What Is Tarion?

The Ontario New Home Plan – How to Practically Manage and Navigate the System for Condominium Corporations (3 part series)

Part 1:  For a new condominium corporation, in order to practically and effectively manage the Tarion process, we need to start with the question, what is Tarion?

Tarion, formally known as the Ontario New Home Warranties Plan (or “ONHWP”) is responsible for administrating the Ontario New Home Warranties Plan Act (the "ONWHP Act") in the Province of Ontario. The ONWHP Act creates the standards to which new construction in Ontario must be built. It is different than the Ontario Building Code but, practically, the two mesh. Tarion’s statutory role is to ensure that the builders abide by ONHWP Act. Tarion is obligated to protect consumers, if builders fail to satisfy their construction warranty obligations. Tarion was created by the builders to create a level of “safety” for purchasers of new construction real estate in Ontario.

Tarion is, therefore, an insurance program for builders. Condominium corporations and unit owners must prove their claims in order to be covered by the warranty offered by Tarion.

What is covered? Generally, for condominium corporations, all new residential construction is covered. However, there are exceptions, specifically, conversions, vacant land condominiums, commercial condominiums and common element condominiums are not covered but the POTLS (Parcels of Tied Land) are usually covered. Condominium corporations are responsible for managing Tarion claims in respect of common elements (only) – condominium corporations do not manage Tarion claims in respect of units.

What is the coverage for? There are three levels of warranties based on the age of the building for Years One, Two and Seven. The Year One Warranties provide warranty protection against construction not done in a workman like manner, free from construction defects; fit for habitation; constructed in accordance with the Ontario Building Code; and free from major structural defect. The Year Two Warranties cover water penetration through the foundation wall, defects in materials including windows, doors and caulking, or the defects in work that result in water penetration into the building envelope; defects in work material in the electrical plumbing and heating delivery and distribution system; defects and work of material which resolves the detachment, displacement or deterioration of the exterior (such as brick work, aluminium, or vinyl sliding); violations of the Ontario Building Code with respect to health and safety (including but not limited to violation of fire safety and structural adequacy of the residences); and major structural defects. The Year Seven Warranties cover major structural defects.  A major structural defect is defined in the ONWHP Act as: any defects in work or material that result in the failure of the load bearing structure or defects in work or material that adversely affects load bearing function or any defects in material or work that materially and adversely affects the use of the building and the residents.

It is important to understand that the warranties do not apply in respect of:

a) defects in material, design, and work supplied by the owner;

b) secondary damage caused by defects, such as property damages and personal injury;

c) normal wear and tear;

d) normal shrinkage of materials caused by drawing after construction;

e) damage caused by dampness or condensation due to failure by the owner to maintain adequate ventilation;

f) damage resulting from improper maintenance;

g) alteration, deletions or additions made by the owner;

h) subsidence of the land around the building or along the utility lines, other than subsidence beneath the footing of the building;

i) damage resulting from an Act of God;

j) damage caused by insects and rodents, except for construction in contravention of the Ontario Building Code;

k) damage caused by municipal services or other utilities; and/or

l) surface defects and work material specified and accepted in writing by the owner at the date of possession.

Common elements may be covered under the warranty for up to $50,000.00 per unit up to a maximum of $2.5 million dollars. Unfortunately, I do not think in today’s market that this is a reasonable number anymore for condominium corporations. I strongly suggest that Tarion actually change that limit to $100,000.00 per unit.

Remember, timing is everything. The common element warranties take effect the day that the condominium corporation is registered. This is critical for the purposes of timing when your warranty expires. Section 44 of the Condominium Act, 1998 (Ontario), deals with the filing of the performance audit. A performance audit is to be conducted no later than six months and no later than 10 months following the registration of the declaration and description. The purpose of the performance audit is to highlight deficiencies, that is actual failure in performance of construction (NOT design), that may give rise to a claim from payment out of the guarantee found under the section 14 of the ONWHP Act to the Corporation, or subject to regulations under the Act, give rights to a claim under the ONWHP Act. Under the Act, the report must be submitted by the last day of the 11^th month after registration. I hope the legislation fixes this to be the last day of the 15^th month.

Remember also to update your performance audit before the expiry of the second and seven year warranties.

So why worry? It is important to understand what Tarion is about and then to understand the process. The next article in this series will be about the mindsets directing the process. In managing the process, it is also very important to understand perspective of the parties who are involved in the Tarion process. We will explore the various perspectives at the table. The final article will discuss the process and provide strategies to use the process cost effectively. Tarion coverage is a benefit to condominiums. Did your unit owners get a discount on their purchase prices to off-set deficiencies? If the answer is "no", following the Tarion process makes economic sense and it is your community’s right.

All of the information contained in this article is of a general nature for informational purposes only, and is not intended to represent the definitive opinion of the firm of Elia Associates on any particular matter. Although every effort is made to ensure that the information contained in this newsletter is accurate and up-to-date, the reader should not act upon it without obtaining appropriate professional advice and assistance.

www.elia.org  

© Elia Associates Professional Corporation, All Rights Reserved.