Tarion Talks Podcast: Episode 4, Deposit Protection & Condo Conversions

For our fourth episode of Tarion Talks, we discuss the two new and exciting improvements to consumer protection:

  • Enhanced deposit coverage for non-condominium freehold homes, and
  • Warranty coverage for condominium conversion projects

Effective as of January 1, 2018, these improvements provide consumers with significantly greater protection, whether you are putting down a deposit or thinking about buying a condo that’s being developed within an existing building – like a church or factory. Read below for a summary of this episode, or listen along to our discussion.

This episode is hosted by Melanie Kearns, Senior Manager of Strategic Communications at Tarion. Melanie is joined by Amy Lewis, Senior Manager in Tarion’s Stakeholder Relations department and Sandro Nevicato, Manager of Warranty Services in the Common Elements department.

What is deposit coverage?

When buyers of new homes put down a deposit, Tarion provides protection for the deposit in the unexpected event that the home isn’t built and your builder, which for our purposes includes a vendor of new homes, does not return your deposit. The deposit you give your builder will be protected by Tarion up to certain limits in the event that:

  • Your builder goes bankrupt;
  • Your builder fundamentally breaches the purchase agreement; or
  • You, as the home buyer, have a legal right to treat the purchase agreement as terminated.

In recent years, as home prices have risen, so have deposit amounts. That puts consumers at greater risk in today’s housing markets. The good news is that under the Ontario New Home Warranties Plan Act, buyers of non-condominium freehold homes are eligible, as of January 1, 2018, for increased deposit coverage.

Changes to come

As part of the upcoming consumer protection enhancements, deposit coverage for new non-condominium freehold homes has been increased to 10 per cent of the purchase price up to a maximum coverage of $100,000 with minimum coverage of $60,000. This new coverage affects purchasers who sign a purchase agreement and put down a deposit after January 1, 2018.

For example, if you paid $600,000 or less for your home, you are eligible to receive up to $60,000. If your home was more than $600,000, you are eligible to receive up to 10% of the purchase price, to a maximum of $100,000. Also, as of January 1, deposit protection also includes other payments, such as those made for upgrades and extras.

Condos are already protected

These changes to not extend to deposits for new condominium purchases; but, there’s good reason for that. Deposit coverage for condos remains the same because the law requires that a purchaser’s full deposit – no matter what the amount – be placed in trust by the builder. So, it is already fully protected that way.

What is a condo conversion?

Officially referred to as “residential condominium conversion projects,” these are repurposed buildings that have been converted into residential, condo-style homes. They can be old churches, warehouses or other old buildings that are no longer being used for their original purpose. Typically, the builder incorporates some of the building’s more interesting features, like large windows, framing, and brick walls into the design.

New protection for condos conversion projects

Previously, these types of condos weren’t eligible for warranty coverage. However, as of January 1, 2018, owners of converted condo units, as well as common elements, are eligible for full seven-year statutory warranty coverage under the Ontario New Home Warranties Plan Act if the first purchase agreement in the project was signed on or after January 1, 2018.

For condo buyers, this means your condo conversion purchase will now be protected by all of the warranties in the Act – the one-year, two-year and seven-year – with one exception. Any pre-existing elements – such as existing exposed brick interior walls – would not have the one-year warranty regarding workmanship and materials. This is because those elements already exist in the original building and would not be made of new materials.

Also, only conversions from a non-residential are covered. Residential rental apartment buildings that are being converted to condos are not covered, as there is usually little construction of new elements when these buildings are converted.

Additional protection for condominium conversion

There are a couple of additional protections when it comes to condo conversion projects. The new legislation states that builders of condo conversion projects must be registered with Tarion. In the past, they have not been required to register with Tarion. However, since Tarion is now backstopping a warranty for condo conversions, these builders need to be registered, just like builders of new condominiums.

If a builder is unsure if a project they are planning is a Residential Condo Conversion Project, they should call Tarion to confirm.

Along with the warranties that cover the construction, purchasers of these converted condos will also be entitled to the same deposit protection as other condo buyers as well as delayed occupancy compensation if their homes are not completed according to an agreed-upon date.