Tarion Warranty Corporation Fails to Uphold Consumer Protection Mandate

As the Tarion Warranty Corporation approaches its 50th anniversary, it has come under scrutiny for failing to protect consumers from unqualified or insolvent builders. Despite record claims, Tarion has increased enrolment fees for new homes and reduced deposit protection coverage for some buyers of new freehold homes. Established in 1976 by the Ontario government, Tarion administers the province's new-home warranty program, provides construction warranties, and manages a fund to protect deposits paid by buyers of homes and condominiums.

Key Takeaways:

• Tarion has increased enrolment fees for new homes, making it more expensive for buyers to protect themselves from unqualified or insolvent builders.
• In 2023, Tarion received more than 1,000 claims from homeowners who lost deposits due to builder receiverships, with 80% of those losses related to agreements of purchase and sale with unlicensed builders.
• The total amount of deposit losses related to Tarion's deposit protection coverage exceeds $100 million, with actual losses potentially doubling or tripling this amount due to a $100,000 cap on deposit protection.
• As of July 1, buyers of freehold homes who fail to register their agreements with Tarion within 45 days of signing will receive lower deposit protection, forcing consumers to take on the role of policing builders.
• Tarion's oversight by Stephen Crawford and Todd McCarthy, current and prior ministers of public and business service delivery, has been unable to adequately monitor illegal construction and protect homeowners.
• Requiring deposits on freehold homes to be held in trust, similar to preconstruction condominium purchases, may be a solution to protect consumers from unqualified or insolvent builders.

Statistics:

• Over 1,000 homeowners lost deposits in 2023 due to builder receiverships.
• 80% of deposit losses were related to agreements of purchase and sale with unlicensed builders.
• The total amount of deposit losses exceeded $100 million in 2023 and 2024.
• Tarion has 330 employees and has increased enrolment fees for new homes.
• As of July 1, buyers of freehold homes who fail to register their agreements with Tarion within 45 days of signing will receive lower deposit protection.

Sources:

• As the Tarion Warranty Corporation approaches its 50th anniversary, it appears to be failing to uphold its consumer protection mandate. In the wake of record claims due to illegal, insolvent or unqualified builders, it has increased its enrolment fees for new homes, and is significantly reducing its deposit protection coverage for some buyers of new freehold homes. Tarion is a not-for-profit consumer protection organization established by the government of Ontario in 1976 to administer the province's new-home warranty program. It has established construction warranties that all builders of new homes must honour. It also administers a fund intended to protect deposits paid to builders by buyers of homes and condominiums - subject to what some see as unrealistic caps. Under the oversight of Stephen Crawford and Todd McCarthy as the current and prior ministers of public and business service delivery respectively, Tarion is responsible, among other things, for protecting homeowners when builders walk away from projects and buyers lose their deposits. But due to its seeming inability to adequately monitor illegal construction, Tarion last year was hit with claims from more than 1,000 homeowners, the highest number in its history. These claims were from homeowners who had lost deposits because of builder receiverships. Almost 80 per cent of those losses related to agreements of purchase and sale where the builder was unlicensed or had not complied with the regulatory approval process. The total amount related to deposit losses incurred over 2023 and 2024 exceeds $100 million. Clearly Tarion and the government have been unable to protect consumers from so many unregistered builders. And $100 million was just the insured losses. Due to a $100,000 cap on deposit protection, the actual losses incurred by homebuyers who lost their deposits could easily be two or three times the $100 million. With some 330 employees, and despite ministerial supervision, it seems Tarion did not have enough staff monitoring builder advertisements and sales offices. With more investigators in the field, it would have been relatively easy to track which projects were registered and which were not. Sadly, consumers are now being forced to pay significantly higher Tarion enrolment fees and risk lower protection for their deposits if they do not register their freehold purchase agreements with Tarion. As of July 1, buyers of freehold homes who fail to register their agreements with Tarion within 45 days of signing will receive lower deposit protection based on a complicated formula related to the total claims made against all builders in the same calendar year. This change effectively turns buyers into a Tarion police force, when it should properly be the responsibility of the minister and Tarion under their consumer protection mandate. Higher fees and reduced freehold deposit protection will not stop illegal construction or unregistered builders. If Tarion and the minister are unable to protect freehold buyers and the indemnity fund is at risk, perhaps it's time to let regulated insurance companies take over deposit protection. It might also be time to consider requiring deposits on freehold homes to be held in trust the same way they are for preconstruction condominium purchases. Bob Aaron is a Toronto real estate lawyer and a freelance contributing columnist for the Star. Visit his website at aaron.ca.