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New Home Builders Beware: Tarion Implements New Temporary Relocation Warranty Program up to $15K per Home

August 1, 2023 Litigation Bulletin 3 minute read

On July 1, 2023, Tarion implemented its new Temporary Relocation Warranty program (the “Warranty”) under the Ontario New Home Warranties Plan Act (the “Act”)[1].

The Warranty requires vendors and builders of new homes (together “Builders”) to (i) compensate, or (ii) provide alternative accommodations to owners whose homes have been rendered uninhabitable as a result of warranted defects.

Who is Covered?

The Warranty applies to new homes that are the subject of a purchase agreement or construction contracts entered into on or after July 1, 2023. Coverage starts from the date the owner takes possession of the new home and terminates after seven years. However, the Warranty only applies to claims made by the owner within one year of the home becoming uninhabitable.

When is a Home Uninhabitable?

A home is considered uninhabitable when the home, a “material portion” of the home, or a critical element of the home required for occupancy, is or will be rendered unfit or unsafe for the inhabitants as a result of a condition that breaches the Builder’s statutory warranty (e.g. missing or defective materials). Houses rendered uninhabitable by any situation other than a Builder’s breach of warranty will not be covered (e.g. acts of God or owner caused defects).

A “material portion” of the home means a part required to provide the home with at least one entrance and exit, a living area, a kitchen, one or more bathrooms with at least one accessible sink, a toilet and shower, and bedrooms for inhabitants.

Whether a home is uninhabitable is determined based on an objective assessment of,

  1. the warranted condition,
  2. the nature of the repair,
  3. proposed mitigation measures, and
  4. the impact on inhabitants.

If the Builder’s proposed mitigation measures meet reasonable industry standards, the Warranty is not likely to be triggered. Special health or conditions of the particular inhabitants (e.g. allergies) will not be considered when determining whether the home is uninhabitable.

For example, a home may be determined to be uninhabitable if the warranted item has the following impact for more than a day:

  1. total loss of heat to materials portions of the home within the heating season (September 15 – May 15);
  2. total lack of A/C between May 15 and Sept 15 accompanied by a heat alert; or
  3. plumbing, sewage disposal, or electrical to material portions of the home are not functioning.

However, Warranty coverage is not likely to be triggered where:

  1. usual spaces within the home can be used during the repair;
  2. remedial work can be partitioned off from the rest of the home, leaving bathrooms, kitchen, water, heat, sleeping and living space in working order (e.g. where there is mould in the basement, but the basement can be sealed and accessed from the garage so there is no risk of mould going into the rest of the home); or
  3. some plumbing fixtures are unusable, but there are others available to the inhabitants.

For more guidance and examples on when the Warranty applies please see Tarion’s Registrar Bulletin here.

How to Address a Warranty Claim

If an owner contacts its Builder to trigger the Warranty, Builders have three options:

  1. pay the owner $150 per day for the period that the home is uninhabitable (up to a maximum of $15,000 per house over the seven-year coverage period);
  2. in lieu of paying compensation, provide reasonable alternative accommodation for the displaced inhabitants until the home is habitable again; or
  3. if the Builder maintains the home is not uninhabitable, refuse to provide compensation or alternative accommodations.

If Builders and owners cannot agree on an acceptable arrangement, the owner may submit to Tarion a Temporary Relocation Form. Tarion will then investigate the matter and determine whether the Warranty applies and, if so, what the Builder must do to appropriately address the situation. If a Builder improperly refused compensation or alternative accommodations, it may be penalized with a chargeable conciliation and an additional monetary fee (15% of the amount of compensation supposed to be paid).

Disputes about Warranty Coverage

A Builder can dispute Tarion’s Warranty assessment by requesting an arbitration in the Builder Arbitration Forum.

Tarion, however, has the final say on whether the dispute is suitable for the Builder Arbitration Forum. If Tarion decides the dispute should not proceed to the Builder Arbitration Forum, Tarion may issue a decision letter which the Builder may then challenge in a judicial review.

For more information on this new Warranty or for assistance with Warranty claims, please contact the author via the link below.

[1] RRO 1990, Reg 892, s24.

by Jeremy Rankin, and Delina Wen (Summer Law Student)

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2023

 

 

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