While purchasing a pre-construction property may be a great way to enter the real estate market, many Purchasers share the fear of risking the quality of build and/or the possible defects that may arise once construction has been completed. After all, when signing an Agreement of Purchase and Sale (“APS”) for a pre-construction project, Purchasers are often making a blind purchase for a property that may not be habitable for the next few years.

The Ontario government is aware of these risks and thus created an organization known as Tarion to assist with the property defects that may arise upon or after the date of closing. Tarion is a not-for-profit consumer protection organization used to administer the province's new home warranty program. Additionally, Tarion helps alleviate the imbalance of power between everyday Purchasers and financially backed Builders/Developers.

According to the Ontario New Home Warranties Plan Act, builders of new construction properties are statutorily required to provide warranties to their Purchasers.  It is the role of Tarion to enforce its administrative powers when Builders fail to fulfill their warranty obligations. Moreover, it is the responsibility of Tarion to:

• Educate new home buyers and new homeowners about their warranty rights and responsibilities.
• Allow homeowners to manage their warranty and report defects to the builder and Tarion.
• Facilitate the fair resolution of disputes between homeowners and builders over warranty coverage, repairs or customer service.
• Assess warranty claims to determine if they are valid either through an on-site inspection or an alternative method of investigation.
• In cases where a builder fails to address a valid warranty claim, resolving the claim directly with the homeowner either through compensation or repairs by a third party; and
• Manage a guarantee fund to protect new home buyers, out of which compensation for warranty claims is paid. ^[1]

Thanks to Tarion, Purchasers of pre-construction properties are afforded a seven-year warranty. The seven-year warranty covers major structural defects (MSD) and begins on the date possession of the property is taken and ends on the seventh anniversary of that date.

According to the Ontario New Home Warranties Plan Act, a major structural defect is defined as “any defect in work or materials in respect of a building, including a crack, distortion, or displacement of a structural load-bearing element of the building” if it:

(i) results in failure of a structural load-bearing element of the building.

(ii) materially and adversely affects the ability of a structural load-bearing element of the building to carry, bear and resist applicable structural loads for the usual and ordinary service life of the element, or

(iii) materially and adversely affects the use of a significant portion of the building for usual and ordinary purposes of a residential dwelling and having regard to any specific use provisions set out in the purchase agreement for the home.

The seven-year MSD warranty includes significant damage due to soil movement, major cracks in basement walls, collapse or serious distortion of joints or roof structure and chemical failure of materials. It also includes environmentally harmful substances or hazards^[2].

Although purchasing a home that is not yet built comes with an assortment of risks (i.e., market consideration, area changes, etc.), Purchasers can rest assured that Tarion and the Ontario New Home Warranties Plan Act provide added protection to those entering into an Agreement of Purchase and Sale for pre-construction properties.

If you have any legal questions regarding the purchase of pre-construction properties, or you would like to have one of our lawyers review your pre-construction Agreement of Purchase and Sale, please do not hesitate to contact us to speak with one of our lawyers at (905) 270-6660 or e-mail us at:  Info@kormans.ca.

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