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Greater Protections For New Home Buyers in Ontario As Tarion Falls Short

Greater Protections For New Home Buyers in Ontario As Tarion Falls Short

Author: Tracy Ruddell

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Thank the new build gods, there is change coming to how Ontario consumers are protected when purchasing a new construction home.

We’re interrupting our special series on Speculation in Toronto Real Estate to bring you the latest news from the Ontario Government. The Province announced earlier this week that they are stripping Tarion of some of their responsibilities and setting up a new, industry regulator.

Here’s what we know so far…

 

New Home Buyers Still Have Tarion Home Warranty but New Regulatory Body to Take Over as Industry Watchdog

The Ontario Government announced on Tuesday that better consumer protections for buyers of new construction homes are imminent. Minister of Government and Consumer Services Tracy MacCharles made the announcement that improvements are coming around consumer protection, accountability and transparency in the industry.

Specifically, she says that Ontario will focus on how to:

Make the dispute resolution process easier for homeowners if they discover a problem in the construction of their new home -- for example, a homeowner does not have to prove the cause of a defect

Separate the provider of the new home warranty program from the new home builders regulator to increase consumer confidence

Give Government responsibility in making rules and setting standards and introducing modern oversight measures to improve accountability and transparency

Immediately ask Tarion to introduce new deposit protection measures to better reflect today's home prices and deposit requirements

The Province’s announcement comes after a report was released by former Associate Chief Justice, John Douglas Cunningham who was tasked back in 2015 with examining and the Ontario New Home Warranties Plan Act. He concluded that our current set-up in Ontario has created a situation of very real, conflicts of interest. In his opening summary, Cunningham says that:

“In this review of Ontario’s new home warranty program, I was faced with the current reality of a corporation, Tarion, and legislation, the Ontario New Home Warranties Plan Act, which have been in place for over 40 years.

Tarion continues to operate in a structural framework established in legislation that is 40 years old. That structural framework has assigned it multiple roles from rule-making to adjudication. Inevitably, this framework has given rise to real and perceived conflicts of interest and has presented it with challenges in fulfilling its multiple roles.”

He goes onto say that:

“The extensive input I have received and my analysis lead me to believe that there is room for considerable improvement, including with the legislation itself. This improvement can best be achieved with significant change to how the new home warranty protections are delivered and how builders and vendors are regulated.”

You can read his full report here.

 

What’s the Problem with Tarion?

Tarion, the Provincial agency responsible for protecting homeowners, has come under much scrutiny over the last decade for favouring the interests of builders over consumers. In particular, Tarion has been ridiculed for their slow response times when dealing with consumer complaints and for not taking more serious action against repeat offenders, i.e. developers who continually fall short of their contractual requirements.

Buying pre-construction comes with a ton of additional risks over buying re-sale Toronto homes for sale. How many horror stories have you heard of people buying a pre-construction condo or townhome only to move in years down the road to find major deficiencies? We’re not talking about all of the cosmetic realities falling short of the promises made in those fancy sales brochure (unfortunately, contracts favour builders and you’re not guaranteed to get what you think you’re buying). We’re talking about big issues, here.

For example, suites with no appliances and buildings with no working elevators where owners are being forced to move into and start paying maintenance fees on. Units with surprise structural pillars in the centre of a room, not present on the blueprints, preventing owners from using the space as it was intended (e.g. it can no longer fit a standard-sized couch or bed). Or how about balconies that are sloping towards the interiors, a major water issue just waiting to happen?

Homeowners who finds themselves in a situation like this have had one viable recourse (short of banding together and waging a mass, class-action lawsuit) and that’s Tarion. Tarion Warranty Corporation was created 1976 to provide warranties on new build properties, create rules and use those rules to regulate developers and to provide free mediation services to review problems between homeowners and builders on a case-by-case basis and, hopefully, come to suitable solutions.

Essentially, they are meant to be industry watchdogs, policing repeat offender developers, but also advocates for consumers, providing both protection against deficiencies and mediation to resolve problems between home owners and builders. That’s not been the reality, however, for many new home buyers. The wave of consumer and industry complaints is what triggered the Province to order the independent review led by Cunningham.

