Stakeholder feedback, observations and options

Stakeholder feedback, observations and options 

I found the jurisdictional review of approaches to new home warranty programs in other jurisdictions, as well as my discussions with industry contacts and homeowners in Ontario to be very informative.

Throughout my discussions, it was clear that many see great value in having a mandatory warranty program. However, homeowners, builders, and other parties are also experiencing challenges with the program as currently delivered. I received many specific suggestions for reform of Tarion and the ONHWP Act.

Throughout this Review, I have been clear that my terms of reference are broad and I am approaching the Review with an open mind. Prior to this Review I did not have any personal experience with Tarion or the ONHWP Act.

Although my mandate is extensive, seven topics were identified, and the following questions have become the focus of my review:

• what model would best deliver consumer protection? Can Tarion effectively perform each of the roles of regulator, warranty provider, adjudicator and rule maker?
• is there a way to resolve warranty disputes more effectively and expeditiously?
• how can Tarion best ensure that consumers are educated about the new home buying process and the warranty program?
• what is the appropriate warranty/deposit coverage and duration?
• how should Tarion regulate builders and vendors, in order to drive quality in the home building sector and protection for consumers?
• what should be the composition and skill sets of the Tarion Board of Directors, and how should members be selected to best meet Tarion’s mandate under the ONHWP Act and its fiduciary obligations?
• what additional measures, if any, could be implemented to improve accountability, transparency and oversight?

In this Report I provide a number of options and considerations to address these topics. Many of the proposed options would require changes to the ONHWP Act. The options presented are not exhaustive and I welcome feedback on these prior to making my final recommendations in the fall of 2016.

The topics and related options reviewed in the following pages are:

• Tarion’s role and business model
• dispute resolution process
• consumer education
• warranty coverage and duration
• regulation of builders and vendors
• board governance
• accountability, transparency and oversight
• other

Tarion’s role and business model

Today, most new homes in Ontario are covered by the Ontario New Home Warranty Program. Most stakeholders I spoke with see value in a new home warranty program and believe that it should continue to be mandatory in Ontario. The issue at hand does not appear to be about the mandatory nature of the program, but rather how and by whom it should be delivered.

Multiplicity of roles

As I see it, Tarion plays several key roles: it acts as the regulator of builders and vendors; it acts as the warranty provider; it adjudicates warranty claims; and it is the rule-maker regarding some of the specifics of the warranty coverage. In addition to these roles, Tarion manages a large guarantee fund.

I heard about many of the apparent benefits in having a single entity perform all of these functions, as well as a number of apparent challenges.

Some of the benefits described by Tarion include synergies between the functions such as the sharing of information. For example, issues identified through the warranty claim process can be quickly shared with the regulatory side to help identify where additional builder education may be required. Similarly, information about a builder’s claim history may affect their registration. Tarion also noted the cost efficiencies of having one organization perform all of these functions including the sharing of personnel, technology, and office space.

On the other hand, I heard concerns that these multiple roles give rise to confusion and, at a minimum, creates a perceived conflict of interest. For example, many questioned the efficacy of Tarion’s role as an independent adjudicator, when it is responsible for regulating builders, protecting consumers, and managing the guarantee fund.

Specifically, a number of builders commented that Tarion, at times, appears to use its position as regulator to apply pressure on them to repair a defect even though the item may not be covered by the terms of the warranty. Others commented that Tarion at times appears to adjudicate to achieve outcomes to protect its guarantee fund, as opposed to protecting consumers. There is a perception amongst some, that Tarion uses its power as a rule-maker to make changes to the regulations in order to benefit the guarantee fund.

A number of homeowners also questioned whether Tarion can truly be independent, given that builders represent at least half the Tarion Board, leading to the perception that Tarion may be acting in the interest of builders at the expense of homeowners.

Ms. Genevieve Chornenki, the author of the Independent End-to-End Dispute Resolution Process Review commented: “Tarion has not formulated a robust answer to the question that is central to almost all of the process complaints and public criticisms about its handling of contested warranty claims – How is Tarion’s public interest, consumer protection role to be integrated with its role as independent dispute resolver, so that it is perceived as neither ally nor enemy of either party?”^{footnote 1[1]}

When I met with Tarion senior management and staff, I was left with the impression that they sometimes find themselves caught in the middle between the homeowner and the builder. This is certainly the case in their role as adjudicator where they need to make a decision favorable to one party at the direct expense of the other. However, they were very clear that they do not believe their role as regulator and warranty provider presents a conflict of interest.

They directed me to their published code of conduct, which states “we will not permit our personal dealings to conflict with our Tarion responsibilities”.^{footnote 2[2]} I reviewed the conflict of interest policy developed for the warranty services department. I noted it outlines examples of situations that may be perceived as a conflict of interest, and sets out the process for staff to follow in such circumstances.

Senior management also noted that the performance evaluations of warranty field representatives do not provide an incentive for them to deny claims. Lastly, senior management commented that the proof that they are unbiased towards consumers or builders, is that they often receive complaints from both parties.

Tarion’s Board of Directors highlighted the 2012 MSD policy change as an example of how Tarion does not favour builders. As explained earlier in this Report, the policy put more accountability on builders and increased Tarion’s ability to recover losses from builders related to MSD claims.

The Tarion Board were also very clear about their priorities. They cited four areas of focus that drive their attention; consumer protection, capital management, governance, and risk management. While they described improvement initiatives underway in each of these areas, they were confident that the overall business model is working well relative to these priorities.

The ONHWP Act is consumer protection legislation.^{footnote 3[3]} Tarion articulates that it serves the public interest. For many, these characteristics lead to a belief that Tarion is a government agency. Homeowners look to Tarion for protection, some describing seeing Tarion as their “friend”. It is a shock, when later confronted with the reality that Tarion, as adjudicator, might rule against them. This is especially the case in situations where it appears obvious to the homeowner that there is something wrong with their home.

Most of the other jurisdictions I looked at, including British Columbia, Alberta, and Manitoba, have separated the rule making and regulatory functions from the warranty provision. There is an independent body performing the dispute resolution process.

Indications are that the regulator in these jurisdictions, still has access to warranty claims information, allowing the regulator to track builder performance, respond to industry issues, and provide current and relevant builder information.

Going forward, it will be critical to define and communicate clearly Tarion’s role and responsibilities. The following Figure identifies some preliminary options on what Tarion’s role might be. I recognize there may be other alternatives in addition to the options described below, and I look forward to receiving further input.

During the next phase of my review I will explore each of these options, along with any others provided, in greater depth including potential benefits and risks of each.

Figure 2: Options for Tarion’s role

• Tarion continues to perform all of its current functions (i.e., regulate builders and vendors, administer the warranty program, adjudicate claims, and make the rules). Changes are made to its operations and the legislation to clearly articulate Tarion’s role and mandate
• place some or all of the functions in separate organizations (e.g., separate the warranty provider function from the regulatory function or move the adjudication function so that it is arm’s length from the warranty provider)

Single warranty provider

Tarion is the only provider of the mandatory new home warranty program in Ontario and has been for the last 40 years. I heard many homeowners, builders, lawyers, and other stakeholders express the belief that its status as sole-provider gives Tarion little incentive to improve. Some believe that competition in the form of third party insurance providers would improve customer service. In return for such service improvement, some also indicated a willingness to bear an increase in the cost of the warranty premium that could result from private sector delivery of the warranty coverage.

On the other hand, Tarion management and some builders expressed a number of concerns about moving to a multi-provider model. This includes the misconception amongst homeowners that the competition model in other Canadian jurisdictions and elsewhere provides homeowners with choice. Rather, it is the builder’s choice as to which warranty provider is used. Tarion also expressed concern that a multi-provider model would lead to builders being motivated to provide the bare minimum warranty at the least cost. In addition, concern was expressed that if private sector insurers are not obliged to offer warranty coverage, it might create a barrier to entry for new and small builders.

Tarion also expressed concern that costs could increase as a result of the inherent profit component of a private commercial enterprise, and that consumer protection would decrease. Tarion noted that private insurers would not have a statutory mandate of consumer protection, and with a profit motive, those insurers might have more reason to deny claims.

Similarly, it is argued that private insurers would see builders, not homeowners, as their customers and Tarion questioned whether they could provide the same level of customer service to homeowners. Competition might also result in a tiered program providing minimum coverage and service for some, and premium coverage and service for those who could afford to pay more.

My jurisdictional review identified four different business models:

• mandatory, single provider model as in Ontario and recently implemented in Quebec
• mandatory, multi-provider model as in British Columbia, Alberta, Manitoba (effective January 1, 2017) and New Jersey
• voluntary model such as Saskatchewan, Atlantic Canada (i.e. New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland and Labrador) and the UK, and
• no program administrator for the warranty program, as in California, but instead construction performance guidelines embedded in the legislation itself. Disputes are resolved through the courts

Across Canada generally, the trend has been for provinces to adopt the multi-provider insurance model.

