In Ontario, consumers who put down a
deposit on a new home or condominium are protected by Tarion’s deposit
insurance coverage — up to $40,000 for new homes and $20,000 for condominiums —
in the event the builder is unable to finish the home.
This protection is one part of the
province’s new home warranty program, a package of protections we believe is
one of the strongest in the country.
Our model provides a universal standard of
coverage that other provincial programs do not offer, including for radon,
delayed closing and certain contractual disputes.
Understandably, there has been a lot of
conversation recently about the level of deposit protection coverage available
in Ontario and whether it is sufficient.
This has no doubt been spurred by two
recent events: the collapse of a large GTA-based builder called Urbancorp; and,
a review of Tarion by Justice Cunningham.
The result is some healthy discussion about
the level of deposit protection currently offered and whether this is the time
to increase coverage. Some in the media have even argued for significant
At the heart of this debate, an important
question is this: What is the right level of deposit protection for consumers
On the one hand, the new home warranty is
intended to give Ontario new home buyers peace-of-mind when purchasing a new
home. On the other, the warranty must deliver its protections in a fair and
For example, increasing deposit coverage
from $40,000 to $200,000 on free-hold homes may seem like a reasonable
suggestion at first glance. But what if we dig a little deeper?
First, we know from over 40 years of
experience that the vast majority of new home purchases are completed without
incident. That in no way is intended to dismiss the emotional stress and trauma
that purchasers experience when their dreams of new home ownership are torn up
along with the purchase agreement. This unfortunate reality happens.
Not often, thank goodness, and not
previously on the scale of an Urbancorp. But it happens. This is why deposit protection coverage
exists in the first place.
Next, how sufficient are the current levels
of coverage? Last year, Tarion reviewed its deposit protection claims data and
found that in the five-year period between 2010 and 2014, the average loss on
new home deposits was $29,000, well under the current $40,000 limit.
Claims from the GTA area were often higher
than the average, but claims outside the GTA were lower. In other words,
purchasers in Toronto typically have greater exposure and risk than buyers
So, what is the appropriate response for a provincial
warranty provider? Do we increase
protections based on the potential exposure of purchasers from the GTA area or
do we maintain a province-wide perspective?
Keep in mind that warranty coverage
increases, especially significant increases, would likely have a corresponding
impact on enrollment fees.
In this case, all new home consumers in the
province could be paying higher enrollment fees based on a heated marketplace
in the GTA. Is that fair? (Note:
builders actually pay the enrollment fee but this cost is often passed on to
new home purchasers).
Before the Urbancorp situation occurred,
our position was that the few instances of deposit protection loss — while very
unfortunate for the individuals affected — did not justify a province-wide
increase in fees.
There are two other points to keep in mind
in this discussion. First, Ontario’s warranty program, like anywhere else in
the country, is a limited warranty and was never designed to provide absolute
protection for any and all losses.
The reason that model doesn’t exist in
Canada is that it would simply be cost prohibitive. High enrollment fees could
also slow new home sales and with it new home construction — a strong economic
driver in this province.
In light of the Urbancorp collapse, we agree
that it is important to once again review the deposit protection warranty.
We certainly understand how stressful the
past months have been for many Urbancorp purchasers and we are encouraged that
the court appointed monitor, a company called KSV, has publicly expressed a
high level of confidence that deposits given by all purchasers will likely be
Of course, some of these purchasers may
still lose their dream homes. As well, these purchasers will still have lost
the potential equity that would have accrued since they first purchased their
yet-to-be-built homes years ago.
In the end, these are unfortunate consequences
that flow from insolvency laws and they cannot be changed by a deposit warranty. But we all benefit from the discussion.
Download the article