CAPTIJN: Ontario needs choice in new-home warranties

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The well-known management consultant Peter Drucker (1920-2005) once said, “Customer service is not a department, it’s the whole company.” But many companies drift away from this basic common-sense principle.

The recent slump in the market for new condos in Toronto is an example of this disconnect between what companies want to sell and what consumers want to buy. For years, builders have focused on investors as their main target group, offering micro condos mainly for rental use with little or no parking, while many young families, professionals, and seniors still struggle to find homes to suit their needs. How did this happen, and why did it go this far?

New home buyers are often told that builders speak for them. There’s often no direct consumer involvement in policy-making at government levels on housing issues, and the excuse is often used that consumers are too emotional or don’t have an understanding of complex policy. Neither is true.

Many Ontarians who’ve bought newly built homes say they’ll never do so again, and advise others to steer clear of new-builds. Why? The lack of consumer protection is part of it.

With every new home purchase in Ontario, you’re obligated to pay a fee for the builder’s warranty, which is administered by the government’s agency Tarion, created in 1976. But many homebuyers have found the Tarion claims process painfully slow, taking months or sometimes years to resolve issues, in a complex and legalistic system, often resulting in Tarion siding with the builder and denying claims.

Tarion has been criticized for years for having no consumer advocates on its board or executive team, while they say they’re a consumer protection agency. The government has a loose oversight model for the agency, through its ministry PBSDP, which is paid more than $650,000 annually for a mostly hands-off approach.

The mandatory Tarion fee costs anywhere from $1,600-$6,700, depending on the home’s sales price, and it’s usually included in the statement of adjustments in the sales contract. This money goes into Tarion’s guarantee fund, which is then used to pay claims to homeowners when builders don’t fulfill their warranty obligations, or in cases of illegal deposit-taking. This means that all new home buyers are paying for builders who don’t honour their warranty, or don’t enroll new homes with Tarion. These claims should be paid by warranty companies set up to handle this type of risk, not other new home buyers.

The auditor general’s report on Tarion in 2019 stated on page 8 that “Tarion’s senior management was rewarded for increasing profits and minimizing financial aid paid to homeowners.” There have been years of opposition MPP critiques in the Ontario legislature, and many critical media reports about the agency. So why has there been no meaningful action? New home buyers don’t have powerful lobby groups to make their interests known and understood with policy-makers. Builders and Tarion do. Consumers are often marginalized in this process.

The main recommendation of an independent review in 2017 by Justice D. Cunningham and Deloitte Consultants advised the government to give Tarion competition. Other provinces such as Alberta and B.C. have done this already. Alberta’s warranty has seven different providers, each with a different type of coverage. Some offer a five-year “shell” warranty on roofs, walls and windows, a five-year heating and air conditioning (HVAC) warranty, and some offer inspections during construction. Others offer coverage for patios, landscaping, and even appliances, or an option for homeowners to choose either a cash settlement or to have the warranty company look after repairs.

Tarion doesn’t offer these choices. Monopolies don’t have to innovate or strive to maintain customer satisfaction, and it shows.

The Tarion CEO earns more than $619,000 to run an agency of about 300 people, with very generous benefits. They have eight vice-presidents, six of them earning over $200,000, and 12 board members. The premier of Ontario, by contrast, earns about $208,000. Tarion made the largest loss in its history in 2023 (reported in their 2024 Business Plan) of more than $90 million, due to illegal deposit-taking and builders’ failure to enroll homes with the program. It’s hard to imagine that Ontario’s premier, who prides himself on being a sharp business person, would think these numbers make sense. This financial snapshot screams Tarion needs competition.

The Doug Ford government has shown it can act with lightning speed to open markets to competition when it wants to. We’ve been told we need choice and convenience in the sale of alcoholic beverages, and convenience stores were soon given the green light to sell them. It’s odd that in the biggest purchase of a lifetime, a new home, the government seems content with a 50-year-old monopoly and has made only cosmetic changes over the years.

If builders want to stay with Tarion, that’s their choice, according to the judge’s review, if Tarion becomes licensed to sell warranties. But consumers should also have a choice, levels of coverage to suit their needs, and a consumer-friendly process to help if they discover construction defects.

It’s time to open the warranty field to competition. Give consumers choice, and better protection for life’s biggest investment.

— Barbara Captijn is a Consumer Advocate

Blog: consumersreformtarion.com

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