TARION TROUBLES

Tarion has been under siege ever since Mr. Justice Cunningham issued an in depth report several years ago recommending a break up and restructuring of the Tarion Warranty Corporation into two and possibly three entities.

It is ironic that notwithstanding that Tarion has created some of the strongest home buyer warranty programs and enforcement regimes for new home building in the western world and possesses an exceptional balance sheet, Tarion must constantly defend its very existence.  The root cause for Tarion's dilemma is that it has gradually evolved from a pure warranty provider for new home construction into a quasi consumer protection agency for new home buyers, regulating many aspects of new home contracts beyond construction deficiencies without having to go through the legislative process.  It has always been under constant pressure from various government over time to address and solve perceived home building issues, whenever an issue gets reported in the Toronto Star.

Mr. Justice Douglas Cunningham was engaged in 2016 to do a complete review of Tarion by the then Wynne government.  It ended up concluding that Tarion wore too many hats.  It creates the regulations by which builders had to operate, it creates the warranties, it administers the admission of the builders into the industry, sets the criteria for operation of builders and the security they are required to provide, it backs up the warranties provided by the builders; it is an adjudicator of disputes between builders and their customers and, ultimately, the policemen for dealing with builders who did not adhere to their registration requirements.

Mr. Justice Cunningham felt that there were far too many conflicts in the various roles that were being carried on by Tarion.  As a result, the government proposed to create a separation of some of the operations of Tarion, particularly the builder licencing which would be separated from the administration of the warranties. Thought was also given to creating separate private warranty providers, as opposed to leaving one quasi-government operation to support the warranties.

Most recently, the Auditor General Bonnie Lysyk, produced a scathing 58-page report on October 30, 2019 which, in some respects, regurgitated some of the conclusions of the Cunningham Report, it actually went much further and did a whole business case analysis of the organization.  Unfortunately, it was done from an accounting perspective and not a real life homebuilding perspective.  I have, in a previous article, gone through that report in detail and found it to be unrealistic and unfair to Tarion and its officers, directors and employees. 

The Ford government jumped on the report to announce that it was "cleaning house" at Tarion Warranty Corporation.  Government and Consumer Services Minister Lisa Thomson announced on December 5, 2019 "I want to be clear:  this is going to be a complete overhaul".

As a result, the long standing CEO of Tarion, Howard Bogosch, and the Chair of the Tarion Board, Paul Golini, Principal of the Empire Group, both resigned.  Mr. Bogosch, in my view, had done an admiral job of balancing the demands of consumers and the government whilst its trying to allow the building industry to operate efficiently and profitably.  It was not an enviable job.  The CEO's position has been taken over by Peter Balasubramanian, the former chief operating officer of Tarion.  It remains to be seen whether Peter will remain as permanent CEO or whether there will be a search done for a new CEO. 

In the meantime, decision making and changes are difficult to address under the current environment where the government is still working out the establishment of the separate regulatory/warranty/licensing arms and the spectre of the Lysyk report.  Tarion is, as a result of that report, currently looking at additional grace periods for filing claims which will only make it more difficult to manage the claims process both for Tarion and builders. 

Most recently, in early January, the government announced that for the time being they will not consider private insurers as is the case in B.C.  This was in response to an NDP private members Bill tabled on December 11th, 2019.  The government has not entirely rejected the notion, but it feels that private insurance would not provide the best consumer vehicle and would result in higher costs and poor protection.  This remains to be seen.

In the meantime, the major reforms that  Mr. Justice Cunningham had envisioned, have not really been translated into the new organizations being proposed by the previous government and adopted by the current one.

For instance, a new separate entity has been created to handle the licensing of builders separate and apart from Tarion.  This entity will do rigorous assessments of new builders in terms of their experience, education, history, etc. before allowing them to be registered as a licensed new home builder in Ontario.  However, the actual conditions for registering and doing business in Ontario, ie. how many homes you can build, what type of condominium you can build, how large, applicable security, will all be administered by Tarion, as it does now.  That means essentially a new builder will have to go through two vetting processes, one with the new licensing body and then again with Tarion.  It is unknown at this time how the two will interrelate but certainly on the surface it seems to be duplication without much advantage.  Even if a builder gets licensed by the new licensing entity, the conditions of registration may be so onerous that it will not be able to do business, in any event.

There is no doubt that proper reforms to Tarion as recommended by the Cunningham Report (and same from the Lysyk Report) and otherwise, should be looked at, and to a large extent, implemented.  A proper separation of both licensing and project registration, and regulation making and warranty enforcement, would ensure a fair process for both consumers and builders.  Allowing private warranty providers to provide warranty should also be closely looked at.

Unfortunately, Tarion has become a convenient whipping boy for governments and consumers whenever there is a perceived new home building issue (ie. cancelled condominiums).  It remains to be seen what it will look like when all the regulatory changes are in full effect.  From what I have seen so far, I am not entirely hopeful that the new home warranty structures will be any better than the current one.