Regulation of builders and vendors

Regulation of builders and vendors

Separate regulator

I have recommended a competitive multi-provider model for warranty protection. It therefore follows that there will need to be a separate regulator for builders and vendors that is not also a warranty provider. To allow the regulator to compete in providing warranty protection would continue existing conflict of interest concerns and give rise to new ones.

The principle advantage I have heard for having the regulator and warranty provider in a single entity is that information, data and analytics can be easily shared across functions. It was suggested that this would be compromised with a separation of the functions of regulator and warranty provider. I agree that effective and efficient information sharing between the warranty providers and the regulator is essential. I believe this can be adequately addressed through agreements and legislated information sharing obligations.

Introducing a new regulator entity provides an opportunity to address the current anomalous approach to builder and vendor regulation that is not aligned with the approach taken in other regulated sectors.

Administrative authority structure for new regulator

I have considered whether the regulator should be within government, an agency or an administrative authority^{footnote 1[1]}. Different jurisdictions have different approaches to how builders are regulated. In Alberta and British Columbia for example, this function is delivered within government.

Ontario has developed a strong administrative authority structure for regulating a range of sectors. This model has been in place since the mid 1990s and applies across various sectors including electrical safety, the real estate sector, motor vehicle sales and travel industry sectors. A 2012 review of Ontario’s public services supported the setting up of additional administrative authorities, noting that “Delegated Administrative Authorities have been found to reduce costs to taxpayers, improve regulatory outcomes and efficiency, retain government oversight and increase industry engagement^{footnote 2[2]}." The administrative authority model enables the regulator to draw upon sector expertise and knowledge while retaining government oversight over delivery and responsibility for legislation and policy.

There are mechanisms available to support robust consumer engagement within the administrative authority structure. The regulator could, for example, maintain a consumer advisory council, which is common among other administrative authorities.

On the builder side, an administrative authority could continue to work with a variety of organizations, such as the Ontario Home Builders’ Association (OHBA), directly and through its builder advisory committee. That committee has provided an opportunity for the OHBA and Tarion to exchange ideas and information on a variety of topics of interest to both. Such an exchange would continue to be important for a new regulator.

I believe that the administrative authority approach provides the necessary balance between government oversight and operational independence.

Accountability, transparency and oversight

Today’s legislation only has one section dealing with the accountability of Tarion to the government and to the people of Ontario. Section 5 simply requires that Tarion report annually to the minister on the affairs of the corporation. The minister submits this report to the Lieutenant Governor in Council and provides it to the Legislative Assembly. In practice, an accountability agreement between the minister and Tarion has been negotiated to augment the one accountability measure provided for in the Act.

Other regulatory bodies administering legislation that has been delegated by government have a range of accountability measures required by legislation, including:

• an administrative agreement or memorandum of understanding between the regulator and government dealing with matters of administration and governance
• annual reporting obligations to the responsible minister with the minister able to specify the information that must be in the report
• ability for the responsible minister to require that performance, governance, accountability or financial reviews be carried out by or on behalf of the regulator or such other person or entity as the minister may specify and,
• oversight of the Auditor General^{footnote 3[3]}

Tarion, as regulator, is in an anomalous situation when it comes to accountability. Aligning accountability and transparency requirements with those in place for administrative authorities generally would provide greater consistency to government oversight and introduce measures to enhance public confidence in the new home warranty program.

Clear statement of purpose for the regulator

The role of the regulator should be to protect consumers and support the building of high quality homes by qualified builders. The existing legislation does not articulate the purpose of the legislation as being consumer protection. The purpose of a piece of legislation can have an impact on how the legislation is interpreted by the courts. Though not stated in so many words in the Act, several court decisions have described and interpreted the legislation as consumer protection and remedial legislation^{footnote 4[4]}. The regulator’s primary purposes of providing consumer protection and supporting high quality home construction through competent and financially sound builders should be clearly articulated in the legislation.

Eligibility for registration as builder and vendor

The Act sets out, at a very high level, builder and vendor eligibility requirements. It requires the Registrar ^{footnote 5[5]} to consider the financial position and past conduct of persons applying for registration. For builders, it requires consideration of technical competence to consistently perform the warranties. All other conditions of eligibility are set out in the by-laws that are completely within the discretion of Tarion to make.

