warranties Plan Act. Tarion has subsequently paid out $835,000 in deposit claims to date.

This case highlights the financial consequences of illegal building on homebuyers as well as the damage it can cause to consumer confidence in the new home building industry as a whole. It also serves as an example of how, in some cases, prosecution is the most effective approach and how leads from the public – coupled with the cooperation of municipal building officials – can result in successful convictions of illegal builders.

Holding Builders Accountable

Tarion requires that registered builders operate with honesty and integrity and follow the law in fulfilling their warranty obligations. We take all matters of honesty and integrity seriously and we will, as appropriate, investigate complaints brought to our attention.

Once Tarion receives a complaint, we will review the concern to determine if it falls under the scope of honesty and integrity under the Act. Examples of behaviour that may lead to an investigation into honesty and integrity include:

  • Allegations of illegal actions such as theft or fraud;
  • Threatening and/or intimidating behaviour; or
  • Intentionally misleading advertising.

If Tarion initiates an investigation, there are several possible outcomes, based on the nature of the complaint and the facts gathered throughout the investigation. Potential actions may include:

  • Placing terms and conditions on a builder’s registration (e.g., limiting number of homes that can be built each year or requiring a builder to post higher security amounts to Tarion);
  • Requiring a builder and their staff to undergo relevant mandatory training or education; and
  • Issuing a Notice of Proposal to revoke a builder’s registration.

If a registration is revoked or if a builder appeals Tarion’s proposal to revoke their registration, this will be referenced in the builder’s search results on the Ontario Builder Directory. Other actions Tarion may take as terms and conditions of the builder’s registration will not be publicly disclosed.

In 2018, the following actions occurred relating to complaints regarding dishonest builder conduct:

  • Three complaints resulted in charges being laid (e.g., an offence under the Ontario New Home Warranties Plan Act or Provincial Offences Act)
  • Three complaints resulted in terms and conditions which may include continuing education requirements or increased securities and limits on the number of homes allowed to be built;
  • One resulted in a Notice of Proposal to refuse or revoke the registrant’s registration; and
  • Twenty-four files were reviewed or investigated and closed with no further action.

Warranty Coverage

Almost all newly constructed homes in Ontario have warranty coverage of up to $300,000 over a seven-year term, including condominium conversion projects (as of January 1, 2018). This warranty coverage is provided by the builder and backed by Tarion. There is also separate coverage of up to $2.5 million for the common elements of a condominium (such as a lobby or garage). The warranty remains with the home for seven years, even if it is sold during this period.

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Expanding Warranty Coverage

Whether in the market for a freehold home or condominium, the new home warranty gives buyers piece of mind that their builder’s promises are backed by Tarion. And with changes that took effect in 2018, they will enjoy added levels of protection. Deposit coverage for non-condominium freehold homes increased – now, homes with a purchase price of less than $600,000 have up to $60,000 in deposit coverage, while those above $600,000 are covered for 10 per cent of the purchase price to a maximum of $100,000. In addition, the passage of the Strengthening Protection for Ontario Consumers Act, 2017 extended deposit coverage to include other payments such as those made for upgrades and extras.

2018 also marked the beginning of warranty coverage for residential condominium conversion projects (a condominium in a converted warehouse or other pre-existing structure). Individual units and common elements are now covered by the one-year, two-year and seven-year warranties. The only exception to the coverage is that any pre-existing elements – which, for example, might include an exposed brick interior wall – are not covered by the one-year warranty for defects in work and materials. The new deposit protection levels and coverage for condominium conversion projects apply to purchase agreements signed on or after January 1, 2018.

Protecting Current and Future Homeowners

Each home enrolled in the New Home Warranty Program is covered for up to $300,000 for seven years. At any point in time, there may be as many as 300,000 to 400,000 homes within the seven-year warranty coverage lifecycle, as well as thousands more under construction, that are eligible for deposit protection. To ensure there are funds available to backstop any warranty claims for the length of each home’s coverage, Tarion maintains a Guarantee Fund.

In addition to serving as a reserve to cover future claims, the Guarantee Fund also protects against catastrophic losses that have bankrupted other warranty programs in Canada and abroad. Issues with faulty building materials or construction methods that affect thousands of homes have the potential to result in millions, or even billions, of dollars in claims. For example, in British Columbia, the warranty program went bankrupt in 1999 when faced with $708 million in claims related to leaky condos. More recently, the Quebec warranty program faced claims in excess of $65 million as a result of defective concrete foundations. When the program did not have sufficient capital to meet those claims, the federal government had to step in, pledging $30 million over three years to help homeowners.

The Guarantee Fund is what makes it possible for Tarion to backstop the new home warranty for current and future homeowners in Ontario.

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