The Figure below outlines different options for service delivery of the warranty program.

Figure 3: Options for service delivery of the warranty program

• continue with single warranty provider
• introduce multiple warranty providers (this option could still accommodate a not-for-profit provider)

Further analysis will be required on each of the service delivery options including benefits, risks, appropriate legal and operational structure, and oversight.

In addition, any analysis of the service delivery models would need to consider how the risk pool would be managed. If a multi-provider model were adopted, how should the mandatory warranty provision standards be established? Should providers be able to offer the option of extended warranty coverage? I look forward to evaluating these considerations in the next phase of my Review.

Dispute resolution process

During my discussions with new home owners the number one concern they had, and the root cause of many of their frustrations, was Tarion’s dispute resolution process.

I heard the dispute resolution process has transformed over time. I’ve been told that it has moved from a meditative process to one that is complex and sometimes adversarial. Most homeowners said that all they wanted was for the home to be fixed. And on the builder side, many said that they simply wanted a decision on whether a claim is warrantable.

While, in my view, progress has been made, there are still opportunities to improve the dispute resolution process. Dispute resolution is changing with new technologies, and new processes being tried across a range of sectors. I believe that the dispute resolution process could benefit from these new technologies and processes. I welcome views on the preliminary options noted below in Figures 4 through 8, as possible ways to improve the dispute resolution process, including with respect to procedure, onus of proof, the Construction Performance Guidelines, conciliation inspections, LAT, and the Builder’s Arbitration Forum (BAF).

Procedure/process

I heard about several issues related to:

• processes and timelines for making a claim to Tarion
• timelines for builder repair periods, and
• latent or concealed defects which are difficult to identify within the strict timelines

In 2003, Tarion implemented an initiative called “Project Simplify” which included the establishment of a Minimum Customer Service Standard to improve the warranty claims process.^{footnote 4[4]} As part of that standard, specific processes and timelines for making a claim to Tarion, as well as timelines for builder repair periods, were created and updated in the regulations.^{footnote 5[5]} Prior to 2003, there were no fixed time frames for repair periods, nor any requirements that first year claims be submitted within the first or last 30 days of the first year.

It appears these specific timelines pose several challenges for homeowners. First, some homeowners, as well as Tarion staff, noted that the first 30 days of possession may not be sufficient time after taking possession for an owner to properly outline claims. Some suggested that it be extended to 90 days.

Similarly, several condominium boards noted that the period of time permitted to conduct a performance audit of common elements is too short.^{footnote 6[6]} The Condominium Act, 1998, requires the person conducting the audit to submit their report to Tarion and the report is deemed to constitute notice of a claim for the purposes of the ONHWP Act. I understand, however, that amendments to the Condominium Act, 1998, not yet in force, will give condominium boards up until the first anniversary of the date of registration, to have a performance audit completed and the report submitted to Tarion.

Despite the longer timelines, some condominium boards and lawyers noted that in many cases, the condominium’s common elements are not completed within the first year, yet the Tarion warranty timelines are activated as soon as the declaration and description is registered and the condominium corporation is created. This makes it challenging for condominium boards to assess defects during a performance audit.

Condominium boards expressed concerns that some developers fail to turn over all documentation, including plans, drawings and specifications, necessary for the condominium corporation and its consulting engineer or architect to complete the performance audit. As a result, the corporation’s performance auditor is unable to properly and fully assess the condition of the common elements in order to move forward with any warranty claims.

A number of homeowners believe some builders use the strict timelines as a way of avoiding their obligation to repair a defect or pay a claim. That is, the builder will assure the homeowner the item will be repaired during the duration the homeowner has to request a conciliation, but once that period passes, they no longer respond. By then it is too late for the homeowner to file a request for conciliation with Tarion. Representatives of condominium corporations spoke of similar experiences.

On the other hand, I heard many builders maintain they are proactive about obtaining the forms, and that some are even willing to accept requests for repairs beyond deadlines in order to maintain their relationship with the homeowner and preserve their reputation.

Another challenge is the length of the repair period. Many individuals feel that the 120 day time period is too long. Some suggested a 30 day or 60 day repair period. Builders favour the 120 day repair period, often speaking of the difficulty in obtaining materials and tradespersons, seasonality, demand volume, and negotiating access with homeowners as reasons for the length of the repair period. When I brought up the 120 day repair period with Tarion employees, some agreed the timelines might be too long in some circumstances. However, they were clear that a specific timeframe and process is important to manage the volume of claims and to be efficient.

To address this issue, in 2015, Tarion implemented an “Early Intervention Process”. The objective of this initiative is to assist homeowners and builders resolve warranty issues within the 120 day repair period. Tarion employees are committed to and proud of this new program.

Tarion has advised me that as of December 31, 2015, the Early Intervention Process has been applied to approximately 65 files, of which over 70% did not proceed to conciliation. While I recognize this effort to resolve more disputes earlier, it appears that the manner in which the Early Intervention Process is applied risks being informal and somewhat ad hoc. I believe there is an opportunity to employ this type of initiative more consistently going forward.

Another challenge concerns latent or concealed defects which are difficult to identify within the strict timelines. For example, warranty coverage may be denied for a faulty heating delivery system that has two-year warranty coverage even though the defect could not realistically be detected during the coverage period because of unseasonably mild winters in the first two years. If the problem is detected in the third year with more typical temperatures, the defect will not be warranted. Some stakeholders suggested that a “discoverability clause” should be introduced. This would extend timelines for the submission of claims for concealed or latent defects.

In contrast to Ontario’s timelines, homeowners in Quebec have the ability to notify Quebec’s warranty program administrator, Garantie de Construction Résidentielle (GCR), after 15 days if they are dissatisfied with the builder’s intervention or if the builder has failed to intervene. The GCR has another 15 days to encourage the builder to respond and the builder then has another 15 days to complete the repairs. If the builder fails to complete the repair in the required time period the GCR will conduct an inspection within 15 days.^{footnote 7[7]}

There is no specific time period in which builders in British Columbia and Alberta are required to respond to homeowner complaints. Instead they are required to respond within a “reasonable” timeframe. Homeowners in those provinces also have the ability to request mediation within a “reasonable” timeframe.

The current 120 day initial repair period in Ontario and the possibility of an additional 30 days does seem long and has the potential to exacerbate disputes. I will consider whether defined time periods should be replaced with a reasonableness standard, or if retained, whether the time periods should be shortened.

I appreciate the need to balance timelines and expectations against the practicalities of performing the repairs and I will present recommendations in my final report. Some options are presented in Figure 4 below:

Figure 4: Options for claims and repair procedure/process

• maintain the current timelines but establish a more consistent approach to the Early Intervention Process
• extend the claim submission time periods, but implement shorter timelines for builder repairs
• replace the current claim submission and builder repair timelines with a reasonableness timeframe
• develop a process for submitting latent and hidden defect claims

Onus of proof

Under the current system, homeowners or condominium boards (in the case of common element defects) have the onus of proving the defect that is the subject of their claim. It is not sufficient for them to simply describe the problem they believe to be a defect or caused by a defect. Instead they may be required to diagnose the actual defect and provide expert evidence in order for it to be considered a warrantable claim.

I also heard concerns that there is a lack of clarity regarding the onus of proof requirement. Ms. Chornenki observed that “Tarion homeowner resources do not convey to the homeowner before the process takes place how central the onus of proof is to the assessment, what the onus of proof actually is, when it applies, how much proof is enough if it does apply, and what practical steps the homeowner should take to satisfy the onus”.^{footnote 8[8]}

I agree with Ms. Chornenki’s observations about the lack of clarity regarding the onus of proof requirement.

Some homeowners and real estate lawyers noted Tarion will only evaluate and repair a defect that is precisely identified on a claim form, and will not proactively extend its review to other parts of the home. Additionally, Tarion will not examine other homes that are likely experiencing the same problem without a claim having been submitted, even if it is evident that the same problem exists in multiple locations. I look forward to reviewing this area further in my final report.

When the topic of onus of proof arises, I often hear the analogy to a car warranty. If a consumer has a problem with their car, they take it to the dealership and describe the problem. The dealer has on site experts who diagnose the problem and will tell the consumer whether it is covered by the warranty. In this case, the consumer only has to describe the problem and is not required to provide any additional evidence or technical expertise. Many stakeholders believe the same procedure should be applied to a new home.

The costs of diagnosing a problem can be high, and generally the more serious the problem, the higher the expense. I understand that Tarion is in varying stages of implementing some of Ms. Chornenki’s recommendations, including additional communications to clarify the requirements regarding onus of proof.

However, I see an opportunity to revise the onus of proof requirement and its application altogether, possibly aligning it more closely to the car warranty process. There would be some additional considerations and impacts if the onus of proof were aligned in this way. What must the homeowner do in identifying, explaining, and monitoring the defect and its consequences? Who is the most appropriate person to diagnose the problem? Should neutral third party experts be used? Who would bear the cost of such experts? I have summarized the options in Figure 5 below and I will continue to examine options and provide recommendations in my final report.