In my view, the core elements of eligibility should be set out in the legislation. The act should provide for a robust eligibility framework that reflects the reality of a market place that has both small and large builders and a range of home construction from single family to high rise condominium development. There should be regulation making authority for additional eligibility requirements as well as authority to specify who must meet the eligibility requirements in the case of corporations, partnerships and other business structures.

Currently, in assessing eligibility, Tarion considers past conduct of an individual applicant and of officers and directors of a corporate applicant. It has been suggested that the review of past conduct should extend to a review of the past conduct of others who may play an active or key role in the business, such as shareholders, employees, agents and subcontractors. It is important for the regulator to be able to consider the behavior of the driving minds and key players in an organization. There is merit to this suggestion in particular because of the use of various corporate entities not only from development to development but within a given development. Whose conduct is relevant and how it should impact registration are issues that would benefit from further consideration.

Appeals of registration related decisions to LAT

Registration related appeals for builders and vendors should continue to be heard by the Licence Appeal Tribunal (LAT) . These appeals relate to eligibility to be registered, and terms and conditions of registration. LAT has considerable experience on licensing and registration matters across a range of regulated sectors.

Compliance and enforcement tools

The compliance and enforcement tools available to Tarion are limited under the Act and do not reflect the range of options available to a modern regulator. A broader range of tools can support a proactive, timely and proportional response to compliance and enforcement.

Administrative penalties allow a regulator to assess a monetary penalty against a registrant or licensee as an alternative to prosecution and revocation of registration. Across modern regulators, administrative penalties are increasingly being used as a compliance tool and can assist in driving positive outcomes and promote compliance with requirements of the legislation.

Additional enforcement and compliance tools that should be considered include authority for the regulator to:

• require disclosure of financial and other information;
• impose individual conditions on a registrant at any time, not just at initial registration and renewal;
• make compliance orders against a registrant, for example, if the builder is not complying with the legislation or has failed to respond to the communication from the regulator;
• seek court approval for the appointment of a receiver or receiver manager in situations where there is evidence of financial or governance problems and a risk to the public;^{footnote 6[6]}
• suspend a registration immediately without the need for a proposal to revoke if it is necessary to prevent further harm to the public;^{footnote 7[7]} and
• apply to court for an order to freeze assets.

Offence provisions should be reviewed. Currently it is not an offence for the registrant or licensee to make false, misleading or deceptive statements in advertisements and other material as it is in other regulated sectors^{footnote 8[8]}. This should be considered further within a broad objective of increasing consistency with the approach in other regulated sectors.

Technical competencies and education

On the question of builder competency and education, the Act requires that a builder applicant show “sufficient technical competence to consistently perform the warranties^{footnote 9[9]}." Regulation 894 made under the Act expands somewhat on this and empowers the Registrar to require a new applicant to complete a written examination on technical competencies and participate in an interview with the Registrar^{footnote 10[10]}. The Registrar has discretion whether to require the written examination and interview. I understand that in practice they are generally required, however, these obligations should be mandatory for all new applicants. The requirement to meet technical competencies should be reviewed to ensure that it applies to all new applicants for registration as builder.

Employee, officer and director technical competency requirements

Some registered builders will do the construction work themselves. Others will rely on properly qualified individuals to complete and oversee the construction of a new home. As with the registered builder, those individuals should also be required to meet the technical competencies that the builder is required to meet. For a corporate entity or partnership, there should be one or more individuals who satisfy the technical competency requirements. The regulations should specify whether one or more of the officers, directors or senior executives of a corporation or one or more partners, must satisfy the technical competency requirements.

Continuing education

It has become the norm across professional and other regulated sectors to require continuing education as a condition of licensing or registration. In many sectors, such as the legal profession (lawyers and paralegals) and real estate professionals, it is a standing requirement. In other sectors continuing education is not a mandatory requirement but may be ordered in response to complaints or discipline proceedings. Standards and rules for new home construction are not static. Ontario’s Building Code is typically reviewed every five to seven years. The Ministry of Municipal Affairs recently initiated a review which could lead to significant changes to new home construction requirements^{footnote 11[11]}.

A regular continuing education obligation on builders and vendors can support compliance with construction that meets the most current requirements of the Building Code. Educational requirements could also be tied to complaints, discipline, and warranty claims. Ad hoc programs of education could be tied to external factors such as the introduction of new Building Code requirements. Continuing education could be delivered in a variety of ways – by the regulator, a third-party provider, online or conference. The goal should be for programming that is accessible by the range of builders in the sector, large and small, and throughout the province.

