Deposit Protection Gives Buyers Peace of Mind

By Howard Bogach, CEO, Tarion Warranty Corporation

Published in the Toronto Sun on ​​​Friday, July 14, 2017

When new home buyers put down a deposit on a new home or condominium in Ontario, they enjoy some peace of mind that their deposit is protected up to a certain amount, under the Ontario New Home Warranties Plan Act, should anything go wrong with the sale.

Since 2003, Tarion has protected buyers' deposits for freehold homes up to $40,000 and condominium purchasers' deposits up to $20,000. Condominium deposits also have the added protection of being placed in trust as required under the Condominium Act, 1998.

This level of protection has worked well over the years, but a lot has changed since 2003.

For one, the price of new homes, particularly in the GTA, has sky-rocketed. It is now not uncommon for homes to sell for more than $1 million.

What's more, Ontario has seen the collapse of large builders – most notably, Urbancorp, but others as well – in recent years.

These changes obviously increase the risk that new home buyers are vulnerable for losses, not only for their deposits, but also for anything they've paid for upgrades and extras that may not be covered under the warranty coverage available today.

That's why in 2016, Tarion committed to review deposit protection for freehold homes. The Honourable Tracy MacCharles, Minister of Government and Consumer Services, also publicly stated in March 2017 that she wanted a review to go forward.

So, we have been consulting – talking to consumers, home builders and others in the industry to get their input on what changes should be made to better protect new home buyers.

We've been looking at three options.

The first is to put all freehold deposits in trust, similar to what happens with condominium deposits.

This option would be very effective protection for consumers. However, this could act as a barrier to new builders entering the industry because many builders of freehold homes use deposits as working capital to finance their construction of new homes.

A second option is to increase the deposit protection cap– perhaps to $50,000 or $60,000 – or to use a formula, such as 10% of the purchase price (but not less than $40,000).

Under this option, deposit protection is better for consumers but there would still be a gap in some instances.

The third option is a hybrid of the first and second: an increase in the deposit cap and any funds collected above that cap must be held in trust.

Consumers would enjoy enhanced protection and builders would have greater working capital, although they would need to take on the extra work of administering the trust provisions.

Those are the three options that we put out for consultation, and we are now considering the feedback we received.

Under all options, consumers would enjoy greater protection, but there are trade-offs that have to be considered before a final decision is made on deposit protection levels in Ontario.

Consumer rights are important to all of us, that's why Tarion is working with the Ministry of Government and Consumer Services, builders and consumer groups to strike the right balance for consumers. 

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