Deposit protection for condominiums
Oct 14th, 2014 | By FCT
As the administer of the Ontario New Home Warranties Plan Act, Tarion regulates new home builders and provides the warranty protection that new home purchasers are entitled to in Ontario. The warranty is among few programs in Canada that covers home buyers before they move into their new home with deposit protection up to $20,000 for condominiums and $40,000 for freehold homes.
Last year, Ontarians moved into approximately 20,000 new condo units across the province. With so many developments underway, it’s not unusual for projects to be cancelled from time to time. This is why home buyers’ deposits are protected by the trust provisions of the Condominium Act.
However, recent news reports have surfaced of an alleged fraud involving a proposed condominium development in North York. Although this case is still ongoing, it currently appears that deposits some purchasers made for this nonexistent condo development have gone missing.
This story is shocking and heart breaking for those involved, but it is also extremely rare. So rare, in fact, that Tarion has not witnessed such an occurrence since my time as President. Out of more than 100,000 high-rise units under warranty, Tarion paid only 27 deposit refund claims for condo units from 2011 to 2013.
Fraud schemes such as this are extremely difficult to conduct because of the many regulations in place that protect new home buyers. The trust provisions of the Condominium Act, together with the backstop of Tarion’s deposit protection, were designed to provide strong consumer protection. Under the Condominum Act, all deposits, regardless of the amount, must be kept in trust by the vendor’s lawyer or other appropriate trustee. Typically the money can only be accessed after the completion of the project, or returned if the project is cancelled. Furthermore, under the statutory warranty administered by Tarion, deposits paid for new residential condo units are protected up to a maximum of $20,000 per unit.
In addition to these regulations, Tarion confirms that prior to licensing,any vendor of a proposed condominium project must demonstrate the financial wherewithal to complete such a project and requires securities that can be used should Tarion be required to pay out claims on their behalf. Tarion also ensures that vendors work with an appropriate legal firm with expertise in condo sales.
If I could offer some advice to condo buyers, I would encourage them to hire an experienced real estate lawyer who specializes in condo law. There are also insurance products available to condo buyers to further protect their purchase, which is something buyers can discuss with their lawyers. Home buyers should consider the risk in making a substantial deposit at the onset of the project, bearing in mind the long time frame of condo developments.Many condo projects now request deposits in instalments based on the progress of the project, which may ease some of the initial risk.
Once the complete story unfolds regarding this current condo project in North York, Tarion will review our processes to see what lessons that can be learned and additional ways we can better protect Ontario home buyers. In the meantime, we are focused on ensuring buyers are aware of their deposit coverage and processing any deposit claims.
If you purchased a condominium unit in this building, or have questions about your new home warranty, call Tarion at 1-877-982-7466 to speak to a representative.