Figure 5: Options for onus of proof

• improve homeowner education, so that homeowners understand their onus to prove a defect
• revise the onus of proof so that the homeowner is only required to show evidence of credible symptoms of the problem, leaving it to Tarion to diagnose the cause of a defect

Construction Performance Guidelines

The Construction Performance Guidelines (Guidelines) were developed in 2003, as part of “Project Simplify” and updated in 2008 and 2013. I am advised by Tarion that the revisions were developed through a committee comprised of Tarion staff, industry representatives, consumer advocates, a building science expert, and representatives from the building official and home inspector sectors. The then, Ministry of Municipal Affairs and Housing, was consulted during the process.

The Guidelines are intended to assist new home owners and builders in assessing whether an item is warrantable. I am advised by Tarion that the Guidelines are the first of their kind and have since been referenced and utilized throughout North America. In particular, British Columbia, Alberta and Manitoba have each developed their own version of the Construction Performance Guidelines largely based on the Ontario Guidelines. It should be noted that the equivalent of the Construction Performance Guidelines in California are embedded within the legislation.

Stakeholders, including builders, home inspectors, and condominium boards, generally see value in the Guidelines. However some believe the Guidelines are not being followed by Tarion, while others believe Tarion is following the Guidelines too rigidly, as if they are regulations.

Many believe some areas of the Guidelines are too subjective and leave too much room for interpretation, resulting in inconsistent decision making. I heard concerns that some areas of the Guidelines are now below the standards required by the Code and should be updated to at least reflect that standard. Similarly, home inspectors suggested that the Guidelines should, where applicable, follow the higher standard of a manufacturer’s installation recommendation. Lastly, many noted the Guidelines were last updated in 2013, and that more regular updating is required to reflect current construction trends and innovations.

The Construction Performance Guidelines are an important part of the claim and dispute resolution process as the Guidelines help inform decisions as to what is or is not a defect, and what is and is not warrantable. Given their importance in the claims process, there would be value in considering a formal process for keeping the Guidelines current and relevant, reflecting new construction practices and materials. I will also consider whether there would be benefit in embedding all or parts of the Guidelines in regulation.

A summary of possible options is provided in Figure 6 below.

Figure 6: Options for the Construction Performance Guidelines

• revise the Guidelines to minimize subjective interpretations
• align the Guidelines with ongoing updates to the Code and industry construction standards
• formalize the process and timing to review the Guidelines

Conciliation inspections and Licence Appeal Tribunal (LAT)

Conciliation inspections

Many concerns were raised about conciliation inspections and the LAT process. To begin, it is important to understand how the term “conciliation” is used in the ONHWP Act and the regulations. There are concerns that the term “conciliation” is confusing. The term conciliation suggests a mediated or facilitated process when it is in fact an adjudication.

The Tarion warranty field representative (“Field Rep”) is the decision-maker and plays a pivotal role in the dispute resolution process. In many cases, the homeowner’s first in-person interaction with Tarion is through this Field Rep. The key challenge I have heard is the inconsistency in Field Rep decision making and performance across the province.

I heard of instances where the Field Rep has attempted to mediate a dispute prior to making a determination, in hopes of resolving as many issues as possible. However, I also heard from some homeowners who felt “bullied” by the Field Rep. Other homeowners felt that the Field Rep did not always have an understanding of the Construction Performance Guidelines, did not exhibit general and specific construction and building expertise, and in some cases, did not have the equipment needed to perform the conciliation inspection, resulting in inconsistent decisions and a prolonging of the process.

Tarion informed me that 85% of their Field Reps have prior residential building experience within the building industry. They told me they have addressed some of the concerns noted above, by providing training in the Construction Performance Guidelines and Part 9 of the Building Code. The Field Reps have also attained or are working towards attaining their Building Code Identification Number (BCIN). It is the belief of Tarion management that although the process does not always play out as well as it should, this training allows the Field Reps to appropriately decide issues identified at a conciliation inspection.

In addition, Tarion also advised me that in 2009, they implemented a “Work the File” initiative which aims to resolve issues between the homeowner and builder in the period between the conciliation request and the conciliation inspection. While many conciliation requests get resolved in this period, in cases that proceeded to a conciliation inspection, many homeowners expressed confusion about the role of the Field Rep at the conciliation. They did not fully understand the function being performed by the representative until it was too late.

What some homeowners described was a belief that, up to the point of the conciliation inspection, Tarion would resolve their problem. They were surprised when, at the conciliation inspection, the Field Rep became an adjudicator who no longer supported them. Their concerns were further compounded when they observed the field representative being friendly with the builder, making some feel more confused and disadvantaged. To address this, it has been recommended by Ms. Chornenki and others that the person working with the homeowner prior to conciliation, should not be the same person adjudicating the claim at the conciliation. This separation might, at a minimum, help to mitigate confusion about roles and build more trust and fairness into the process. Tarion has advised me that they are open to considering this recommendation by conducting a pilot.

In addition to this pilot, they plan to launch a related initiative to provide homeowners with clear communication regarding Tarion’s roles in the dispute resolution process. This communication will explain that Tarion will perform a meditative process, followed by an adjudicative process to resolve a dispute, so that all parties are aware of what is required of them at the various stages. Furthermore, Tarion stated that they plan to train Field Reps on how to better inform home builders and homeowners of the transition from the meditative to adjudicative process.

Tarion provided the results of a customer satisfaction survey (piloted in July 2013 with an extended rollout in March 2016) of homeowners who had received a Warranty Assessment Report, which the Field Rep prepares following a conciliation inspection. Fifty-five percent of homeowners rated their satisfaction level with the Tarion service provided during the dispute resolution process as “somewhat satisfied” and higher. It is interesting to note that a majority of the responses appear at the polar ends: 30% rated their overall experience as “extremely satisfied” and 28% rated their experience as “extremely dissatisfied”.

The comments provided by homeowners followed similar themes. Some had very positive comments about the process while others expressed significant dissatisfaction. It should be noted that there appears to be a correlation between the overall satisfaction ratings and the conciliation outcome. That is, if the homeowner did not feel they received the warranty assessment they were expecting, it may impact their rating of the overall experience.

Some builders described feeling pressure from Tarion to resolve issues for the homeowner, and of course there is always the threat of a chargeable conciliation if they do not. Since a chargeable conciliation is a long term mark upon their reputation, many builders will simply make the repairs. I heard that some builders feel pressure from Tarion to repair problems that are not warrantable in order to appease the homeowner. This results in inconsistent decision-making. From the builder perspective, this practice is inconsistent with the goals of the Construction Performance Guidelines, which are meant to introduce more certainty into the process both for home buyers and builders, and to allow for principled decision making.

I heard from homeowners, condominium boards, and the legal community that, generally, Tarion will allow the builder to determine the most appropriate repair. In doing so, these stakeholders believe the builder will often perform the “cheapest” or a “band aid” solution which can result in the homeowner or condominium corporation being left to bear the costs of maintenance or repair long after there is no longer warranty protection.

Homeowners also expressed concerns about paying a conciliation fee of $250 (plus applicable taxes) in order to request a conciliation inspection. Many felt they should not have to pay a conciliation fee given that they had already paid for the warranty coverage as part of their purchase cost. Tarion indicated the fee is there to minimize the potential for frivolous claims.

Licence Appeal Tribunal (LAT)

If Tarion determines an item is not warrantable during the conciliation process, the ONHWP Act gives a consumer the option of having the decision reviewed by an independent administrative tribunal called the Licence Appeal Tribunal, commonly referred to as LAT.

The decisions made at LAT are legally binding, although they can, in limited circumstances, be reviewed by the courts. The LAT process is intended as an inexpensive dispute resolution process and an alternative to the courts. In practice, very few of Tarion’s decisions are appealed to LAT. Tarion’s data shows that in 2015, only 82 cases out of 1,391 conciliation decisions were appealed to LAT . Of the 82 cases appealed to LAT , 16 cases required a full hearing with a LAT ruling. The remainder were settled by the parties before a LAT decision.^{footnote 9[9]}

Homeowners have described feeling significantly disadvantaged at LAT. Homeowners indicate they lack the information, technical expertise, and financial resources compared to that of Tarion and the builder. Due to high costs of legal assistance, homeowners often represent themselves against what they see as two sets of lawyers (one for Tarion and another for the builder), both of whom have been through the LAT experience before and who have ready access to expert witnesses.

In addition, when homeowners see Tarion and the builder take the same position at LAT , it furthers the impression that Tarion and the builder have a common interest against the homeowner, rather than Tarion working independently to “protect Ontario’s new home buyers”.

