Tarion Perspectives

The Ontario New Home Plan – How to Practically Manage and Navigate the System for Condominium Corporations. Part 2 of 3: Tarion Perspectives

In this article, we explore the different perspectives at the Tarion table.

Property Management’s Perspective

Anyone have an Advil? 

This is a great question coming from a property manager of a new condominium.  In addition to all the other things that a new condominium has to deal with (and in addition to their regular day job as property management), the Tarion Home Warranty Process for a new condominium can be a headache for any manager…so how do we get rid of the headache?

Property managers would be well-advised to equip themselves with tools that will help them manage this detailed and important component in the life of a new condominium’s history- the formative years! The reality is if Tarion warrantied construction deficiencies are not rectified in a timely manner, condominium corporations end up paying the cost associated with rectifying these failures in construction. Should they? Not at all. My position on this is that developers never discounted the price of the units to account for deficiencies and thus have an obligation as they have been paid for a building that has been constructed without deficiencies.

So what are the tools that a property manager can use?  From our experience, the following tools are helpful:

1)  A chart identifying all the construction deficiencies, with space to allow for each party to comment on the status of the deficiencies. (Note: this is actually part of the Tarion process now.) After years of working with Tarion, I am glad that this tool which has been used for years by our firm and engineering firms has now been integrated into the process. The use of a table helps all parties consolidate and manage information efficiently, but the key for managers is to use it and keep it up to date;

2)  Meetings with the board to update them regularly on the status of repairs; and

3)  Regular conversations (every month after turnover) with the builder’s representatives to identify when the actual rectifications are going to take place. This is for a threefold purpose: (1) The manager should know when rectification is going to occur on the property to identify when strangers are going to be on the property in order to manage the security issue; (2) They should know what the scope and nature of the rectification will be, for the purpose of actually ensuring that the rectification has worked for a period of at least one (1) year (the unwritten warranty provided by Tarion), as they need to know when the time starts to run from; (3) The property manager can also then, at the board’s direction, after a period and a series of rectifications have occurred, call the engineers in to inspect the work. This allows the corporation to ensure that the engineers are satisfied with the quality of work executed.

Property managers need to be thoughtful that this is an ongoing process for the next seven (7) years potentially, as well as any extended period due to rectification. This is due to the different warranties and reporting criteria under Tarion. With this said, it is important that a condominium manager understand when the timelines are for various things to be submitted or dealt with by Tarion and/or the developer. The new Bulletin 49 [1] presents interesting challenges in this regard because it has effectively extended the time frames within which a developer has the opportunity to rectify construction deficiency.

It is important for property managers to also know that, when confronted with construction deficiencies, the developer has the “first kick of the can”. The Corporation can vitiate a warranty by being too proactive/ aggressive within the Tarion system. This means that if the Corporation finds there is a construction deficiency and sets out to rectify the deficiency before letting the developer have the opportunity to do so, it could find itself without warranty coverage.  So let the developer and Tarion know.

While I know some of you may be cynical about the biases of property managers hired by the developer in the context of submitting Tarion claims (and I have seen property management companies “fail” or conveniently “forget” to submit Tarion claims where the property manager was tied to the developer), I have several positions:

1)  A few bad apples do not ruin the bushel. I have had more positive experiences with truly professional managers who are willing to take the time to manage Tarion diligently because they recognize the importance of the process;

2)  Property management takes its direction from the board - yes the buck stops with the board.  So boards must roll up their sleeves and get mired in the process; and

3)  Some managers may have sufficient familiarity with the Corporation to streamline the rectifications.

The Engineer’s Perspective

The Performance Audit Report (PAR) is the nexus of information and thus the key document in reporting construction deficiencies. Ensuring that the performance audit is well-written and clearly identifies and articulates what the construction deficiency is or is suspected to be is vital. Thus the Corporation should invest the time to ensure that it hires engineers that are familiar with the Tarion process. According to the Condominium Act, 1998 (the “Act”), a PAR is to be conducted no earlier than six months and no later than ten months following the registration of the Declaration and Description.   It is important to also remember that the submission of the PAR to Tarion for Tarion new warranty purposes is on the last day of the 11^th month from registration (although Tarion will allow submissions to the end of the 12^th month, it is best to confirm this in writing).

The Act is very clear as to what the duties are of the person who conducts the PAR. The responsibilities include inspecting major components of the building, such as parking garages, foundations, wall construction, air and vapour barriers, windows, doors, elevators, roofing, mechanical systems, electrical systems, fire protection systems, and I would suggest plumbing systems. I have read reports where some of these systems have been omitted only to the detriment of the condominium corporation. Thus, the condominium corporation, upon hiring its engineers, must confirm the scope of the work. Experienced engineers in this area will be well-versed in how to summarize and write these reports. Pictures are always valuable. Since the process for settling Tarion matters often takes a long time, photographs at the time that the deficiency was noted and recorded are often critical.  In addition, the engineer must have all Section 43 documents (Turnover Documents) in its possession at the time it commences the performance audit report.  This list of documents is itemized in Section 43 of the Act and provides a material foundation for understanding what was to have been built.  While it is often difficult to get “as built” drawings, it should not be that they are unavailable and there are methods of extracting same.

Another fundamental and important part of what the engineer does is to conduct a survey of the owners of the Corporation to see what evidence, if any, unit owners/residents have seen on the common elements and more particularly, the exclusive-use common elements.  It is critical that unit owners fill out these surveys and I would suggest a communication strategy reinforcing this message.  Often unit owners will not have high-rates of response and it is critical to make people aware that if they do not report [2]the deficiency, their unit will not be reported to Tarion and the deficiency will not be covered.

