In addition to heat waves and holidays, this July brings important changes to coverage for new condominium projects under the Ontario New Home Warranty Plan, better known as Tarion. There is also news that additional changes to the warranty plan are being considered.
In this entry, we will cover new regulations now in force that affect the Tarion warranty. In a separate entry, we will discuss why condo corporations need to make better use of their lawyers when it comes to dealing with construction deficiency issues.
For the hat trick, our third entry on new home warranty coverage will feature Tarion’s call for submissions to their public consultation about the major structural defect warranty. Anyone wishing to get started on this topic now can get the details here. An August 12 deadline for submissions is looming.
Let’s start with the new regulations that are effective immediately.
New Customer Service Standard
The first change at Tarion is the creation of a customer service standard governing warranty claims for construction deficiencies in common elements of condominium corporations whose declarations and descriptions are registered on or after July 1, 2010. The particulars of the new customer service standard are set out in Ontario Regulation 274/10, which significantly amends Ontario Regulation 892, being the blueprint for the administration of the Tarion warranty plan program. No changes are made to the Condominium Act, 1998, of which section 44(10) provides that the filing of a performance audit constitutes a warranty claim for the items contained in that audit report.
A customer service standard for freehold homes and condo units has been in place since 2003 and reportedly works well, so a comparable standard for deficiencies in condominium common elements has been created. This standard provides timelines and processes for making and assessing warranty claims by condominium corporations in respect of their common elements. Until now, many warranty claims languished for several years for lack of clear timelines or processes, and condominium corporations could request inspections and re-inspections of unresolved warranty items several years past what developers considered to be a reasonable cut-off period. The new customer service standard creates fixed deadlines for work to be completed by the developer and for conciliation to be requested by the condo corporation.
For first-year warranty claim items, the vendor (developer) must complete repairs within the first 30 months after registration of the condo declaration. Repairs of second-year warranty items must also be completed by the same deadline as first-year items. If the work is not completed by that 30 month deadline, conciliation must be requested by the condo by the end of the 32nd month following registration, failing which (or if conciliation is started and cancelled), the warranty claim is considered to have been withdrawn.
Other features of the new customer service standard include the following:
• If the vendor does not perform work specified in the conciliation report within 90 days after delivery of the report, then Tarion pays for the work out of the guarantee fund.
• Tarion itself also has the power to conduct a conciliation at any time if it appears that either the condominium corporation or the vendor are not acting reasonably to resolve their issues related to first or second year warranty claims.
• The process for making and dealing with warranty claims for major structural defects (“MSDs”) is largely unchanged but is made somewhat simpler in terms of procedure.
• A new $1,000 fee will be payable by condominium corporations for a conciliation of a dispute, whether for a first year, second year or MSD claim. No fee was previously charged. Developers are required to pay a conciliation fee of $3,000, up from the previous fee of $1,000.
The creation of a deadline by which time repairs must be completed is a positive feature in the new standard. However, the deadline period of 30 months (2.5 years) after the registration of the declaration is far too long to be meaningful in most situations. Conversely, the short 60 day window within which condominium corporations must request a conciliation after the repair deadline expires is disproportionately short, especially considering that the condominium’s warranty claim is deemed to be abandoned thereafter. Many condominium corporations will unwittingly allow their warranty clams to be extinguished by this harsh “deemed abandonment” provision, particularly if they are not working closely with a lawyer.
New Monetary Cap
The second change to Tarion is the creation of a monetary maximum of $50 million that can be paid out by the Tarion guarantee fund for any one condominium project, where unit sales begin on or after July 1, 2010.
The nuts and bolts of the new cap are contained in Ontario Regulation 275/10, which adds a new subsection 6(12) to Regulation 892, being the document that sets out the administration of the Tarion warranty plan.
The stated purpose of this new cap is, of course, to reduce the likelihood of the Tarion guarantee fund being wiped out by a single bad project or a number of smaller condo projects that suffer catastrophic failure as a result of poor construction. In reality, the cap is designed to help stabilize the enrollment fees paid by developers.
For condos where unit sales began before July 1, 2010, the maximum recovery under the Tarion warranty for a condominium development is $300,000 per unit for construction deficiencies to the units plus the lesser of $50,000 per unit and $2.5 million in total for deficiencies in the construction of the common elements, with no overall limit. For example, a 300-unit condominium complex could potentially give rise to a covered liability of $92.5 million, as follows:
$90 million for deficiencies to the units (being 300 units x $300,000)
plus: $2.5 million for deficiencies to the common elements (being the lesser of $50,000 per unit ($50,000 x 300 = $15 million) and $2.5 million)
gives: $92.5 million
With the new amendments now in force, the cap for any one condominium project (where unit sales began on or after July 1, 2010) is $50 million in total for construction deficiencies in the units and the common elements. The practical result is that condominiums whose first unit was sold prior to July 1, 2010 and new condominiums with fewer than 160 units will not be affected by this new monetary cap in any significant way. New condominiums with more than 160 units, however, are at risk of not making a full monetary recovery from Tarion, and those with many more than 160 units are at risk of a much greater potential shortfall in absolute dollars.
While it would be an exceedingly rare case to see any condominium development require a payment from the guarantee fund anywhere close to $50 million, this monetary cap needs to be kept in mind and considered when devising the overall strategy in pursuing any claim for construction deficiencies at a large condominium.
Get Legal Advice
Boards and property managers at new condominiums that are subject to these new features of the Tarion warranty plan (i.e., declarations registered after July 1, 2010 or where unit sales begin after that date) should get legal advice at an early stage to assess their corporation’s legal position. While many aspects of the new customer service standard might help speed claims along and appear to simplify the process, the administration of warranty claims has become potentially more risky since claims can be lost simply by missing deadlines. Condominium corporations embarking on the Tarion warranty claims process are well-advised to get help from their lawyer. We’ll write more on this point in our next entry, where we will focus more closely on why many condo corporations choose not to seek counsel and why this is a bad idea.