Purchasers of pre-construction condos are often mystified about the warranty protection programs available on their newly built units. Questions such as: “Who is responsible if I discover a defect or uncover signs of poor workmanship after I move in” — come up fairly often.
Unfortunately, rarely do lawyers or builder-sales reps make an effort to explain the intricacies involved. We’ll touch on some of the main features here and point you to some other useful resources at the end of the post.
In Ontario, builders of newly built condominiums must register with Tarion, a private corporation mandated by provincial law to administer the Ontario New Home Warranties Act. The company is responsible for several key regulatory areas that include:
- Licensing of new home builders and vendors
- Ensuring builders/vendors abide by the Ontario New Home Warranties Plan Act
- Protecting consumers when builders fail to fulfill their warranty obligations
- Resolving disputes about warranty coverage
- Investigating illegal building practices
- Promoting high standards of home construction
Before taking possession of your new unit, builders are required to perform what’s called a pre-delivery inspection (PDI).
A representative of the builder will walk you through a detailed inspection, pointing out how to operate systems such as heating, plumbing and ventilation. This is also your opportunity to pinpoint any items that appear damaged, work not completed or perhaps upgrades that are missing.
The notes are captured on the builder’s PDI form and are used to verify that these issues existed prior to you the buyer taking occupancy. It’s also good idea to note any items not installed or completed according to the specifications in the purchase agreement.
What are the areas covered by your Tarion Warranty?
In the event that your builder goes bankrupt or breaches the terms of the purchase agreement, Tarion will protect your deposits to a maximum of $20,000. Deposits paid for all other new homes are protected to a maximum of $40,000. Beware though, funds given to hold a condo unit before you have an official signed purchase agreement are not protected under the warranty.
This mechanism is in place to protect you in the event that the move-in date (occupancy) outlined in the purchase agreement (or any extension of that date) is not adhered to by the builder. In practice, the wording on just about every builder’s purchase agreement is layered with clauses that allow quite a degree of flexibility here. Your key task is to read through this section carefully or have your lawyer explain explicitly what’s being conveyed.
This protects the purchaser from a builder unscrupulously substituting items specified in the purchase agreement. For example, if a particular back-splash color or material was agreed to, substitution without your written authorization is not allowed.
This also extends to the inclusion of specifics (think stainless steel appliance by a notable brand, shutters or blinds of a particular suasion etc.). Your recourse as a purchaser is to demand that the original items specified be included or that a cash compensation be given. In practice, again, your purchase/sale contract will often include a clause allowing the builder to provide you a close match, or the next best substitute, often deemed by availability.
“One Year Period”
- Assumes that the unit was constructed in a workmanlike manner and is free from defects in material
- As mentioned above, protection against unauthorized substitutions is covered
- The property must be fit for human habituation
- Protects against Ontario Building Code violations
- Applies for one year, beginning on the home’s date of possession even if the home is sold
“Two Year Period”
- Protects against penetration of water through foundation walls or basements
- Protects against material defects in caulking, doors, and windows as well as defects in compromising construction quality allowing building envelope water penetration
- Covers defects in work or materials in the electrical, plumbing and heating delivery and distribution systems
- Covers defects in work or materials that result in the detachment, displacement or deterioration of exterior cladding (such as brickwork, aluminum or vinyl siding)
- Protects against violations of the Ontario Building Code that affect health and safety; and applies for a two year period, beginning on the possession date
“Seven Year Period”
Major structural defects (MSD) are covered, beginning on the possession date and ending one day before the seventh year anniversary date. For example, if you took possession January 2, 2014, the seven year MSD warranty begins on January 1st of that year, and stays in effect until January 1, 2021
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:
- Results in failure of a structural load-bearing element of the building, 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
- 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
- Defects in materials, design and work supplied by the owner
- Secondary damage caused by defects, such as property damage and personal injury
- Normal wear and tear
- Normal shrinkage of materials caused by drying after construction
- Damage caused by dampness or condensation due to failure by the owner to maintain adequate ventilation
- Damage resulting from improper maintenance
- Alterations, deletions or additions made by the owner;
- Subsidence of the land around the building or along utility lines, other than subsidence beneath the footings of the building
- Damage resulting from an act of God
- Damage caused by insects and rodents, except where construction is in contravention of the Ontario Building Code
- Damage caused by municipal services or other utilities
- Surface defects in work and materials specified and accepted in writing by the owner at the date of possession.
“Under the Ontario New Home Warranties Plan Act, Tarion has the power to refuse an application for registration or renewal, and to suspend or revoke a builder or vendor’s registration. Click HERE for a list of vendor/builders who have had their application refused, or their registration revoked, refused or suspended.”
We’ve only scratched the surface of this subject. I suggest visiting Tarion’s website for a more comprehensive addressing of the topics above. In addition, you may want to visit the Ontario New Home Warranties Act for the legislative aspect. As always, do not hesitate to email or call me with any of your real estate or mortgage financing questions or concerns!