Evolution of ONHWP Act and Tarion Warranty Corporation

Evolution of ONHWP Act and Tarion Warranty Corporation

An overview of the ONHWP Act and Tarion’s mandate within the legislative framework provides important context for this review.

ONHWP Act

The ONHWP Act was passed partly in response to growing consumer concerns about the quality of new home construction in Ontario. At the time of its enactment in 1976, many of Ontario's baby-boomer generation were entering the new home market for the first time, and there was pressure on builders to keep up with the growing demand. I have been told that, in this time of rapid growth, many were concerned about home building quality across Ontario and Canada.

In response, a number of provinces introduced new home warranty programs to try and provide home buyers with increased protection. The Housing and Urban Development Association of Canada (HUDAC) and the National Home Builders’ Association had been active in seeking a national warranty program, and as provinces started to take action, their focus moved to provincially based warranty programs.

In March 1976, a not-for-profit corporation, the HUDAC New Home Warranty Program was incorporated in Ontario. Its objects included establishing and administering a new home warranty program for persons buying homes from participating builders.

A few months later, in June 1976, Ontario passed the new Ontario New Home Warranties Plan Act. It was proclaimed into force in September 1976, and by order in council that same month, the HUDAC New Home Warranty Program was designated under section 2 of the ONHWP Act and its objects extended to include, among other responsibilities, administering the Ontario New Home Warranties Plan.

The purpose of the ONHWP Act is to protect purchasers of new homes.

The ONHWP Act protects new home purchasers in three ways:

• mandatory registration of most new home builders and vendors
• a warranty program for consumers protecting against a range of defects, and
• a deposit protection mechanism in the event of builder failure

The ONHWP Act includes a requirement that vendors provide certain disclosures to new home owners, and specifies conditions that must be met for registration as a vendor or builder. The ONHWP Act also provides the core elements of the warranty program and gives Tarion the authority to make by-laws regarding the warranty program. These by-laws are deemed to be regulations.

There are four regulations under the ONHWP Act:

• administration of the Plan (Regulation 892), which sets out the procedure for enrolling a home into the plan, the claims submission process, the limits of liability, the vendor and builder registration and renewal process, and specifics of the warranty coverage
• designation of Corporation (Regulation 273/04), which designates Tarion Warranty Corporation as the Corporation for the purposes of the Act
• terms and conditions of Registration of Builders and Vendors (Regulation 894), which describes the requirements and conditions of vendor or builder registration under the Plan
• warranty for Delayed Closing or Delayed Occupancy (Regulation 165/08), which requires vendors to include the appropriate addendum as part of a purchase agreement (this contains disclosure of key information including critical dates and closing adjustments), and which deals with the rules for delayed closing and delayed occupancy compensation

The ONHWP Act has remained virtually unchanged since its inception, however, a number of changes to the warranty program have been made by regulation:

• introduction of a 2 year foundation and water penetration warranty (1987)
• introduction of a delayed closing warranty for freehold homes and delayed occupancy warranty for condominium homes (1988 and 2003 respectively)
• introduction of a warranty for unauthorized substitutions (1988)
• introduction of a 2 year building envelop warranty, electrical, plumbing, heating distribution systems warranty, exterior cladding warranty and Code (health and safety) warranty (1990)
• doubling of deposit protection for freehold homes to $40,000 from $20,000 (2003)
• introduction of minimum customer service standards, a mandatory Homeowner Information Package, and a pre-delivery inspection requirement (2003)
• doubling of the maximum payable out of the guarantee fund, per home, from $150,000 to $300,000 (2006)
• introduction of mandatory Addenda for agreements of purchase and sale that disclose critical dates, vendor’s contract termination rights, and enhanced delay compensation features (2008)
• enhancements to Addenda forms requiring greater disclosure about closing adjustments, delivery of occupancy permits, and prohibition on charging fees not incurred (2012)
• clarification and enhanced accountability with respect to the Major Structural Defect warranty (2012)

Tarion Warranty Corporation

Tarion Warranty Corporation is a not-for-profit corporation incorporated under the Corporations Act. It is not a Crown agency. It is an administrative authority. It is financed through home enrolment fees (usually explicitly passed on to the consumer), investment income, as well as builder/vendor registration fees.

Tarion and the Ministry of Government and Consumer Services have an accountability agreement^{footnote 1[1]} that clarifies their roles and expectations, including legislative, operational, governance, consumer, and educational commitments.

Tarion describes its mission as “enhancing fairness and building confidence in the new home buying experience." ^{footnote 2[2]}

Tarion’s responsibilities under the ONHWP Act include administering the warranty program and the guarantee fund, conciliating disputes between owners and vendors or builders, and seeking improved communications between vendors and owners. It is also responsible for regulating vendors and builders of homes covered by the ONHWP Act.

The warranty program protects new home owners from defects including substandard construction and faulty workmanship, as well as defects in materials and major structural defects. It protects deposits in the event of a vendor failure such as bankruptcy and makes provision for compensation in the case of delayed closings for freehold homes and delayed occupancy for condominiums.

I should note, however, that it is quite clear Tarion’s role is to backstop the vendors’ statutory warranty. Tarion only steps in when a vendor fails to provide the warranty coverage required by the ONHWP Act. The ONHWP Act clearly specifies that the vendor warrants to the new home owner, that the home is constructed in a workmanlike manner, is free from defects in material, is fit for habitation, is constructed in accordance with the Code, and is free of major structural defects.

Tarion acts as a surety, only paying a claim if a vendor fails to pay for or perform a repair covered by the warranty program, or fails to make a payment as a result of a delayed closing or occupancy covered by the warranty.

The ONHWP Act allows Tarion to establish a guarantee fund either directly or by contract with licensed insurers. Tarion has established its own fund, which as of December 31, 2015, had a value of $495 million.^{footnote 3[3]} It is funded by cash securities, enrolment fees (net of operating expense), and re-invested income.

Despite minimal changes to the Act over its 40 year history, Tarion has made efforts to respond to the changing needs of new home buyers and owners. In addition to the improvements referred to in the previous section, Tarion informed me of additional improvements which include:

• implementation of the Construction Performance Guidelines to assist in addressing warranty claims (2003)
• establishing the Home Buyer Ombudsperson Office (2008)
• introducing the Tarion Annual Public Meeting (2009) and establishing the Consumer Advisory Council (2011)
• changing the composition of the Board of Directors (2013)
• increasing accessibility for consumers by introducing the MyHome portal (2009), more homeowner townhalls across the Province, and launching multilingual resources (2015)