New legislation proposes to increase protection for new homebuyers

Although the Ontario new home warranties plan has been in effect for more than 40 years, it has given rise to persistent complaints of an appearance of conflict of interest — and the government now plans to split its two functions, Toronto real estate lawyer Lisa Laredowrites in The Lawyer’s Daily.

Currently, as set out in the Ontario New Home Warranties Plan Act, Tarion Warranty Corporation has two major and distinct functions (i) to provide a construction warranty with respect to every home to be built in the province, and (ii) to register every builder or vendor of a home not previously occupied, explains Laredo, principal of Laredo Law.

“Tarion is controlled by a board of directors made up of 16 people. Eight members are selected from nominees provided by the Ontario Home Builders’ Association. Five members are appointed by the government. The remaining three are selected from the general community in accordance with a selection policy,” writes Laredo.

Tarion has the power to establish regulations by way of its statutory ability to enact bylaws, she adds.

However, says Laredo, the present system has been the subject of complaints, due to the appearance of conflict of interest.

“On the one hand, Tarion is the authority that registers builders and thereby gives them permission to operate. On the other hand, it is responsible for adjudicating disputes between those same builders and the owners of newly constructed homes under a warranty claim.

“In addition, and as noted above, at least eight of the 16 directors of Tarion are made up of representatives of the corporate homebuilding sector. There may be a perception that Tarion is being run in the best interest of builders and not the homeowners,” she writes.

As such, Laredo says the government now wishes to split the two principal functions of Tarion, in the interests of consumer protection.

The recently introduced Bill 166, she writes, contains two new acts, the New Home Construction Licensing Act, 2017 and the Protection for Owners and Purchasers of New Homes Act, 2017.

“The first act will set up a separate authority to deal exclusively with those who wish to build or sell their own new homes. The authority will have licensing powers with respect to its licensees and will have the power to set and enforce standards,” says Laredo.

The second act continues the Ontario New Home Warranties Plan Act and all previously issued new home warranties, she adds.

“The authority set up by the act will issue and administer warranties and the resolution of claims for payment out of its guarantee fund.”

Although the composition of the board of the corporation designated to administer the warranties plan is unknown because the regulations have not been written, Laredo says it is safe to assume that the representation from the homebuilding sector will either be greatly reduced or eliminated.

Under the new home warranties act, the government role is enhanced beyond what currently exists. Whereas the power to make regulations is now vested in Tarion, under the new act, the power will vest in either the Lieutenant-Governor in Council or the minister but may be delegated in whole or in part to the warranty authority.

As the adjudication of warranty claims by new home purchasers has been a source of complaints, Laredo says the new act contains more detail about this process and sets out the nature of the evidence that a complainant needs to put forward.

“In particular, the legislation sets out that a complainant is no longer obliged to prove the cause of the concern giving rise to the claim. When she introduced the legislation, the minister emphasized that the role of the government in overseeing the new warranty regime would be far more hands-on than previously,” writes Laredo.

The act, she says, also sets up the ‘ombudsperson’ position, who is empowered to investigate how the authority is administering the act. Where a claim has been filed, adds Laredo, it sets out the detailed powers of investigation by inspectors appointed under the act.

Ultimately, Laredo says the process of fully establishing the new regime will take some time as the writing of regulations will require a new round of consultations.

“The estimated transition time is about two years,” she writes.