Costs are not typically awarded at LAT.^{footnote 10[10]} As a result, even if a decision is made in favour of the homeowner, they are not reimbursed for the costs of proceeding to LAT (i.e., hiring legal counsel or additional costs involved with hiring experts). Homeowners believe these costs should be borne by Tarion if LAT rules in favour of the homeowner.

Some homeowners noted that legal and experts fees can exceed the cost of the warranty claim under dispute. On the other hand, it is Tarion’s belief that, as a matter of principle, if it determines an item is not warrantable, it should not pay for the claim from the guarantee fund, thus protecting the integrity of the process even if the claim is for a small amount.

Builders also expressed their concerns about the LAT process. In particular, they do not believe that Tarion should add them as a party to the LAT proceeding. Builders stated that since Tarion has ruled an item is not warrantable, the dispute is between Tarion and the homeowner.

A number of homeowners and other stakeholders observed that LAT members do not have specialized knowledge in construction, building codes, or home warranties to assist them in determining issues that are often very technical and complex in nature.

Analysis and options

Other jurisdictions allow the homeowner to bring the warranty provider to an independent mediator early in the process. In British Columbia, the homeowner and the warranty provider must jointly agree on a mediator failing which one is appointed from a roster maintained by the Ministry of the Attorney General. In Saskatchewan, the timelines are similar to Ontario’s, however, the warranty provider will hire an independent expert in residential construction to investigate the claim. Disputes are often resolved in court if independent mediation does not succeed, although, it is my understanding that one jurisdiction is considering a tribunal, similar to LAT, as an option.

By way of comparison, the Canadian Auto Manufacturers implemented a voluntary independent arbitration process called the Canadian Motor Vehicle Arbitration Plan (CAMVAP). The program allows disputes between consumers and vehicle manufacturers to be resolved through binding arbitration. Each province or territory maintains a roster of independent and neutral arbitrators from which the consumer and the vehicle manufacturer jointly select. The automobile manufacturers fund CAMVAP and have a non-majority representation on their Board of Directors.^{footnote 11[11]}

I believe the conciliation inspection is a flash point in the current dispute resolution process. I understand Tarion is in varying stages of implementing some of Ms. Chornenki’s recommendations with many of the changes targeted to be implemented in 2017.

Nevertheless, a more fundamental issue may exist: Is having the dispute resolution process embedded in and overseen by the monopoly warranty provider the appropriate model?

There may be merit in an earlier independent mediation and/or binding arbitration process. This could reduce conflicts of interest, whether real or perceived, arising out of Tarion being the warranty provider, regulator, and the decision maker.

I understand Tarion will be conducting a cost-benefit analysis of independent mediation in certain circumstances. As I study this issue, I will consider whether mediation or early binding arbitration might be a more appropriate dispute resolution process at first instance. I will also consider who the mediators or adjudicators should be, how they should be chosen, and what skills should be required. These are all questions that would benefit from additional input and research.

In addition, although only a very small percentage of all claims end up at LAT , these cases sometimes gain media attention. While the process followed at LAT is outside the mandate of my Review, I will consider whether LAT is the best forum for addressing warranty disputes, and whether other dispute resolution approaches might be more appropriate. Figure 7 below summarizes some possible options.

Figure 7: Options for conciliation and LAT

• Tarion continues to adjudicate warranty claims, but modify the process (e.g., separate the role of the facilitator from the decision maker). The right of appeal to LAT remains
• remove Tarion’s role in adjudicating warranty claims. Claim adjudication is made through third party binding arbitration using technical expert adjudicators, with optional mediation as a first step

Builder’s Arbitration Forum (BAF)

Vendor/builders do not have the right to appeal Tarion warranty assessments to LAT . To respond to this, Tarion developed the Builder Arbitration Forum (BAF) where a builder can challenge a Tarion assessment on warranty or chargeability. An arbitration under BAF is between the vendor/builder and Tarion, and does not involve the homeowner. The arbitrator’s decision is final and binding. Based on data provided by Tarion, since 2011, there have been an average of 27 appeals to BAF each year.

Some homeowners questioned why the process for builders is different from the process they must follow. For example, the vendor/builder and Tarion jointly select an arbitrator from a roster of approved arbitrators, whereas at LAT , the homeowner has no input into the composition of the tribunal panel.^{footnote 12[12]} Secondly, the onus of proof at BAF is on Tarion to prove its assessment was correct. At LAT the onus of proof is on the homeowner. Some builders expressed concern that no new evidence can be submitted at BAF , except in very limited circumstances.

Of course there is a need for vendors/builders to have the opportunity to appeal a Tarion decision. However, I will consider whether the BAF process, with or without changes, is the appropriate dispute resolution approach for vendors/builders. Figure 8 below outlines the possible options for BAF .

Figure 8: Options for BAF process

• review the BAF process to consider changing the rules to permit new evidence
• align the dispute resolution process available to builders with the process available to homeowners

Consumer education

There appears to be consensus amongst all stakeholders that effective consumer education is fundamental to consumer protection.

It is important that new home buyers learn about the role of Tarion, the various warranty claim processes, proper home maintenance, the building code and who enforces it, and about the construction process itself. I often heard that even though a home is likely the most expensive purchase someone will make in a lifetime, decisions can be made under pressure and without the necessary legal, real estate, and other information. This is further compounded by homeowners often having high expectations for a perfect quality home without realizing that this is impossible given the realities of construction.

Tarion developed the MyHome Online Warranty Managerin 2009, which sends the homeowner reminders when they are approaching warranty claim deadlines. This has resulted in an uptake in the number of forms submitted electronically. I understand that Tarion is planning to add additional features and enhancements to MyHome in order to personalize the information provided to the homeowner.

However, despite these efforts, there appears to be a lack of information early in the home buying process. Homeowners currently receive Tarion’s Homeowner Information Package from their builder in digital format often just prior to, or at the pre-delivery inspection. This poses two problems: first, with the current digital format homeowners may not realize the importance of this document and may not read it. I understand that previously, Tarion provided hardcopies of the document to builders, which the builder would then provide to the homebuyer.

One reason given by Tarion for moving away from the hardcopy version was a concern that some builders were distributing outdated copies to their homeowners. Regardless, if the Homeowner Information Package is provided to the home buyer at the pre-delivery inspection, there may not be sufficient time to read, understand the information, and take appropriate action. For example, homeowners may not have considered having a home inspector attend the pre-delivery inspection – something they might have considered, had the idea been presented to them at an earlier stage. Even with sufficient time to read the Homeowner Information Package, some homeowners expressed concern that it and other reference materials do not adequately explain important issues such as the role of the pre-delivery inspection process, the conciliation process, and the onus of proof in the case of a claimed defect.

Some builders, home inspectors, and real estate agents mentioned that Tarion used to provide more information sessions for new home buyers at the community and individual condominium level. They note Tarion has decreased the number of sessions it holds for new homebuyers in the recent past. Many found these information sessions to be beneficial and have suggested that Tarion conduct them more frequently.

Others believe home buyers need to take more responsibility in researching their potential builder. They suggest home buyers research the Ontario Builder Directory, discussed in more detail later in this Report, as well as ask for references and visit developments where the builder has built homes. The home buyer should also become knowledgeable about the warranty coverage and process at the outset. This could include making it mandatory for the home buyer to review and sign off on documents providing key information at an earlier stage in the buying process.

While home buyers receive most warranty information from their builder, there are many others involved in the home buying process from whom homebuyers could receive information. This might include real estate agents, lawyers, and home inspectors. The role each plays in educating the home buyer varies, but it is worth considering how each might help to increase a homebuyer’s level of understanding and awareness about their purchase, home maintenance generally, and more specifically, about the new home warranty program. I understand Tarion is currently working to better educate and engage real estate agents, and I would like to understand how this could be done, more broadly.

This problem of getting the right information to the home buyer at the right time is not unique to Ontario. One of the jurisdictions I reviewed, provides detailed information on its website about the warranty coverage, and the dispute resolution process in easy to understand plain language. Nevertheless, I am advised that despite having the information readily available, there are still challenges in getting the information into the hands of the new home buyer at the right time.

I have no doubt that home buyer and homeowner education is essential to improving the warranty process for new home owners. I understand Tarion is currently undertaking a communications audit to review and implement new ways to better inform both consumers and builders of their processes. As a first step, Tarion recently launched a redesigned website. I identify several options to further improve consumer education in Figure 9 below.

I recognize there may be additional opportunities to better inform consumers and I welcome further feedback as I continue to explore and evaluate options before making recommendations in my final report.

Figure 9: Consumer education options

• Tarion continues to improve its communications with homeowners and engages other parties in educating consumers about the warranty program
• require partners in the new home building and buying process (e.g. builders, real estate professionals, home inspectors) to educate consumers about the new home warranty program
• establish a Consumer Advisory Office or Chief Customer Experience Officer to help consumers navigate the warranty claims process

Warranty coverage and duration

Currently, the maximum statutory coverage available for a claim with respect to new homes is $300,000 and up to $2.5 million for common elements in a condominium. There are one and two year warranties providing protection against certain defects in work and materials and other matters, as well as a seven year warranty covering major structural defects (MSD).