There’s been a lot of “turning a blind eye” to bad behaviour on the part of developers over the last decade. Our partners over at Condos.ca spoke of the issues pertaining to one developer, Urbancorp, in this blog post. Urbancorp was well-known in the Toronto Real Estate industry as being one of the worst developers to buy from in terms of delays, cancellations and their products not living up to promises. In fact, they were jokingly known as Urbancrap in the industry but it’s not so funny when thousands of Ontarians are losing out.

Tarion did eventually threaten to revoke the registration of 17 Urbancorp projects (which essentially would’ve left them dead-in-the-water) but why did it take that long, with years of consumer complaints, to take action? The developer then quickly filed for bankruptcy but continued operating, having scaled back on projects and restructured with the help of Israeli investors–many of whom were furious that the developer’s true financial position had not revealed before issuing bonds on the Tel Aviv Stock Exchange.

Tarion’s actions were too little, too late, for thousands of frustrated buyers and investors both in Toronto and abroad. We wish this story was an isolated one.

 

New Regulatory Body to Come With Promises of More Protections

In response to all of the concerns over Tarion, the Province has announced it will be created a new regularly body, taking some of Tarion’s current responsibilities away but also creating better accountability measures for Tarion with their remaining responsibilities.

It appears that Tarion will remain the home warranty entity but that a new regulatory body will take over policing of developers. The Ontario government website states that they will be improving consumer protection for owners of newly built homes by:

-asking Tarion to introduce new deposit protection rules to better reflect today’s home prices and deposit requirements
-creating a fairer system to manage any concerns if consumers discover a problem in the construction of their new home
-separating the provider of the new home warranty program from the new home builders regulator
-making rules, setting standards and introducing modern oversight measures to improve accountability and transparency

What changes do we hope to see, specifically?:

-Stricter penalties for builders who consistently deliver sub-par products, e.g. structural and mechanical deficiencies
-The cap for deposit insurance to be raised; currently, home buyers are only protected for up to a $20,000 deposit on a condo and $40,000 on a freehold home
-Clearer contracts, so that loopholes that favour the builder aren’t buried and expressed in convoluted ways that the general public can’t understand
-The introduction of cancellation fees, to be paid out by builders who cancel projects after taking deposits or on projects that are delayed more than 1 year past the marketed opening date

On the last point, currently, consumers get their initial deposit back plus nominal interest when a project is cancelled but think about all of the lost equity over a three or four year waiting period? How much could you have earned during that time by instead investing your money into a re-sale property? And what about the extra rent you’ve had to pay out while you wait?

Toronto lawyer Leslie Brown, interviewed by Natalie Nanowski for CBC News, agrees that delays are one of the biggest issues in the industry. She says the new regulator should address one of the biggest concerns in the industry: delays.

"The government should address some of the lengthy delays builders put clients through, I've had one client whose project was delayed seven years...

It's very easy for a builder to send a letter saying [something] constitutes a delay under the Tarion legislation and no one gets to second-guess it. The consumer is the weak party trying to prove that it was not a legitimate delay."

This is one of the biggest risks in buying pre-construction. You have no concrete timeframe for how long it will take until you can move in (forget about what the sales office is telling you) and, in the meantime, your money is tied up for years. In fact, you may not even be sure the project is moving ahead. There have been many examples of pre-construction projects that never got off the ground, tying up buyers’ money for years only to have the project cancelled as well as those that were launched as condos only to be turned into a rental community mid-project, such as in Urbancorp’s KingsClub condos.

Up until now, there’s been little recourse for buyers left in the lurch, short of private lawsuits which could cost them most of what they get back in a payout. We hope this new regulatory entity will go beyond the basics of mediation and start to crack down on shady developers who repeatedly over-promise and under-deliver.

A big part of this is putting some requirements around builder contracts. Right now, every builder contract reads differently and some are more upfront about the inherent risks than others. You should always use your own Toronto REALTOR and lawyer to review contracts (remember, you have a 10-day cooling off period even after signing a purchase agreement for a pre-con property) but that doesn’t always happen. We need to do more to protect consumers from the outset of new build deals and not just after-the-fact, once they’re left with an inferior unit that they don’t want to move into and that they would likely lose money on in re-sale.

Let’s hope this latest move by the Province is a start of a new, new build era in Ontario, one where developers aren’t running the show.

 

Lead image: construction on downtown Toronto condos in 2012 by Loozrboy, licensed under CC 2.0 from flickr via wikimedia.