Given the complexity of home construction and the extent to which building practices evolve, I recommend that the appropriate individuals across all registrants be required to satisfy periodic continuing education requirements.

Mandatory initial and continuing education requirements could be introduced gradually and should be based on a risk assessment. Educational requirements could be tied to the role performed by individuals personally or within an organization.

Code of ethics

Codes of ethics have become standard where professionals are licensed and regulated. They apply in both an individual and corporate context. A code of ethics can address aspects of behavior such as honesty and integrity, treating members of the public with courtesy and respect, and responding promptly to requests for information from the regulator. Consistent with other acts that license and regulate businesses and professionals, builders and vendors should be required to comply with a code of ethics established in accordance with the legislation.

Builder directory

Currently, Tarion maintains a builder directory that allows members of the public to access information online about a builder, such as locations where they are building and whether there are any chargeable conciliations ^{footnote 12[12]}against that builder^{footnote 13[13]}. Tarion determines what information is included in the builder directory. The legislation does not specify what information must be made available publicly. For example, information about offences under the Act, such as convictions for illegal building, is not readily available publicly on the directory. As structured, the builder directory has shortcomings. It is difficult to access and the data is not searchable by individual name. The use of different and numerous corporate structures within a development and across developments can make it difficult for a homeowner to get a complete picture of their builder. The accessibility and transparency of information on the builder directory should be enhanced. It should be possible to search the builder directory by individual name. Tarion currently collects information about controlling principals (a person or combination of persons that either alone or together have a direct or indirect controlling interest in a builder) as part of its registration process but this information is not searchable. The relevance of the information in the builder directory is dependent on accurate linkages between the principals and key individuals of the various registered builders.

Consideration should be given to including additional information such as information about discipline proceedings, provincial offences, and other conduct that goes to an individual’s entitlement to be registered. Such additional information would provide consumers with more transparency regarding past builder conduct.

Regarding claims related data, it would be helpful to list information by type of defect (1, 2 or 7-year claim) at a minimum, with water penetration defects separately reported. Information on deposit and delayed closing dollar claims should also be part of the directory.

The builder directory will need to adapt to a new multi-provider context. Legislation will need to address what information is to be shared, how it is to be shared and when. Memoranda of understanding and similar agreements could be enhanced with regulatory requirements as needed.

Sector outreach

I heard from several individuals about the need for more outreach especially to builders and vendors in smaller and more remote communities. A new regulator should consider how best to meet the obligation of engaging with communities across Ontario. At one time, Tarion had a local presence with regional offices. Some suggested more frequent visits to the smaller and more remote communities or the use of webinars to better reach builders not in the larger urban centres. Others suggested focused communications to builders and vendors in specific geographic areas if, for example, claims data was showing a problem in that area.

Building Sector Expertise on the Regulator Board

I recommend that the board of the new regulator continue to have representation from the builder sector to ensure the appropriate level of builder expertise. Board members with experience in the building sector would provide knowledge and expertise regarding new home construction. The current builder representative selection process is managed by the OHBA. I recommend that the builder expertise selection process ensures that it captures the broad builder base across the province.

This representation on the board would provide knowledge and expertise from the new home construction sector and would not be to have board members in the position of advocates for, or representatives of, particular builders or association of builders. Change to how builder board members are currently selected may be required to broaden it beyond the current selection process managed by the OHBA.

Constituencies suggested for representation on the board include: consumers, consumer advocacy organizations, OHBA member builders and non-OHBA builders, building officials, engineers, architects, and experienced regulators.

One goal of the new regulator will be to support high quality home construction by financially sound and competent builders. The skills matrix for board members might include knowledge and expertise in product manufacturing, construction material, Building Code, architecture and engineering, condominium construction, and other technical skills. Recognizing that regulation of builders and vendors is also about consumer protection, board members with skills in delivering or advocating for consumer protection would be important. And, as a regulator members with experience in the regulatory sector and practical business experience should also be considered.

Tarion has evolved since its incorporation in 1976 and has, in many respects, been a high functioning organization.^{footnote 14[14]} Currently, the organization must deal with significant financial issues involving security obligations for registrants and ensuring that the necessary funds are available to respond to projected claims. It must engage on technical and complex construction matters both in setting standards and generally accepted practices. It must engage with consumers and adjudicate disputes. Each of these areas is unique. Board membership is expected to reflect the skills that correspond to the work of the organization. At some point, ensuring the necessary skills are reflected in the board composition becomes challenging.