Ontario regulator moves to address condo cancellations, but is it enough?

Open this photo in gallery:

Critics of Ontario’s new-home regulator, Tarion Warranty Corp., are warning that its latest efforts to provide more consumer information on the risks inherent in pre-construction condominium purchases don’t go far enough toward levelling the playing field between vendors and hopeful buyers.

In recent years thousands of pre-sold condominium apartments have been cancelled as projects were declared unworkable for a variety of reasons; so far in 2019 seven project have cancelled, representing more than 2,100 units. The increased attention to the issue in both the media and the courts helped motivate Tarion to urge that buyers be cautious.

“Cancellations are inevitable. … People should just understand the risks and be prepared to deal with that,” Tarion CEO Howard Bogach said.

He also said the new requirements were developed in consultation with the provincial government, which has been reviewing Tarion’s mandate for close to a year. “We thought it would be better – working with the government – to try to provide at least more clarity about the risks.”

Starting Jan. 1, 2020, the new-home building regulator will require any vendor selling pre-sale condominiums to include a two-page information sheet about the project that will assist buyers in appreciating the potential pitfalls in signing a contract to buy an unbuilt home from plans. The form will compel sellers to spell out early-termination conditions, any potential title restrictions on the proposed land, as well as expected completion dates and a disclosure about whether a building has obtained zoning approval.

“It’s just more stuff for people to read,” said Audrey Loeb, partner with Shibley Righton and a condominium law expert. “The problems of cancellation are important to people, but it’s truly the tip of the iceberg of the issues that affect the buying public when it comes to condos.”

Ms. Loeb points out that many agreements of purchase and sale for condominium apartments run to 150 pages and are filled with thickets of legalese that can lock buyers into such things as unspecified extra fees, options to extend the completion date and onerous financing requirements. “I am shocked at the rights developers are allowed to retain and which can impact what a purchaser gets,” Ms. Loeb said. “I’ve been saying that Tarion has to take a more aggressive role in requiring more standard-form agreements.”

Open this photo in gallery:

The notice from Tarion also said that its online builder directory portal will be made more user-friendly and allow consumers to find cases where a developer has cancelled a project in the past.

Not yet reflected in Tarion’s new data is the growing issue of partial cancellations, where builders offer to return deposits to all or most of a building’s pre-construction buyers without officially cancelling a building. For example in September, developer Brad Lamb, asked buyers in his proposed 218-unit Bauhaus condo on King Street East in Toronto to either extend the early termination date in their contracts to March 1, 2020, or “opt out of your deal and have your deposit refunded.” In October, buyers in Mr. Lamb’s proposed 642-unit Television City condominium project in Hamilton were also offered a chance to get their deposits back after delays had pushed the project’s completion date to 2025 at the earliest. Mr. Lamb declined to comment.

“We’ve now put in a requirement to get reporting on that issue,” said Mr. Bogach, but it’s too early to draw any conclusions from the data. "I can’t tell you I have a full sense of the full impact. We are starting to put in a more enhanced due diligence and reporting on this … to try and pickup or at least to advise if there has been partial cancellation.”

The moves come as Ontario’s Auditor-General is expected to release a “value-for-money” report on Tarion. It has been close to eight months since the former minister of government and consumer services, Bill Walker, proposed the creation of a separate agency to regulate the building industry and possibly ending the non-profit agency’s monopoly on providing new home warranty insurance.

“In a nutshell, the government is, to use a Dutch expression ‘mopping up the floor with the tap still running,’" said Barbara Captijan, a consumer activist and fierce critic of Tarion. "[Mr. Walker] publicly announced ‘Tarion is broken,’ while continuing to send consumers under Ontario law to a broken organization.” Ms. Captijan has pushed various ministers on the file to adopt the 37 recommendations of Justice Douglas Cunningham’s 2017 Review of the Ontario New Home Warranties Plan Act and the Tarion Warranty Corporation.

Among the ideas in that report were basics such as: “a code of ethics should be established for builders and vendors “ and “the legislation should include minimum requirements for registration as a new home builder or vendor” and “the regulator, warranty providers and independent adjudication entity should be required to provide consumer education.”

Mr. Bogach calls the “broken” comment, first made by Mr. Walker “hurtful,” and says according to the company’s own surveys Tarion consumers report an 83-per-cent satisfaction level. “I don’t think we’re broken at all. I think there’s lots of areas we can continue to improve the program and make it better … this is just one simple example. We have worked for the last 40 years to be an effective consumer organization.”

Some welcomed the new Tarion pre-sales information sheet. “It’s a great checklist in terms of conversations that should happen, formalized into an easily digestible form,” said Kevin Crigger, who runs a pre-construction condo sales business as well as a condo resale real estate team within Johnston & Daniel brokerage, a division of Royal Lepage R.E.S. Ltd. It’s nothing that a good real estate lawyer wouldn’t point out, Mr, Krigger said, but he is “constantly surprised” by buyers willing to sign a contract without doing their due diligence.

But some former Tarion insiders worry the organization is out of touch, influenced too heavily by home builders that represent the voting majority on the board of directors.

“There’s a general public distaste for Tarion – I saw that first hand as chair,” said Chris Spiteri, a lawyer and specialist in corporate governance who served as chair of Tarion’s board between 2014 and 2015 and was its government/consumer director for 10 years. “They are trying to do things with Band-Aids, they don’t do anything that puts any muscle on the big builders. One of the problems I’m seeing – and saw then as well – all the protections in the world and all of these notices and so on are really not going to help small builders and they are not going to help buyers.”

Consumer Services Minister Lisa Thompson is now in charge of the file and a statement from her office suggested changes could be announced soon. “The government anticipates making further announcements on the future of new home warranties and protections for Ontarians in the next few months. We continue to look at all options to improve the new home warranty program in the province,” the statement reads.

Your house is your most valuable asset. We have a weekly Real Estate newsletter to help you stay on top of news on the housing market, mortgages, the latest closings and more. Sign up today.