THE RENEWAL OF TRUST IN
RESIDENTIAL CONSTRUCTION
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
June 1998


Chapter Two: The Framework of
Residential Construction
Continued

XII. The Legal System

Throughout the Commission's hearings, the frustration felt by the homeowners, regarding the legal system's failure to assist them became very evident. It is important to explain briefly the legal background against which the purchase of a new home operates.

Caveat Emptor or Buyer Beware: The general rule in the sale of real estate in BC is that the purchaser takes the land at their own risk and no implied warranty of quality exists. The application of the caveat emptor rule is the reason homeowners have experienced more protection "buying a pair of socks or a toaster" than purchasing a new home. When defects are discovered, and homeowners seek redress, the law will not include in their contract a requirement that the home be fit for living. Therefore, the homeowner may have no breach-of-contract remedy.

The main reason why the caveat emptor rule has become a significant barrier to fairness in residential, and not commercial real estate, is because of the nature and structure of the commercial market, as distinct from residential. Vendors and purchasers of multi-family property are not on equal footing.

"Commercial structures are seldom built on a mass or speculative basis, as residential housing is. They are much more likely to be built for lease rather than sale. In addition, the majority of new home purchasers have no choice but to sign the builder-vendor's form contract. Vendors and purchasers of commercial property are much more likely to be negotiating on an equal footing. There will be greater reliance on express terms to protect the purchaser's interests."

Arthur Close, The Law Institute

If the deficiencies are significant, such as a physical threat to anyone using the premises, the law of negligence provides remedies. In presentations before the Commission, numerous defendants were identified, including municipalities, architects, engineers, the developer, contractor, sub-contractors, and warranty providers. The multiplicity of parties makes for extremely complex law suits. This complexity means that the litigation process is very lengthy and very expensive.

The Commission recognizes the frustration faced by many homeowners who experience onerous special levies and endure substandard housing without, without a cost-effective legal remedy.

The public deserves a more effective system of quality control and consumer protection than is currently available through court action. The first step is to focus responsibility where it belongs -- on the developer -- then create a legal, administrative and market-based framework which allows quality developers to succeed, and irresponsible developers to leave BC's economy.

  Recommendation #67: The Homeowner Protection Act include an implied warranty based on the following:
(i) a new home is fit for occupancy, constructed from quality materials, and designed and constructed with skill and care;
(ii) it is not possible for the purchaser to waive these rights;
(iii) the time limitation applicable for breach of contract is 10 years;
(iv) the implied warranty is of benefit to subsequent buyers, but does not impose liability on the original or intervening purchasers.

One of the practices of developers, which could render the new implied warranty meaningless, is that of creating project-specific (numbered) companies. An effective, mandatory, third-party warranty program would result in an effective barrier to developers protecting themselves from responsibility. This is an additional reason for the Commission's recommendation to introduce mandatory, third-party warranty.

Another area creating barriers to effective redress is time limitations for notification of claim. Different limitations exist in different statutes, including the Municipal Act, Insurance Act, Real Estate Act, etc.

"Then, we get to the business of the recovery of cost, and of course we go to small debts course, and we had, we had an album of pictures, I guess, like many of the people that have testified before you. The judge, I thought, was going to throw up and almost fell off the bench, but of course, said to us I'd like to find for you, but of course the timelines out of the Real Estate Act have now elapsed ... So the judge actually, this is small debts court, encouraged us to go to the Supreme Court, but of course the, our lawyer, rightly, suggested to us that we would never recover, I mean, our legal costs would far exceed the cost, even, if we should win in Supreme Court."

Jack Stevens, Condo Owner

  Recommendation #68: That the time limitations under various legislation be reviewed and amended, as appropriate, to accommodate the reasonable needs of residential property owners, including the Municipal Act and the Real Estate Act be amended to reflect the circumstances of the failure to perform by the municipality and the developer. Limitations under the Insurance Act should also be reviewed.

The litigation system does not serve the homeowner well. It is also not beneficial to conscientious members of the residential construction industry. The delays and expense are detrimental to defendants as well as plaintiffs.

Every case the Commission was told about had taken much longer than the parties wanted -- and was still unresolved. Legal expenses were another serious problem for strata councils and condo owners. In many cases the legal bills appeared to be as onerous as the estimated cost of repairs. These costs are also of great concern to the municipalities, professionals, developers, contractors and warranty providers. No one suggested the courts were doing a good job for settling disputes.

The proposals contained in this report will serve to mitigate court cases in the future and reduce the use of this approach even with current disputes because of the increased opportunity for homeowners to obtain financial resources and move forward with repairs. However, even with an effective system of consumer protection, industry education, and financial support to address past problems, some situations will lead to dispute. As a result, the Commission recommends an alternative dispute resolution mechanism, in order to address these circumstances, with the right to court action as a final means of redress.

  Recommendation #69: That the Homeowner Protection Act make available an alternate dispute resolution mechanism (ADR) for issues arising from the problems surrounding residential construction -- in particular, building envelope failures and that:
(i) the system be optional for consumers but compulsory for the developer, builder, contractor, sub-contractor, professional, and warranty provider; and
(ii) mediation be subject to private proceedings, while arbitration would be conducted under full disclosure rules.

 

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Copyright © 1998: Government of the Province of British Columbia