July 15, 2010
By Robert Kennaley
McLauchlin & Associates

Robert KennaleyMost of us have heard of the new home warranty, however, we may not understand how that program works and, accordingly, how it might, or might not, play a role in what we do for a living.

Tarion Warranty Corporation, also known in its more formal title as as the Ontario New Home Warranty Program (ONHWP), is a private, non-profit and self-funded corporation designated by the Lieutenant Governor in Council pursuant to the Ontario New Home Warranties Plan Act to, among other things:  
  • administer the new home warranties plan established under that Act
  • require the registration of new home builders and vendors in Ontario
  • assist in the conciliation of disputes between new home owners and new home builders/vendors in Ontario (each as defined under the Act)
  • establish and administer a compensation fund providing for the payment of compensation to new home owners in Ontario in accordance with the Plan
  • improve communication between new home owners and new home builders/vendors in Ontario.

The New Home Warranty Program applies to the construction of all new homes in Ontario. The statutory warranties established under the Act are provided at first instance by the vendor of the new home in question. Where a vendor has failed to meet his obligations under the Act, new homeowners may in certain circumstances claim against the compensation fund.  

A new homeowner’s claim against the statutory warranty is subject to conditions. First, the new homeowner’s claim must be brought within the timeframes contemplated by the Act.  In this regard, there are three types of warranty, and a different time frame associated with each:
  • a one-year warranty (subject to some exclusions) against, most construction defects  
  • a two-year warranty against water penetration into the building, detachment, displacement and physical deterioration to the building envelope, mechanical and electrical system failures and violations of the Ontario Building Code affecting health and safety
  • a seven-year warranty against (subject to exclusions) major structural defects, the definition of which is somewhat complicated, but includes material load bearing structural failures or load bearing problems which materially impair the homeowner’s ability to use the home as intended  

The timeframes within which the above warranty claims must be made (one, two and seven years, respectively) run from the new homeowner’s taking possession of the home (as indicated on a Certificate of Possession for detached or semi-detached homes, or the date the condominium was registered under the Condominium Act in the case of a condominium unit).    

Under the Act a builder is a person who undertakes the performance of all work and supply of materials necessary to construct a completed home whether for the purpose of sale by himself or under a contract with a vendor or owner. The vendor then provides the warranties discussed above.  

The Act provides that where an owner has a cause of action against a vendor or builder for damages resulting from a breach of warranty claimed within the applicable warranty period, the owner is entitled to be paid by Tarion, out of the compensation fund, the amount of such damages. Tarion is also, however, entitled to perform work, or to arrange for the performance of work, in lieu of paying the damages (or costs of repair) claimed by an owner. New home purchasers are also entitled to claim compensation in relation to lost deposits in the event the purchase of the home does not, in some circumstances, close.

Tarion is then subrogated to all rights of recovery of a person to whom payment in respect of a claim has been made out of the compensation fund. This allows Tarion to pursue not only the vendors or builders who may have breached their obligations under the Act, but also any other person that might have been responsible for the deficiencies at first instance. In that regard, Tarion also requires the vendor/builders to post security in relation to new homes under construction, which is held against possible warranty claims in relation to those homes.

For landscape contractors and suppliers, it is noted that the warranties apply to any structure or appurtenance used in conjunction with the home. In some circumstances, then, the warranties will apply to decks, cabanas or other structures. Landscape contractors and suppliers will, of course, rarely (if at all) ever be a builder or vendor or a new home. However, Tarion’s rights of subrogation may arise in circumstances where a homeowner makes a claim as against a builder. In those circumstances, it is important to have a general understanding of how the New Home Warranty Program works.
Robert Kennaley practices construction law in Toronto and Simcoe. He speaks and writes regularly across North America. He can be reached for comment at 416- 368-2522, or at kennaley@mclauchlin.ca. This material is for information purposes and is not intended to provide legal advice in relation to any particular fact situation.  Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.