Real Estate, Corporate & Estates Law – Tarion Warranty

The Ontario Building Code governs the minimum requirements of health and safety for new homes built in Ontario. These homes come with a statutorily mandated warranty provided by builders to the purchaser of the new home. Tarion Warranty Corporation provides protection against certain defects in newly constructed homes in accordance with the Ontario New Home Warranties Plan Act, which prompts builders to comply with specific requirements and enrol in the warranty protection program prior to the commencement of construction. The scope of the coverage, as well as its duration and the amount backed by Tarion varies depending on the type of property in question, the type of defect that arises and other defects or potential losses which may arise during the construction and purchase of a new home. Essentially, the main areas of coverage provided by Tarion and covered in this article include deposit protection, delayed closing coverage, statutory warranty coverage.

Deposit Protection

The Tarion Warranty for deposit protection protects the deposit that a home buyer pays towards a new home to a maximum of a specific amount. For a freehold home, the deposit is protected for up to a maximum of $40,000 and up to $20,000 for condominium units. These portions of a purchaser’s deposit will be protected in the event that a builder goes bankrupt or if the builder fundamentally breaches the agreement for some other reason. Essentially, if the deposit is forfeited through no fault of the purchaser, it will likely be covered by Tarion.

Delayed Closing Coverage 

Another area of coverage provided by Tarion becomes effective when a closing delay arises. This coverage, however, will not be effectuated automatically upon any delay in closing, as there are certain circumstances where the builder will be within its rights to extend the closing date. This coverage will come into play if the builder did not comply with proper extension procedures. Oftentimes, the builder will be required to compensate the purchaser in the event that a delay of this nature occurs.

Proper extension of the closing date can be achieved in two ways:

Major Delay (A delay that endures for greater than 15 Days)

A builder must notify a purchaser in writing at least 65 days prior to the original closing date in the purchase agreement in order to delay the closing date up to a maximum of 120 days. As part of this notification, the builder must also set a new closing date which will be referred to as the “extended” closing date.

Minor Delay (A delay of 15 days of less)

A builder must notify a purchaser in writing at least 35 days prior to the original or extended closing date in your purchase agreement in order to delay your closing up to 15 days. The builder must also set a new closing date at that time. Both types of delays combined cannot, however, exceed a total of 120 days.

Assuming that the extensions were improper, or if the maximum of 120 days of proper extensions have been exceeded, a purchaser may or may not be able to recover some of the costs involved in the extended delay. There are different criteria for determining whether or not expenses would be permitted under this portion of Tarion’s coverage. The way this coverage operates depends on whether a home is freehold home or a condominium.

Freehold Homes 

The first factor which must be assessed in regards to Tarion’s delayed closing coverage for freehold homes is the date of the signing of the Agreement of Purchase and Sale. Whether or not this date was on or before June 30, 2008, or on or after July 1, 2008 will determine when a purchaser can invoke Tarion coverage. Furthermore, it must be noted that compensation will not be paid for delays caused by events beyond the builder’s control such as flood, strike, or delays caused by the purchaser.

Freehold homes with an Agreement of Purchase and Sale signed on or before June 30, 2008 will be entitled to claim up to a maximum of $100 per day of delay for living expenses, up to a total maximum of $5,000. The purchaser will have up to one year to claim compensation by submitting their intent to receive compensation via a Delayed Occupancy/Closing form to both the builder and to Tarion. If the builder refuses to close, then it is advised that the purchaser contacts Tarion directly. Furthermore, the purchaser retains a right to terminate the contract. This occurs when the cumulative delays requested by the builder exceed 120 days. A 10 day “window” will then arise which will give the purchaser the right to terminate the agreement. From the 121st day to the 130th day, the purchaser will have the ability to unilaterally terminate the purchase agreement. If the agreement is not terminated within the window, the builder is then entitled to delay the closing by up to 120 further days. If these next 120 days lapse without the completion of the purchase, and the builder cannot agree on a new closing date with the purchaser, then the agreement may automatically terminate and the builder will be required to refund the deposit with interest which has accrued since the deposit’s payment.

Homes which are sold with an Agreement of Purchase and Sale after July 1, 2008 require the builder to provide a Delayed Closing Warranty at the time of the agreement. This type of warranty requires that the builder classify the closing date in the Agreement of Purchase and Sale as either Firm or Tentative. A Firm Closing Date will force the builder to pay compensation if the construction extends beyond the specified date, and a Tentative Closing Date will enable the builder to extend the closing date twice by 120 days each time without being forced to pay compensation.