In addition, the warranty program provides up to $40,000 for deposit protection on freehold homes, $20,000 (plus interest calculated in accordance with the Condominium Act, 1998) for condominium units and up to $7,500 for delays in closing/occupancy.

Many I spoke with expressed concerns about the coverage levels and duration of the warranty. Homeowners in the Greater Toronto Area expressed concern about the coverage limits given the rising cost of homes. However, homeowners elsewhere in the province felt the coverage limits were sufficient. Many in the industry, as well as Tarion, noted that the rising cost of homes has more to do with the rising cost of land than the cost of the home itself, and therefore saw no need to increase the limits.

Homeowners across the province suggested extending coverage for water penetration and for major structural defects from two to five years and seven to 10 years respectively. Condominium boards thought the definition of major structural defects should be broadened.

There has been recent media coverage concerning the adequacy of deposit protection limits generally. There may be some urgency to addressing this issue. Similarly, I heard concerns about the sufficiency of the $7,500 maximum for delayed closing or occupancy.

While some warranty coverage changes would require an amendment to the ONHWP Act, Tarion does have the authority, through regulations, to make changes to the content, duration, and liability limits of the warranty coverage. Tarion informed me its senior management team reviews the appropriateness of the warranty coverage and duration on a quarterly basis. The review includes, but is not limited to, analyzing previous claims data to determine if any type of defect is consistently over the limit, assessing changes in construction costs, reviewing other jurisdictions, and completing a cost benefit analysis.

Tarion has made changes to the limits in the past, including increasing the limits on deposit protection for freehold homes to $40,000 in 2003, and increasing the maximum liability per home to $300,000 in 2006. Tarion indicated there are a number of areas it is currently reviewing and evaluating, including revisiting the limits for deposit coverage for freehold homes. Tarion also advised it is reviewing its informal repair warranty policy, substitution warranty, as well as possibly introducing a new warranty to reimburse homeowners for relocation costs, where deficiencies force the homeowner from the home for health and safety reasons.

Tarion informed me that in exceptional circumstances, it may make payments out of the guarantee fund that exceed the maximums payable. These over-limit payments can only be made if approved by Tarion’s Corporate Leadership Team and the Board of Directors. I understand Tarion has only exceeded the limits once in the last three years. This process should perhaps be reviewed further, including a review of the guidelines and the authority for such payments.

When compared to other jurisdictions, Tarion not only provides comparable warranty coverage but some of the highest dollar maximums in Canada. It is, however, challenging to make precise comparisons because the cost of homes varies across Canada and the definitions are not necessarily the same. For example, British Columbia defines a major structural defect differently from how it is defined by Tarion. Acknowledging that there are differences in what might be captured as a major structural defect, it is worthwhile to note that British Columbia, Alberta, Atlantic Canada, New Jersey, and the UK all extend warranty coverage to 10 years for major structural defects and British Columbia and Alberta extend coverage to five years for water penetration.

I understand by increasing warranty coverage and duration, there is the risk of warranty costs increasing, costs that are often passed on to the consumer. I would like to obtain a more in-depth understanding of Tarion’s quarterly warranty review process. Specifically, whether the reviews consider the appropriate criteria, whether additional criteria should be required, and an understanding of the rationale for not increasing the limits in some time. I believe there may be an opportunity to customize the level of warranty and deposit coverage, and duration based on building type and geography. Figure 10 below summarizes some options. I will continue to review this and will present recommendations in my final report.

Figure 10: Options for warranty coverage and duration

• modify Tarion’s process for assessing the warranty program coverage, amounts, and duration
• customize the warranty and deposit coverage based on building type and geography

Regulation of builders and vendors

As mentioned previously, Tarion is the regulator of new home builders and vendors in Ontario. Tarion has a role in ensuring that builders are qualified and that incompetent builders are disciplined appropriately. This is a critical aspect of the system because Tarion plays a pivotal role in controlling and monitoring those who build homes in Ontario. Additionally, Tarion has a role in protecting the public interest, by monitoring and addressing building quality and service at the outset to prevent, or at least minimize, downstream issues for new home owners.

I had the opportunity to look at other regulators of various industries/sectors in Ontario.  I found other regulators are moving towards a risk-based approach to manage their respective sectors using modern compliance tools to achieve better compliance results. I look forward to exploring this in more detail as part of the next phase of my review.

The section below describes the various components of builder/vendor regulation.

Initial registration and renewal requirements

Anyone planning to build and/or sell a new home (with limited exceptions) in Ontario must be registered with Tarion and must enroll the new home into the statutory warranty program. The initial vendor/builder registration fee is currently $2,500 with an annual renewal fee of $500. All builders and vendors pay the same amount regardless of their past performance or volume of business.

The ONWHP Act and Regulation 894 in conjunction with Builder Bulletins 28, 30R, 35 and 43 set out Tarion’s terms and conditions for new home vendor/builder registrations.

These requirements include completing an application form, an interview, and a 30 question multiple choice test on common claims and construction practices.^{footnote 13[13]} Some builders expressed concern that almost half the requirements have to do with the builder’s financial resources, such as providing a personal net worth statement and up to date financial statements, as opposed to a demonstration of knowledge of construction practices and issues in Ontario. In addition, many small builders expressed concerns about Tarion’s Bulletin 28 Program Requirements For Receipt and Release Of Security. This allows Tarion to request security from the builders upon registration and renewal.^{footnote 14[14]} According to Bulletin 28, the amount of security is based on a risk assessment (e.g., size, tenure, building technical skills, financial information of the builder), which is intended to ensure that registered builders are able to meet all financial and warranty obligations. However, many small builders find the security costs prohibitively high, making registration with Tarion difficult.  Under Bulletin 28, the security can range from $0 - $40,000 per new home unit. Builder Bulletin 28 was last updated in 2003 and I understand it is currently under review by Tarion.^{footnote 15[15]}

In 2015, Tarion introduced additional registration requirements for new applicants including seven educational competencies. Some builders believe this is a positive move by Tarion, while others expressed concerns that the new education requirements are too academic and will prevent many talented tradespeople from entering the industry.

Builders are also required to renew their registration on an annual basis. This includes paying applicable fees, completing the renewal registration form, and may include updating documents, personal net worth statements, financial statements, and other disclosures. Some builders commented that the current registration and renewal process is too onerous, complicated, and as a result, creates a barrier to entry for small builders in Ontario.

Of the jurisdictions reviewed, all either register or license builders. To obtain a builder’s licence in British Columba, a builder must submit to the Housing Protection Office, evidence of certain conditions having been met, including acceptance from a third party warranty provider, a list of any homes completed, a list of professional courses taken relating to new home construction, and a list of any convictions and/or fines imposed. Effective March 4, 2015, British Columbia introduced an enhanced licensing system for residential builders. The primary change requires the builder to demonstrate proficiency in seven areas related to residential construction, which are similar to the seven areas required for new builders in Ontario (discussed in more detail in the next section). It is worth noting that there are minimal requirements to prove financial viability in order to obtain a licence in British Columbia. With a third party provider system, however, some of that inquiry will be made by the insurance provider. The cost to obtain a licence in British Columbia is $600 with an annual $500 renewal fee.^{footnote 16[16]}

The focus of the current Ontario registration and renewal process appears to be on financial viability, a focus that may make it more challenging for new builders to enter the market. There may be opportunities to implement additional risk based approaches to assess builder capability. I have outlined some preliminary options in Figure 11 below and will continue to look more fully at this in the next phase of my review.

Figure 11: Options for initial registration and renewal

• reform Tarion’s risk based registration approach to evaluating builders to ensure it reflects the diversity of builders in the sector
• establish different classes of builders based on builder size and home type

Builder education

As mentioned previously, effective September 1, 2015, Tarion requires new applicants proposing to build residential freehold and low-rise condominium projects to complete seven educational competencies.^{footnote 17[17]} The seven competencies are:

• business planning and management
• financial planning and management
• project management and supervision
• legal issues in housing
• building Codes in Ontario
• construction technology
• customer service and Tarion requirements

It should be noted that these competencies are only required for new applicants as existing registrants are exempted. Since the education requirement is based on registration of a vendor/builder and not the individual, there is a risk that a builder could bypass the education requirements by acquiring control of a corporate entity with an existing registration.

As I have stated, some members of the building community expressed concern that the new education requirements may deter new builders from entering the market. It was suggested that a risk-based mentoring and inspection program could be used to monitor new builders.

Some builders raised concerns that currently there are no requirements for some tradespeople to complete formal training. These builders acknowledged that although the accountability for home building rests with them, the quality of a home may vary depending on the skill of the tradespeople involved. They noted there may be an opportunity for Tarion to work with builders to better train tradespeople.

