Tarion and HCRA – the new Batman and Robin regulators of the Ontario homebuilding industry

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By Leor Margulies
Robins Appleby

Feb. 1, 2021 saw the dawn of a new regime for homebuilding regulation in Ontario. Tarion Warranty Corp., which has been handling all aspects of regulating and licensing builders, registering projects under the Warranty Program, administering the warranties relating to new home construction, will see a splitting of its duties as of this date. As a result of both the in-depth report prepared by Mr. Justice Cunningham several years ago on behalf of the Liberal government, and the Auditor General’s Attorney Report on value for service analysis of Tarion in December 2019, Tarion’s perceived conflicts of interest and bias in favour of the new-home building industry were addressed by bifurcating some of its responsibilities and duties.

Home Construction Regulatory Authority

The Home Construction Regulatory Authority (HCRA) will now be responsible for licensing and supervising the conduct of builders and addressing consumer complaints, outside of specific warranty issues, which will continue to be administered by Tarion. Although Tarion did have an ombudsman for these types of complaints, the Auditor General felt that Tarion was far too close to builders, with half of its board being represented by homebuilding industry representatives (unfairly, in the opinion of this writer). HCRA will now be responsible for ensuring that builders meet legal and ethical practices in their operations.

As a result, HCRA will have the ability to investigate complaints against builders. It can hold hearings in respect of illegal or unethical practices and issue a variety of orders from fines, to suspensions, to limitations on building operations and more. It remains to be seen how much this new government agency will be used by consumers who are disgruntled with decisions of Tarion or the Licence Appeal Tribunal (LAT). Hopefully, appeals to HCRA will not rehash warranty issues that have already been dealt with by LAT or by Tarion. HCRA should only deal with rooting out the bad apples in the industry and taking appropriate disciplinary action and not be a second source of warranty determination for consumers. This remains to be seen.

It would appear that the form of the Addendum, changes to the Addendum and all other attachments and documents applicable to residential Purchase and Sale Agreements will now be moving to HCRA. These include the following:

  1. A revised Addendum, which is to be attached to all Purchase Agreements entered into from and after Feb. 1, 2021. The form is essentially the same as the existing Tarion form and for the most part, merely changes reference from Tarion to HCRA where applicable;
  2. The Condominium Information Sheet which was previously required to be provided in all condominium Purchase Agreements entered into after Jan. 1, 2020, will continue to be required to be attached, and has been revised to a three-page document. There was some talk about making it applicable to any condominium project, whether it was launched before or after Jan. 1, 2020, but that grandfathering that applied when it was originally added to the purchase agreement, still remains in place;
  3. The new Ontario’s Residential Condominium Buyer’s Guide. This is a very lengthy explanatory document for purchasers to educate them on the process of buying a new condominium, pre-construction and post-registration. This is just one more extensive document for purchasers to read in addition to disclosure packages, lengthy purchase agreements and addendums; and
  4. The new Warranty Information Sheet which outlines the various rights of purchasers under the Tarion Warranty Program. This came about as a direct result of the Auditor General’s recommendations to educate purchasers.

Voluminous paperwork

The amount of paperwork to be provided to new-home purchasers, particularly condominium purchasers, is voluminous. Whether this will result in buyers being more educated or not is questionable; simple executive summaries of all of these documents would have been useful with a better chance of purchasers actually reading the documents.

Vendors now have a further obligation to report the appropriate contact information for each purchaser to Tarion within 30 days of execution of a Purchase Agreement. Presumably another suggestion from the Auditor General’s report.

Unrecoverable costs

Finally, new home enrollment fees have changed such that HCRA will be imposing a regulatory oversight fee of $145 for each home ( this is in addition to increased licensing fees that were otherwise payable to Tarion). Tarion has reduced its enrollment fee by $50 to accommodate some of this increase. Builders are encouraged to review their Purchase and Sale Agreements with their lawyers to ensure that the HCRA regulatory oversight fee is captured as an additional adjustment in their lowrise and highrise Purchase and Sale Agreements, as I suspect they would not otherwise be covered under current language relating to Tarion enrollment fees. I further understand that there is no grandfathering of these fees, such that a condominium project that went to market before Feb. 1, 2021, will still have to pay the regulatory oversight fee when the units are actually enrolled, notwithstanding that the builder would not have had the opportunity to include this adjustment in their Purchase and Sale Agreement. This may result in a additional unrecoverable costs to builders for those pre-existing projects.

All of the Tarion bulletins have been revised, replaced or eliminated to accommodate these changes and should be reviewed carefully by builders. For instance, it would appear that there will be greater oversight potentially for newer builders (or any other builder for which Tarion deems appropriate) by Tarion, including more frequent inspections during construction. Another recommendation from the Auditor General.

It will be an interesting 2021 as all of these changes roll out. There may be further announcements from either of the Gotham duo as all of these work their way through real projects. Stay tuned.

Leor Margulies is a partner at Robins Appleby LLP and an executive on the BILD Board of Directors, Toronto.