Canada's Condominium Magazine

Ontario to have competitive, multi-provider new home warranty system

The most sweeping change for Ontario’s new homeowners as a result of the now complete study of the province’s new home warranty plan legislation is that the existing monopoly, held by Tarion Warranty Corporation, will end, if the government follows the report’s recommendations. The monopoly will be replaced by a competitive, multi-provider system in which the four essential functions of the warranty program are taken over by new authorities. Significant structural changes are needed in the new home warranty sector, the report’s author, justice J. D. Cunningham concludes, in order to reduce the potential for conflict of interest.

As the system is currently set up, consumers must rely solely on Tarion when they make a warranty claim on a new home, the same body that makes the rules, manages the program, resolves disputes, and regulates builders. As the author of the report, justice J. Douglas Cunningham, put it, having the same leadership team responsible for all the rules of the warranty program “will inevitably give rise to situations where financial objectives compete with other objectives such as consumer protection.” In short, the current system is prone to conflict of interest, or the appearance thereof, something the Government and Consumer Services Minister Tracey MacCharles has admitted and wants to eliminate.

As recommended in the report, home warranty coverage will now be treated as an insurance product, with interested private sector insurance companies participating. This will introduce financial sector oversight and accountability into the system. At present, says the report, Tarion is providing an insurance-type product to homeowners, but neither Tarion nor the warranty is subject to the oversight that would apply to an insurance company delivering a similar product. A new, not-for-profit corporation will be set up to assume responsibility for existing enrolments and to participate in the competitive model.

Dispute resolution, an area Cunningham calls “particularly contentious” and one which “does not always reach the level of accessibility and effectiveness that it could,” will be delivered through a separate organization independent of the warranty providers and the regulator, the aim being to make it easier for homeowners who discover a defect or problem in the construction of their new home to get satisfaction. Homeowners would no longer have to prove the cause of the defect, as they must do now.

Warranty providers would still have a role in facilitating disputes between builders and homeowners, and the homeowner would be required to deal with the warranty provider chosen by the builder. However, a homeowner would have the option of appealing any decision to the independent adjudication body. At present, the only routes of appeal are to Tarion, or the courts.

At an operational level, there is potential for conflict when the same person receives a claim, investigates it, attempts to assist the parties in resolving the claim and then sits in judgment on the claim if not resolved. While Tarion has worked hard to build internal controls to mitigate this conflict, I believe that current controls do not adequately respond to these challenges in a manner that can achieve the objectives outlined above. I do not believe that this problem and the challenges I have identified can be adequately addressed in the current model without significant and structural changes to the new home warranty sector in Ontario.

Rule making on warranty coverage will be subject to greater government oversight, the government assuming final approval on changes to warranty coverage and duration, and changes to standards that apply to builder and vendor registration. Minimum standards for mandatory warranty protections will also be set out in legislation, removing that power from Tarion’s board of directors, many of whom are developers.

On the subject of regulating builders and developers, Cunningham comes down in favour of creating a new administrative authority, an area in which he finds Ontario to show particular strength, noting that the model has worked well in electrical safety, real estate, motor vehicle sales and the travel industry. The new authority would continue to work with builder groups such as the Ontario Home Builders’ Association, which represents more than one thousand builders. The head of that body, Joe Vaccara, has said previously that they support separating the regulator from the warranty provider.

Consumer protection is of course the overriding purpose of a home warranty program, yet Cunningham found that the existing legislation does not state as much. He wants the revised legislation to do so, stating that how purpose of a piece of legislation can have an impact on how it is interpreted in the courts. “The regulator’s primary purposes of providing consumer protection and supporting high quality home construction through competent and financially sound builders should be clearly articulated in the legislation.”

Another area about which there have been consumer complaints pertains to the transparency of the builders directory maintained by Tarion. It has “shortcomings” that arise from the existing legislation, finds Cunningham, in that it does not make readily available information about builders who have been convicted of illegal building or other offences, and it is difficult to find information because the database is not searchable by individual name. He wants to include more information about discipline proceedings and such so that consumers will have that transparency regarding past builder conduct.

Condominium issues to be addressed separately

Regarding condominiums, Cunningham has little to say other than that a review of warranty coverage provisions should be undertaken. He notes that condominium ownership gives rise to unique problems that do not necessarily apply to freehold ownership, such as the question of responsibility for identifying defects in the common elements of a condo community, or the role of the condo board in the warranty claims process. He concludes that the uniqueness of the condo sector and its complexities are such that it may be necessary to address condo issues separately in the legislation.

The government, meanwhile, says that working to make it easier and more affordable for the people of Ontario to purchase a newly built home is part of its plan to be a leader in consumer protection. More details about the home warranty reform will be released in coming weeks.

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