Tarion does not require registered builders or vendors to complete continuing education. In British Columbia, the Home Protection Act requires builders to complete continuing education credits in order to renew their licence. The regulations are explicit about the competencies, and how the course must be delivered, in order to meet the continuing education requirements.

There may be an opportunity to increase education requirements in order to improve the quality of residential construction in Ontario, giving home buyers even greater confidence that their homes have been built to a high standard. Further analysis will be required to determine what these education requirements should be, whether there should be continuing education, and to whom they should apply, while ensuring they do not prevent competent builders and tradespeople from entering the marketplace. I have outlined some options in Figure 12 below and I look forward to receiving additional ideas on this topic in the next phase of my review.

Figure 12: Options for builder education

• extend the current educational requirements to existing builders, phasing in this requirement over time
• implement an education curriculum based on apprenticeship / practical requirements
• require mandatory continuing education

Compliance tools

Tarion expressed concern about the limited compliance tools it currently has available to regulate the building industry.

The primary sanction it has is the revocation of a builder’s registration. In many cases, however, this might be too extreme a response. Tarion currently has other means available for regulating builders. These include issuing a chargeable conciliation, increasing security requirements, restricting the maximum number of homes a vendor/builder is permitted to build, and the ability to inspect, with any inspection fee payable by the builder. I would like to better understand how Tarion uses these tools.

However, Tarion has expressed an interest in having additional compliance tools that could be used depending on the severity of the offence, including but not limited to: compliance orders, administrative monetary penalties, broader powers to require documentation and explanation from registrants, and expanded authority to review records and conduct inspections of a registrant’s business.

Most builders told me that the chargeable conciliation is an effective compliance tool. As defined in Bulletin 20 How Chargeability is Defined and Applied, a chargeable conciliation is a consequence to the builder if Tarion decides a conciliation inspection could have been avoided had the builder made the repair. ^{footnote 18[18]} When Tarion makes a decision that a conciliation is chargeable, the builder must reimburse Tarion for conducting the conciliation, and the builder’s record in the Ontario Builder Directory is updated to reflect that the builder has received a chargeable conciliation. This remains on the builder’s record for 10 years. Since a chargeable conciliation has a long-term impact on a builder’s reputation, I am told that many builders will go above and beyond to avoid one.

Some builders mentioned that Tarion’s Homeowners’ Choice Awards is a positive reinforcement tool. Builders, I am advised, compete to be recognized for customer service excellence.

Other jurisdictions, such as British Columbia, Alberta, and Manitoba provide the regulator with compliance tools such as compliance orders and administrative monetary penalties. I observed that Quebec takes a different approach to compliance. It implemented a risk-based inspection program that rates contractors, taking into account the results of previous inspections, the number of claims and satisfaction surveys to name a few. Depending on the rating, the inspection frequency will be inversely proportional.

I agree that having only a few options available to regulate all builders may be limiting, especially when the ultimate sanction is to take away a builder’s registration. The question then becomes what tools should be made available? Should the emphasis continue to be on compliance and disciplinary tools or risk-based preventative measures? I have summarized some preliminary options, which are not mutually exclusive, in Figure 13 below, and will continue to consider these options before I provide recommendations in my final report.

Figure 13: Options for compliance tools

• Provide additional enforcement tools (e.g., compliance orders and administrative monetary penalties) to achieve compliance
• Implement a risk-based approach to compliance (e.g., conduct inspections with frequency related to past performance and implement a sliding scale for enrollment fees based on past performance)

Builder Directory

Tarion maintains the Ontario Builder Directory (Directory). This allows home buyers to research builders including company information, the history of homes built, any history of offenses including chargeable conciliations, the number of claims, and the aggregate dollar value of those claims.

However, many homeowners expressed concerns about the accuracy and completeness of the Directory, stating it misleads the consumer about a builder’s performance. I heard about instances where Tarion assessed a disputed item as warrantable during the conciliation process, but did not register a chargeable conciliation against the builder. Homeowners were confused as to why their builder did not have a chargeable conciliation showing on their record, causing them to lose faith and trust in the overall system. By not charging the vendor/builder, some homeowners are left thinking Tarion protects the builder.

As noted previously, on average over the last five years, approximately 50% of claims paid did not have a corresponding chargeable conciliation. The reason for this, Tarion advises, is that there are some approved exceptions to a chargeable conciliation as outlined in Builder Bulletin 20. These exceptions exist because there may be situations where the builder “would/could have complied with their customer service obligation, but through no fault of their own was unable to do so.”^{footnote 19[19]} There are seven stated exceptions to a chargeable conciliation including, denied access, reasonable repair and/or cash settlement refused, and warranty decision overturned by LAT or the courts.^{footnote 20[20]} Some stakeholders, including homeowners, indicated they would like Tarion to display the reason for a chargeable conciliation on the Directory.

I heard that the Directory can be difficult to navigate, and it can be challenging to find a builder who might be registered under multiple names. Registrations expire and often new companies are registered.

Tarion does not consider the Directory to be the only source of information about a builder. As stated on its website, Tarion recommends new home buyers canvass a variety of sources for information about a builder:

“This information will give you some insight into a builder’s performance, but it does not represent a complete picture of their service record. When selecting a builder, new home buyers should look at a broad range of sources. Other ways you can research a builder include asking for references and visiting developments where they have built to find out how satisfied homeowners are with their home and their experience with the builder.”^{footnote 21[21]}

Maintaining as complete and accurate a Builder Directory as possible, is an important role to be carried out by Tarion as regulator, and as an organization entrusted with protecting new home buyers. While exceptions to conciliations being charged against a builder are set out in Builder Bulletin 20, this may not be easily accessible to new home buyers and owners.

It may be that the Directory system needs to be refined to more accurately reflect the nature of the chargeable conciliation. For example, it could include a point system or some other rating system, in order to minimize the exceptions that currently exist. I would also like to consider further the possibility of developing performance metrics for builders that would be published by means of a scorecard. I have summarized some of the potential options in Figure 14 below.

Figure 14: Options for Builder Directory

• review the appropriateness of the exceptions to chargeable conciliations and improve the transparency of how an exception is determined
• develop a rating system for chargeable conciliations to acknowledge not all chargeable conciliations are based on the same degree of defect or builder failure
• develop a system allowing the tracking of builders registered under multiple names, including the individuals involved in each registration
• publish builder scorecard and performance metrics

Board governance

During my review, I spoke with a number of past Tarion Board members. Most noted that the composition of the Board of Directors has changed significantly over the past decade. Previously, a majority of the Board was made up of builder representatives, however, more recently, the composition of the Board has diversified. Tarion’s by-laws provide for a 16 member Board, of which eight members are nominated by the Ontario Home Builders’ Association (OHBA), and five members are appointed by the Minister of Government and Consumer Services. One of those appointees is a senior official employed by the Government of Ontario. The three remaining members are nominated by the Board’s Nominations Committee.^{footnote 22[22]} However, despite the change in the composition of the Board, there are many who perceive that the Board is still builder dominated. As a result, they believe the Board is motivated to favour builders rather than homeowners. I note the boards of other self-regulated sectors, including the boards of the Ministry’s other Administrative Authorities, have industry representation.

Some builders expressed concern that non-builder Board members do not have sufficient industry knowledge to perform their duties. Some recommended that all Board members should be vetted by the Board, including the Ministerial appointments, in order to ensure the right mix of skill sets and experience. Others suggested that a diversity of industry groups should be represented on the Board, including engineers, architects, and building inspectors. I did learn during a meeting with Tarion’s Board that they do inform the Ministry as to the type of appointments they require when vacancies occur.

Board members, I should point out, are not meant to represent the interests of various groups, but rather to bring different perspectives to help the Board in meeting its fiduciary and legal obligations. Some homeowners and others suggested there should be strong representation on the Board from consumers who have had experience with the new home warranty process. I should note that the Consumer Advisory Council does include such individuals.

I also heard concerns about the election of the Chair and Vice-Chair by the Board of Directors. Some believe the Chair and Vice-Chair should be appointed by the government. Tarion’s Board, on the other hand, believes it should continue to elect the Chair and Vice-Chair.

The current Tarion Board has strong views on board governance. They see the Board as a cohesive group and believe the current composition works well. Several non-builder members (who sit on multiple boards) told me that the current Board is one of the most effective and independent boards they have been a part of. Board members appear to be united in their view that the Board is fair and consistent. They also stressed to me that despite public perceptions, consumer and builder interests are effectively balanced. In my review of other regulators, I learned about the composition of their boards. For example, some self-regulated sectors, including other Administrative Authorities, are constituency-based while others are skills-based.

Getting the Board composition right is critical and I want to recognize the improvements made in this area in the last decade. However, based on what I have heard, rightly or wrongly, the perception continues that Tarion is a builder friendly organization.