Condominium Units 

The way that compensation for a condominium’s delayed closing operates is fundamentally the same as for freehold buildings with a few pertinent exceptions. First and foremost, the determining date for which set of rules applies to Tarion coverage is the signing of the Purchase Agreement for the first unit sold in your condominium project. If it was signed on or after July 1, 2008, then the rules including a tentative or a firm closing date would apply, and can be found here for more detail: (https://www.tarion.com/Warranty-Protection/Understanding-Delayed-Closings-and-Occupancies/Pages/Delayed-Occupancy-Warranty-For-Condominiums.aspx). If this Agreement of Purchase and Sale was signed on or before June 30, 2008, then the previous set of rules would apply, as it appears here: (https://www.tarion.com/Warranty-Protection/Understanding-Delayed-Closings-and-Occupancies/Pages/Delayed-Occupancy-Protection-for-Condominiums.aspx).

For condominium units built after July 1, 2008, the builder will be required to provide a tentative (or firm) closing date to each purchaser within 30 days of the completion of the roof. If the date is tentative, rather than firm, then the builder will be permitted to extend the date once for up to 120 days, provided that they give the purchaser 90 days’ written notice. If this newly extended date passes without closing the units, compensation will be owed to the purchasers.

Statutory Warranty Coverage 

Tarion’s statutory warranty coverage comes in three varying types and time-intervals. The included coverage periods include a One-Year Warranty, a Two-Year Warranty, and a Seven-Year Warranty. Each warranty is tailored to protect against specific defects which may arise after the construction of a building. The respective coverage periods operate as follows:

One-Year Warranty

This coverage commences on the date of possession and ends the day before one year elapses. This warranty is provided by the builder and is in regards to the quality of the homes’ workmanship. This warranty will ensure that:

  1. The home is constructed in a “workmanlike manner and free from defects in material,” essentially assuring a buyer of a degree of professionalism in the construction of their home.
  2. The purchaser has protection against “unauthorized substitutions.” (What will qualify as unauthorized substitution can be found at http://www.tarion.com/Warranty-Protection/Pages/Unauthorized-Substitutions.aspx).
  3. The home is “fit for habitation.”
  4. The home is protected against violations of the Ontario Building Code.

Two-Year Warranty

This coverage commences on the date of possession and ends the day before two years elapse. This warranty is also provided by the builder, and it will ensure that these defects will be covered:

  1. Water penetration through the basement of foundation walls.
  2. Defects in materials that affect windows, doors and caulking and defects in work that results in water penetration into the “building envelope.”
  3. Defects in work or materials in the electrical, plumbing and heating delivery and distribution systems.
  4. Defects in work or materials that result in the detachment, displacement, or deterioration of exterior cladding (such as brickwork, aluminum or vinyl siding); and
  5. Violations of the Ontario Building Code that affect health and safety.

Seven-Year Warranty

This coverage commences on the date of possession and ends the day before seven years elapse. This warranty is also provided by the builder, and it will ensure that major defects will be covered:

As of June 30, 2012, a major structural defect is defined in The Ontario New Home Warranties Plan Act as any defect in work or materials in respect of a building, including a crack, distortion or displacement of a structural load-bearing element of the building, if it:

  1. Results in failure of a structural load-bearing element of the building,
  2. Materially and adversely affects the ability of a structural load-bearing element of the building to carry, bear and resist applicable structural loads for the usual and ordinary service life of the element, or
  3. Materially and adversely affects the use of a significant portion of the building for usual and ordinary purposes of a residential dwelling and having regard to any specific use provisions set out in the purchase agreement for the home.

This major structure defect warranty covers significant damage due to soil movement, major cracks in the basement walls, collapse or serious distortion of joints or roof structure and the chemical failure of certain materials. Damage that would be excluded from this warranty would be dampness not arising from failure of a load-bearing portion of the building, damage to drains or services, and damage to finishes, amongst other things.

Conclusion 

Tarion warranty protection is a good way to ensure that prospective home buyers are getting a product that was constructed in a professional and satisfactory manner (or will be compensated if it falls shy of the expected standards.) It shifts the burden from the purchaser to the builder in the event that a home is of substandard quality or defective, and ensures that all parties can walk away from the transaction satisfied. This paper only delved upon the three most common areas where Tarion coverage is pertinent and arises, however, more information can be obtained about specific and/or other ways that Tarion coverage can work for a prospective home buyer. Additional information can be obtained at http://www.tarion.com.