The Developer’s Perspective

There are two perspectives,good vs. evil. Good: “let’s rectify immediately so that we build a reputation” vs. Evil: “let’s intentionally drag out the process to bleed the condominium and bring down confidence in the board of directors”.  In my experience, I have seen the full range of this spectrum between these two poles, and I realize that finding a balance between the two extremes is essential to counter the range possible on the condominium side: “everything must be perfect” vs. “we don’t need to worry about deficiencies.”  This is not to say developers are evil, but self-interest has a part in Tarion warranty issues. Developers understand very well the economics of building and once they have finished building they don’t want to come back. Accordingly, the more that they can eliminate off the list of Tarion matters, the happier they will be so that the cost of rectification is low. Is this fair to the Corporation? Not necessarily. However, I do advise my clients to be very thoughtful about what they’re asking for and whether it is achievable. From the engineer’s perspective, they have written a PAR that is thorough and detailed to let the Corporation also know what is coming in the future.  Often the PAR will serve as the basis for the reserve fund study in the first year.  The engineer being as fulsome as possible is essential.  It is important to remember that Tarion has guidelines around construction deficiencies and not all of the items reported in the PAR will actually be quantified as “construction deficiencies” under the guidelines. Please note that the Act prescribes the minimum requirements for the PAR.

The Condominium Lawyer’s Perspective

To a degree our hands as condominium lawyers are tied by the wording of the statute.  This is because there is also no prescribed level to which the rectification must be done.  Building code is the minimum standard of construction, but it does not ensure good workmanship. This puts condominium lawyers at a bit of a disadvantage because the statute is not specific.  A good condominium lawyer, well-versed in this area, is a very important negotiator for the corporation, together with the engineer, in highlighting the deficiencies and working towards solutions that are reasonable for all the parties.  In this regard, lawyers really need to understand the nature and scope of the deficiencies they are fighting for their client. Upon appreciating which of the deficiencies are critical to the corporation and its well-being, the lawyer can then effectively participate in the Tarion process which would include pre-conciliation meetings; conciliation meetings and ultimately appeals at the license appeal tribunal and/or the Ontario Superior Court.  At our firm we have had the great opportunity to negotiate settlements that have been successful for our clients before even getting to conciliation.  However, we have also proceeded through cases at the conciliation level to the extent that we have been effective for our client and, in one extreme case, we were even summoned as a witness for Tarion at its own action against the developer. The License Appeal Tribunal (LAT) process is much like a trial and condominium communities must be ready for that. It is an interesting perspective to be a witness for Tarion, as it provides one with an insight as to how and what Tarion is concerned about. 

The Condominium’s Perspective

Who is paying for this?!  We hate our builder!  We are tired! These are really relevant comments for board directors and lawyers to make.  A new board in the first two years can be overwhelmed with the agenda of items that need to be undertaken in a timely manner for the corporation. Tarion matters are just one of the new condominium agenda items that must be quickly dealt with. So condominiums have to have a realistic perspective about the process.  Understanding the timing of Bulletin 49 is central to understanding how long this process could go on.  It is also important to ensure that the board budgets accordingly to address the costs of dealing with Tarion matters.  In my respectful opinion, the legislation should actually address the costs of engineers and lawyers; currently the corporation picks up its own costs (when a corporation is faced with proving a construction deficiency).  Why?  The corporation undergoes the expense of proving its claim, but once its claim is proven, why should it actually have to pay the costs of proving it?  It makes no sense.  These should be items that are dealt with in the first year budget deficiency under Section 5 of the Act, in the author’s respectful opinion.

So how do we keep the board focused and energetic?  The best way to do this is to not be overwhelmed by the size of your PAR. It is important to synthesize and prioritize the information the PAR. The matters that are under the PAR should be ongoing agenda items for the first two years of a board’s life span once that PAR is tabled.  The board should also be prudent in identifying one (1), two (2) and seven (7) year claims to make sure that they are tracking them accordingly and these should put in the corporation’s calendars to know when these warranties expire.  This is about boards creating legacies for property managers and for new directors who may come on board after your one (1), two (2), three (3) year periods, etc.

It is important as well to keep owners in the loop about projects and challenges so that there is support for the Board.

Our suggestion is that the board creates a committee of directors that deals exclusively with Tarion and that they report to the Board.

Tarion’s Perspective

It’s always important to understand that Tarion is a key player in this process. It is the statutory body that is charged with the duty of discharging the Ontario New Home Warranties Act. So what are its duties?  Its duties are, in laypersons' terms, to actually get people through this process that has been put in place to “protect consumers”.  Now some of you with Tarion experience may laugh at that, because it is a bit of an uphill battle.  Why is that?  Well, Tarion is in fact the equivalent of an insurer. So as you all know when you are dealing with your insurer, even though your insurer is there to protect you, you still have to prove your claim.  Having a lawyer, together with an engineer, who is well-equipped to articulate these positions to Tarion, can be a service to the board and the condominium corporation in the long run so that the condominium corporation doesn’t have to pay for the rectifications.

Tarion, for the most part, acts as a facilitator until such time as we get to conciliation. Tarion’s role in more recent years has been to try to move the process along. This is somewhat ironic in the light of Bulletin 49 which extends timelines. However we have been seeing more of a movement from Tarion to try to close files that have been open for significant periods of time.  While this can be prudent in managing risk, it is not always in the best interest of the condominium corporation and thus condominium corporations should be thoughtful as to how the proceed with this.

Our suggestion is that corporations be very well aware of who their Tarion representative is and create a communication strategy with that Tarion representative.

In our next article on Tarion (Part 3), we will talk about the process. 

[1] http://www.tarion.com/New-Home-Builders/Policies-and-Guidelines/Documents/BB49_Performance_Audit_Tracking_Summary_Instructions_and_Sample_FINAL.pdf

[2] Please note that unit owners are responsible for their own Tarion process in respect of their unit.

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.

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