Some changes to board composition and member selection may be warranted. Figure 15 below outlines some possible options for the board composition, member qualifications, and how they might be selected. The options below assume Tarion’s business model does not change significantly. Additional options may be appropriate should it be recommended that the overall business model change substantively.

Figure 15: Options for board governance

• diversify the composition of the Board to include representation from other industry professionals (e.g., engineers, architects, building officials, and home inspectors)
• require that the Board composition be based on a pre-defined competency matrix that clearly describes the skills and expertise needed to ensure that they are able to fulfil their fiduciary duties to Tarion
• examine the role of government in the selection of Board members and Chair of the Board

I look forward to exploring these areas in more detail in the next phase of my review and will make recommendations in due course.

Accountability, transparency and oversight

Many people I met spoke of a desire for greater accountability, transparency, and oversight. This was especially noted by homeowners, many of whom spoke of Tarion as a government agency acting on their behalf, and wondered why the government did not play a more active role. The three topics that arose most frequently were external oversight, government’s role, and public disclosure requirements which are discussed below.

External oversight

Currently, the Ontario New Home Warranties Plan Act does not give the provincial Ombudsman or the Auditor General oversight of Tarion. However, in response to consumer concerns, in 2009, Tarion established the position of internal ombudsperson, reporting directly to the Board of Directors. The mandate of Tarion’s ombudsperson is to “receive, investigate, and resolve complaints from homeowners about Tarion’s conduct and whether it accords with Tarion’s own practices and procedures.”^{footnote 23[23]} While some expressed the belief that because the office of the internal ombudsperson is effectively a part of Tarion, it cannot be impartial or independent, others had high praise for the work of the ombudsperson.

Most administrative authorities in Ontario do not fall under the jurisdiction of the provincial Ombudsman or the Auditor General. In British Columbia, Alberta, and Manitoba, only the regulator, not the warranty providers, is subject to the oversight of their Ombudsman and Auditor General. It may be that additional external oversight is needed. It will be necessary to consider whether the provincial Ombudsman or Auditor General would be able to bring sufficient focus to the specific concerns of new home buyers and owners given their already extensive mandates.

Some suggested implementing an independent compliance officer or consumer advocacy office. Before I make recommendations, I would like to consider what their mandates might be and how they might interact with the public, Tarion, and government. I would like to consider how their independence would be maintained, including how they might be funded. Figure 16 below identifies some possible options with respect to external oversight and I look forward to developing these options further in the next phase of my review.

Figure 16: Options for external oversight

• develop mechanisms that allow Tarion’s current ombudsperson to be more independent
• require external independent oversight (e.g., consumer advocacy office, compliance officer, Ontario Ombudsman, Auditor General)

Government’s role

As already mentioned, Tarion is an independent not-for-profit corporation operating under an Accountability Agreement with the Ministry of Government and Consumer Services. As a result, Tarion functions in many respects as an administrative authority with oversight provided by the Ministry. Currently, the Ministry oversees eight other administrative authorities. The ONHWP Act pre-dates the current administrative authority structure and consequently, Tarion’s administrative oversight model is similar to, but different in important respects, from the other eight administrative authorities.

One characteristic unique to Tarion, is its ability to make by-laws, which are deemed to be regulations. Many I spoke with expressed concern about Tarion’s ability to make the rules, as well as act as regulator, the warranty provider, and adjudicator. Some believe the rule making function should be transferred to the government. Some builders on the other hand, believe that government should have less of a role to play in the rule making process.

Of the jurisdictions reviewed, Tarion appears to be the only program administrator with authority to make regulations. In all other jurisdictions where there is governing legislation, the government is responsible for developing regulations. In those jurisdictions the government is also the registration or licensing body for builders. Tarion’s rule-making authority covers substantive provisions around the actual content and extent of the warranty. It also covers the more regulatory aspects such as education and security requirements for builders and vendors.

Tarion, similar to other administrative authorities, pays an oversight fee annually to the Government of Ontario. My understanding is the purpose of the fee is to offset the government’s cost in overseeing Tarion’s operations including assessing compliance, as well as reviewing and responding to stakeholder concerns. In 2015, the oversight fee was $288,000. ^{footnote 24[24]} Some have expressed concerns about the value for money of the government’s oversight function.

As I consider the appropriate business model for the warranty program, I will consider the role of government and share my recommendations in my final report. Figure 17 below outlines some possible options.

Figure 17: Options for government’s role

• align Tarion’s Accountability Agreement with government with those of other administrative authorities (e.g., requirement to submit business plans to government and consult with government on amendment to by-laws relating to board governance)
• review Tarion’s unilateral ability to make regulations
• increase transparency regarding the government’s oversight function

Disclosure of information

Another area of concern for many is the lack of compensation disclosure at Tarion. Many believe that Tarion should abide by the Public Sector Salary Disclosure Act, 1996 (commonly known as the “Sunshine List”). They believe this because Tarion is an agency entrusted with administering a statutory warranty program, which is funded by enrolment fees that are typically paid by consumers. In addition to the lack of public disclosure of compensation, Tarion is not required to disclose this information to the Minister. It should be noted that none of the other administrative authorities in Ontario are currently subject to compensation disclosure requirements. Figure 18 below identifies a possible option. I will continue to review the question of compensation disclosure and will present recommendations in my final report.

Figure 18: Option for disclosure of information

• increase disclosure of compensation information (e.g., to the general public and/or Minister)

Other

A number of other issues were raised during my review. These include the lack of clear definitions in the ONHWP Act, illegal building, and the need for more condominium specific provisions in the legislation. Also discussed were questions about Tarion’s organizational structure, the lack of Tarion representation in smaller communities, and the lack of transparency regarding Tarion’s Consumer Advisory Council and builder liaison committee. These are discussed in some detail below.

Definitions in the ONHWP Act

During my discussions with homeowners, builders, the legal community, Tarion and others, I heard about the ongoing challenges with the interpretation of some of the definitions in the ONHWP Act.  I understand that over the years, building practices have changed and it may be timely to review some of the key definitions and concepts to add greater clarity and specificity.  Some of the definitions and concepts that may require attention include, but are not limited to: “new home”, “builder”, “vendor”, “owner-builder” and certain homes such as model homes, cottages, and manufactured homes that are excluded from warranty coverage.

For example, it was suggested that the definition of “builder” should include a “project manager” so as to be clear that a home built by a project manager has warranty coverage.

Having clear definitions in the ONHWP Act and its regulations is important to ensure consistent application of the law. Other provisions of the ONHWP Act and its regulations could also benefit from a review. I have identified an option below in Figure 19.

Figure 19: Option for definitions in the ONHWP Act

• update and clarify key aspects of the ONHWP Act including definitions and concepts

Illegal building

The topic of illegal building came up on more than a few occasions during my Review. Currently, owner-built homes are exempt from warranty coverage. This is a situation where the owner has supplied all or substantially all of the work, and/or material to construct the home. This means the owner who builds the home does not need to be registered with Tarion as a builder, and does not need to enroll the home in the warranty program. However, once the home is completed, there is nothing to prevent the owner-builder from selling the home to a third party. Should the home have defects, there is no statutory warranty coverage available to protect the new home owner. According to a number of builders, there are individuals across the province who are taking advantage of this exemption to avoid paying registration and enrolment fees to Tarion, as well as avoiding having to provide security as part of a registration requirement. There may as well be taxation issues. This practice of building a home as owner but intending to sell it to a third party is sometimes referred to as illegal building.

It is Tarion’s position, indeed its mandate, that all homes in Ontario meet the definition of a “new home” and have warranty coverage, even if the home is built illegally. In 2015, Tarion paid over $2 million in claims on illegally built homes.^{footnote 25[25]} Many builders believe Tarion should not pay warranty claims on illegally-built homes. This is because it comes out of the guarantee fund which is funded through registration fees paid by registered builders and enrolment fees. They believe paying these claims encourages illegal building.

Tarion advised that it is responding to this problem in three ways. First, it is seeking to deter the practice with an enforcement team. This team consists of seven investigators, mostly former police officers, tasked with investigating illegal building activity. The 2015, the Tarion Annual Report notes that their efforts led to 105 convictions in provincial court and fines of more than $330,000. Two builders were imprisoned. ^{footnote 26[26]} Some stakeholders, including builders and real estate lawyers, believe there should be a more proactive approach to stop illegal building from occurring in the first place. They see an opportunity to provide broader and more detailed disclosure about builders who have been convicted. Indeed should the focus be on enforcement or better regulation at the front end?

Secondly, Tarion advises that it is implementing preventative measures. In 2015, it partnered with the Ontario Building Officials Association (OBOA ) and the Ontario Home Builders’ Association (OHBA ) in launching a voluntary pilot program requiring individuals to obtain verification and documentation from Tarion, before obtaining a municipal building permit. This program has been implemented in 14 municipalities and Tarion advises that initial indications show the pilot to be successful. I understand Tarion continues to work with the Ministry of Municipal Affairs in seeking to have this model adopted more formally across the province.

