|THE RENEWAL OF TRUST IN
Commission of Inquiry into the Quality of
Condominium Construction in British Columbia
|Submitted to the Lieutenant-Governor in Council|
Government of British Columbia
by Dave Barrett, Commissioner
|Chapter Two:||The Framework of|
Residential Construction Continued
New Home Warranty in BC (NHW) was incorporated in April 1976 in the face
of a significant need for consumer protection against structural problems
and a lack of developer/builder self-regulation. In the company's own words:
"New Home Warranty of British Columbia & Yukon was created by the residential construction industry (Canadian Home Builder's Association of BC) in response to: (i) a growing consumer criticism over shoddy workmanship in house construction and fly-by-night builders who quickly surfaced in boom times and who more quickly disappeared when times got tough or complaints arose, and (ii) to meet the threat by Government to impose regulations governing how the residential construction industry would operate."
The industry's creation of a voluntary warranty program averted a mandatory program being considered by the provincial government in 1975. The BC warranty program is voluntary and, for a fee, builders register units in the program. NHW was incorporated by the Canadian Home Builders Association of BC as a not-for-profit, private-reporting share company, pursuant to the Companies Act. It is not subject to regulatory requirements under The Financial Institutions Commission (FICOM), although its financial solvency is reviewed by FICOM on a voluntary basis.
NHW's relationship to builders/developers, through CHBA, is not arms length, and therefore, not third-party protection. Presenters who came before the Commission expressing difficulties they had had with NHW claims services, cited the lack of an armslength relationship as a possible reason for their difficulties.
"If there is to be a warranty program for new buildings, then it cannot be governed by the builders, developers and others involved directly in the industry. It must be a separate entity, with no such ties to the industry. It must be a workable warranty, the previous five year warranty is not acceptable."
Maxine Campbell, Property Manager
New Home Warranty enjoyed a monopoly within the province until 1995 because CMHC would recognize only the single provider as qualified for warranty protection on mortgages, which were CMHC-insured. Invited into the province by some builders who felt NHW was not meeting the needs of homeowners, National Home Warranty of Alberta entered the BC market as an alternate provider approximately a year ago. National Home Warranty is also a creature of the Corporations Act and is not subject to FICOM regulations.
Approximately 60% of all new housing units carry warranty protection; the majority also carrying CMHC-insured mortgages.
"Many of our residents, both our seniors and those who are still working, will find it extremely difficult, if not impossible, to find the money to pay the large assessments that we may shortly receive. Most of our seniors are on fixed incomes and have had no prior experience with condominium living. Some suffer from ill health and/or disabling conditions. In general, they find it difficult to understand how a four year old, multimillion dollar building, build by a supposedly reputable developer, could have problems of this magnitude. They don't understand how you can have a five-year New Home Warranty that does not cover the cost of needed repairs.
Carol Mackenzie, Condo Owner
Condominium and other homeowners, who outlined their experiences with NHW, consistently expressed disappointment and dismay, not only over the lack of coverage, but also the attendant lack of customer service.
If NHW does effect repairs for structural damage, it repairs only the parts of the building that are structurally damaged and leaves other damage, and/or the source of the problem, to the strata council.
"The mere fact that they use an umbrella in their logo is a joke. A claim for a leaky problem must be initiated only after stringent conditions are met. If met, the excuses start. Firstly, they do not cover latent defects. By the time latent defects are no longer latent, the warranty is no longer in place. Secondly, they only cover patent defects in the first year, however they don't cover anything for the first year as it is then the builder's responsibility and after that expires, it's too bad. Thirdly, the warranty plan only covers structural deficiencies after the first or even the second year and only up to the five year age limitation. Most structural problems, particularly water related problems, are not apparent until long after the warranty has expired. If discovered in time, they are classified as "latent" and are once again excluded from the program. The NHW is an example of an industry policing itself "
Dean F. Clement, Property Manager
Warranty coverage is optional for builders and developers, but mandatory for high-ratio mortgages (less than 25 percent down) provided by CMHC or GE Capital. Until very recently, coverage was one year for workmanship and materials; one year for the building envelope, with an option for three years; and five years for structural defects, with an option for ten years. Since it is the builder, not the owner, who purchases the coverage, extended packages were rarely purchased. The buyer was unaware of this, or of possible extra coverage.
The maximum payout for each homeowner is $100,000, plus up to $2,000,000 for common condo property. The builder pays an initial fee of $500 to join a warranty program and annual fees of $100 for NHW and $300 for National Home Warranty. The insurance cost per unit is $300 - $400 and is passed onto the home purchaser at the time of sale.
NHW does not conduct on-site inspections. National Home Warranty does one at the start of construction and one at completion. It also requires insurance coverage and performance bonds for developers and contractors on multi-family construction.
Presenters to the Commission unanimously recommended that a mandatory home warranty program be introduced with minimum standards prescribed by the provincial government.
"We support mandatory warranty protection on all housing."
Jim Thompson, Canadian Home Builders
Association of British Columbia
"We believe every single new housing unit that is built in this province must have mandatory warranty coverage..."
Maureen Enser, Urban Development Institute
"We favour the position taken by the Urban Development Institute and the Canadian Home Builders Association ... that mandatory (home warranty) requirements be provided."
Michael Audain, Polygon Homes Ltd.
"We feel that ... consumers have a right to comprehensive warranty protection in the event of failure."
Nona Saunders, Condominium Homeowners Association
CHOA and other presenters favour the Ontario model, whereby all new homes carry a warranty from a single, independent, non-profit corporation, the Ontario New Home Warranty Program, established and governed by provincial legislation. Others recommended a system under which home warranties are offered by any private, third-party warranty company that meets minimum mandatory coverage standards. It was suggested that developers/builders would benefit from being able to choose the company with which to enroll.
"We ... believe that a private sector warranty, provided by a number of different providers can work. Provincial legislation should set minimum coverages, establish financial standards for those providers, and we believe that competition from a number of providers ... will then serve the public."
Andrew Grant, Urban Development Institute
|Recommendation #38: Under the authority of the Homeowner Protection Act, immediate, mandatory warranty for all residential housing built, as well as units under going renovations for structural or building envelope purposes. All units to be enrolled prior to the start of construction or renovations to receive the benefit of inspections.|
|Recommendation #39: Warranty providers to be regulated by the Homeowner Protection Office.|
|Recommendation #40: Warranty providers be required to obtain a minimum amount of bonding and comprehensive general liability coverage for the developer, general contractor and sub-trades.|
|Recommendation #41: Warranty coverage to be offered in a competitive market by private third-party warranty providers. Minimum levels of coverage, claims settling procedures, and dispute resolution approaches to be defined by the Act.|
|Recommendation #42: Minimum coverage levels to include 2 years for workmanship and materials, 5 years for building envelope, including water ingress, and 10 years for structural faults.|
|Recommendation #43: The BC Homebuilder's Association must divest itself of its interest in New Home Warranty.|
|Recommendation #44: No developer, builder, contractor, sub-contractor, or sub-trade can invest in a warranty provider. This is to ensure an arms-length relationship between the industry and the warranty providers.|
|Recommendation #45: The warranty program should commence on the units, when purchased, but the time limit for minimum coverages not commence until the first meeting of the strata council.|