Thirdly, in communities more prone to illegal building, Tarion has responded with an awareness campaign for home buyers, aimed at helping them understand the risks associated with buying a home from a builder not registered with Tarion.

In the longer term, many including Tarion would like to consider changing the owner-builder exemption itself.

I have outlined some possible options to address illegal building in Figure 20 below.

Figure 20: Options to address illegal building

• consider options for advising buyers on whether there is statutory warranty coverage on the home (e.g., through the home’s title, agreement of purchase and sale)
• remove the owner-builder exemption, requiring all builders to be registered and all homes to be enrolled with the warranty program
• formalize the process with the Ministry of Municipal Affairs and integrate related legislative requirements to require proof of registration or exemption prior to obtaining a building permit

I will continue to evaluate these various options and provide recommendations in due course.

Condominiums as distinct from other new homes

The number of condominiums being built in Ontario has generally increased.^{footnote 27[27]} During the course of my review I have come to appreciate the unique requirements for condominium development as compared with new homes. For example, a professional engineer must inspect the condominium structure during construction. This is not the case for freehold homes. Additionally, condominiums have common elements, such as the lobby or garbage room with a unique claims process and repair periods.
It has been noted that the specific rules for condominiums are embedded alongside the rules for freehold homes in the ONHWP Act. It has been suggested that a new section within the ONHWP Act be dedicated to condominiums. It has also been suggested that a review of the condominium provisions be undertaken to ensure they align with the Condominium Act, 1998.

Some have expressed concerns about warranty coverage on condominium conversion projects, condominium projects intended for use as rental property, and common elements in mixed-use developments (e.g., shared with office or retail space). I understand that the Protecting Condominium Owners Act, 2015, which received Royal Assent in December 2015, includes amendments to the ONHWP Act so that many of the warranty protections available to buyers of new condominiums would also apply to certain conversion projects.^{footnote 28[28]}

Alignment with Ministry of Municipal Affairs (MMA)

Within government, the Ministry of Government and Consumer Services is responsible for the ONHWP Act and the Ministry of Municipal Affairs is responsible for the Building Code Act, 1992, and the Building Code. If there is a systemic building code violation issue, Tarion will work with both ministries to resolve the issue. This can result in delays in responding. Tarion commented that they have a strong working relationship with OHBA , however, they also believe there are opportunities for improved communication and sharing of information.

I heard concerns about homes passing a municipal inspection, only later to have it determined that the home did not meet the Code. I was advised that, in some instances, the builder and Tarion denied the warranty claim on the basis that the home had passed the municipal building inspection even though there had been a Code violation. According to the survey conducted by Canadians for Properly Built Homes, 90% of the respondents (94 people) stated their home had a Code violation. Of these 94 people, 99% (93 people) reported that Tarion and/or their builder failed to resolve the Code violation to their satisfaction.

I also heard that due to resource constraints in some municipalities, building officials will only perform spot checks. In addition, some told me there is inconsistency in how inspections are conducted, partly as a result of how different municipalities interpret their responsibilities and obligations under the Code. Tarion advised that since 2008, it no longer relies solely on the building official’s report for claims relating to Code violations.

During my review, I visited a condominium in downtown Toronto where purchasers have taken possession and are living in their units despite the fact that significant construction is ongoing at the site. I was surprised the units could be approved for occupancy despite the level of ongoing construction and incomplete common elements.

The quality of municipal inspections, like the quality of design and construction, may have an impact on Tarion’s exposure to claims, as the more thorough and effective the inspection, the lower the likelihood of defects remaining undetected.

I believe there may be opportunities for better alignment between Tarion and OHBA and look forward to learning more about this in the next phase of my review.

Inspections

There are requirements for municipal building official inspections of freehold homes during construction, however, there is no requirement for Tarion inspections of freehold homes during construction. While subsection 18(2) of ONHWP Act gives Tarion the power to inspect during construction, Tarion has elected not to do so for freehold homes. In contrast, I understand that private insurers in other jurisdictions do conduct inspections of freehold homes during construction. When I raised this with Tarion’s senior management team they told me that the primary reason for not conducting inspections on freehold homes is that it is not cost effective. Tarion noted that several inspections already take place during the construction process (e.g., electrical inspection, health and safety inspection) and that additional inspections would have a marginal benefit. However, they did acknowledge there might be value in additional inspections for high risk builders.

Due to the complexity of condominium construction, Tarion introduced Bulletin 19R Condominium Projects: Design and Field Review Reporting in 1995 (revised in 2001).This bulletin sets out the requirements for reports and information to be provided to Tarion by Field Review Consultants and the vendor/builders of ‘Designated Condominiums’.^{footnote 29[29]} These inspections and associated reporting requirements must be completed by an independent Field Review Consultant, and reports submitted to Tarion at certain milestones during the project. Condominium, architect, and home inspector groups expressed concerns about the independence of the Field Review Consultants, as they are paid by the builder/vendor. Architects also expressed concerns about some Field Review Consultants having the skills necessary to understand architectural designs and building plans. I have summarized some preliminary options below in Figure 21. I look forward to developing these options further in the next phase of my review.

Figure 21: Options for inspections

• implement proactive inspections for all building types
• review how Field Review Consultants are retained including qualification requirements

Organization structure

Tarion currently has approximately 220 employees within eight departments. The largest departments are Warranty Services and Licensing and Underwriting with 94 and 43 employees respectively. The largest administrative departments are Information Technology and Legal with 25 and 16 employees respectively. There are two executive positions and nine vice presidents (Refer to Appendix E Tarion Organization Chart for additional details).

A number of people expressed concerns about the size of Tarion, seeing it as an enlarged bureaucracy. In their view, this can lead to confusion and difficulty for consumers and builders when navigating their way through the warranty claims process. Some expressed concern that the organization is very “top heavy” and questioned its overall efficiency and effectiveness. Many see an opportunity to simplify Tarion’s current administrative structure, eliminate redundancy, and improve service delivery, by enhancing communication with builders, stakeholders, and importantly, consumers.

Regional offices

Industry professionals outside of the Greater Toronto Area expressed concerns about the removal of local Tarion field representatives. Currently there are two regional offices outside of the GTA: Ottawa and London. I understand that previously Tarion had local offices throughout the province, and that representatives would regularly interact with the local building community. This was beneficial as it allowed the building community to respond to local homeowner and industry issues in a proactive and timely manner. With the removal of these regional offices, issues are not being resolved in as timely a manner, resulting in more unhappy homeowners. These builders commented that while it may not be cost effective to maintain full time regional offices in some of the smaller communities, perhaps a dedicated individual could visit the smaller regions a few times each month, maintaining and fostering local and regional knowledge and relationships.

Consumer Advisory Council (CAC ) and the builder liaison committee

I met with the Consumer Advisory Council (CAC ), which serves as an advisory body to the Board's Consumer Committee. Its purpose is to provide advice and external expertise, from a home buyer’s perspective, on proposed Tarion policy changes. It is comprised of 13 volunteers who apply, are selected by the Consumer Committee, and who serve three year terms, up to a maximum of three terms. The CAC ’s terms of reference stipulate the composition of the CAC . It is to include two new home buyers who are or have been members of a condominium board and have had experience with Tarion, two new freehold home buyers who have experience with the Tarion warranty process, a retired chief building official, real estate lawyers, and other industry experts who have had direct dealings with consumers. The CAC meets quarterly to discuss current issues. Some of the issues they have discussed, and for which Tarion has implemented changes include, but are not limited to: retrofit buildings, measuring square footage, delayed closing, and warranty period on repairs.

Some homeowners observed the committee members are anonymous and as a result are not accessible to the public. While some CAC members believe their names should be listed on the website, others believe their role in providing advice to the Tarion Consumer Committee does not extend to engaging directly with the public and that posting their names publicly would not enhance their ability to carry out their responsibilities.

I also learned of, but did not meet with, the builder liaison committee. I understand this committee meets regularly with senior management to discuss current issues. There is no public disclosure of who is on the committee, what is discussed, and what the outcomes are. Some suggested there might be benefit to having the members of the builder liaison committee attend CAC meetings and vice versa. Additionally, some suggested that the meeting agendas and minutes from the CAC and builder liaison committee meetings be made public to increase transparency.

During the next phase of my review I look forward to learning more about the CAC and the builder liaison committee including how issues are identified for their consideration, and how their input is communicated to and used by Tarion. Some potential options for the CAC and builder liaison committee are set out in Figure 22 below.

Figure 22: Options for Consumer Advisory Council (CAC ) and builder liaison committee

• improve disclosure regarding the CAC and builder liaison committee (e.g., meeting agendas, minutes)
• require that members of the builder liaison committee attend the CAC meetings and vice versa