Ontario to create new home warranty regulator to crack down on conflicts of interest
Ontario Auditor General Bonnie Lysyk found Ontario’s home warranty agency ‘favoured the interests of builders at the expense of homebuyers’
Tarion Warranty Corporation has overseen the industry for the past 40 years
Ontario has announced changes for new home warranties, including moving oversight for new home builders and vendors away from the corporation that provides the warranties.
Government and Consumer Services Minister Bill Walker says establishing a separate regulator will address a conflict of interest in the current structure.
Tarion Warranty Corporation has overseen nearly all facets of the home building sector for the past 40 years, and a review found fault with its complex structure and overarching mandate, with both builders and homeowners questioning its objectivity.
Walker also says he will explore the feasibility of a multi-provider insurance model for new home warranties.
The government is also planning legislative amendments that will require Tarion to publicly disclose executive and board compensation.
Ontario has further asked Tarion to work with the Condominium Authority of Ontario to better inform people of the potential risks associated with buying pre-construction condominiums.
Province replacing home-building industry regulator with new authority
By Laura Osman CBC News
The head of the new organization tasked with replacing Tarion says he plans to take the auditor general’s scathing criticism into account as he overhauls the province’s home-building industry, but critics still have their doubts anything will change.
Tarion, an arms-length government agency that regulates the industry and is supposed to ensure builders honour their warranties, has come under fire from homeowners and their advocates, the government and most recently, Ontario Auditor General Bonnie Lysyk, who characterized Tarion’s relationship with builders as far too close for comfort.
The government has proposed stripping Tarion of its regulatory duties and handing them over to a newly formed agency: The Home Construction Regulatory Authority (HCRA).
“We’ve read the auditor general’s report with great interest,” said Tim Hadwen, HCRA’s interim CEO. “We’re taking the auditor’s recommendations fully into account as we go about our work of getting ready.”
Lysyk found a slew of issues with the way those builders were regulated, including that the Ontario Home Builders Association “had disproportionate influence over Tarion’s decisions and operations.”
How HCRA will specifically avoid the same pitfalls has yet to be explained, and Hadwen referred questions about any such details to the ministry of consumer services.
Consumer Services Minister Lisa Thompson declined CBC’s request for an interview, but earlier this year she said HCRA would be a not-for-profit corporation with amandate to regulate the home-building industry.
Former PC caucus member Randy Hillier said the lack of information makes it difficult to see how the new agency will be any better than Tarion.
“We know in very broad understanding that it’s there to regulate the home builders, but I don’t think there’s any more detail to that entity than that,” said Hillier, who now sits in the Ontario Legislature as an independent.
“How do you examine something that’s being kept hidden?”
Hadwen said he’s focused on putting the systems in place that will allow HCRA to take over regulation of the home-building industry when the province feels the new agency is ready.
The HCRA board of directors was appointed last spring and includes two members of the home-building industry who were commissioned after consultation with the Ontario Home Builders’ Association. One of them also served on Tarion’s board of directors.
The rest appear to be former high-ranking public servants, along with one current executive for the Kraft Heinz Corporation. None appears to have a background in consumer protection.
During his time in the PC caucus, Hillier said there was consensus that administrative authorities like Tarion should be disbanded because they lack proper oversight.
He said he was surprised to learn that not only does the government not intend to disband Tarion, it plans to designate HCRA as a new authority.
“We actually have the law on our side to advocate for and make changes,” he said. “We don’t have that with the delegated administrative authorities. There is no mechanism for members of the legislative assembly to bring that problem … and find a remedy.”
NDP leader Andrea Horwath recently called for the Tarion board to be fired while the home warranty system is overhauled.
Both Horwath and Hillier accuse the government of not moving fast enough to protect homebuyers from a few bad builders in the province.
“There’s been some good tinkering, but very minor tinkering,” Hillier said.
Tarion failing homebuyers, auditor finds
By Laura Osman CBC News October 30 2019
Tarion, Ontario’s home warranty agency, has failed thousands of new homebuyers by placing the interests of builders ahead of theirs, according to a scathing report tabled by Bonnie Lysyk, the province’s auditor general.
Tarion is supposed to ensure builders honour their warranties on new homes. The service is mandatory for new homebuyers, and the cost is typically built into the price of a new home.
Lysyk found the agency, which also regulates the industry, has until recently operated with very little oversight and was allowed to write its own rules.
Lysyk found most of the public complaints about Tarion’s dispute resolution process were justified, and that the Ontario Home Builders Association (OHBA) “had disproportionate influence over Tarion’s decisions and operations.”
Under Tarion’s own rules, half of its 16-member board of directors must be nominated by the OHBA, which must also approve any regulatory changes.
Tarion even spent $185,000 over the last five years to sponsor a dinner at the industry association’s annual conference. The auditor has recommended Tarion cease that practice, and the agency has agreed.
“We found that this relationship between the Tarion Board and the OHBA created an imbalance over the years that favoured the interests of builders at the expense of homebuyers,” the auditor wrote.
“Some Board decisions, such as the implementation of the 30-day submission window, made it difficult for homeowners to access Tarion’s services when they needed them most, resulting in the denial of thousands of claims.”
A review of 40 random cases where homeowners were denied help after missing the complaint window found 13 involved such major issues as cracked foundation, water leaks, inadequate insulation and even a building code violation — the minimum standard for safety in a home.
The auditor also found Tarion is failing to collect warranty payouts from builders, recovering only about 30 per cent of the $127 million the agency has forked over to homeowners in the last decade.
Despite these shortcomings, Tarion’s president and CEO, Howard Bogach, earned $681,616 in base salary and incentives in 2018, plus an additional $87,794 in car allowance and pension contributions.
In total, Tarion paid out more than $4 million in executive compensation last year.
Even though Tarion is supposed to operate as a non-profit, the auditor found many of those incentives focused on maximizing profit and minimizing expenses, “which can have the unintended consequence of keeping claims payouts to a minimum.”
In her report, Lysyk wrote that “these incentives might be better suited to a profit-making insurance company than a not-for-profit delegated authority with the mandate to help new homebuyers.”
Among Lysyk’s 32 recommendations was a call for greater government oversight of Tarion.
The Ford government has described Tarion as “broken,” and has already instituted a number of changes, including stripping Tarion of its regulatory powers and handing those responsibilities to a new agency to mitigate conflicts of interest.
Consumer Services Minister Lisa Thompson has also mused about ending Tarion’s monopoly on new home warranties in Ontario, opening the field to private competition.
Tarion and the ministry have both agreed to implement all of Lysyk’s recommendations.
“We thank the Auditor General for her recommendations and look forward to acting on them with the best interests of homeowners in mind,” Bogach said in a press release Wednesday.
The ministry said it will track Tarion’s specific actions toward addressing the auditor’s recommendations.
Lysyk’s audit also found:
-Tarion issued licences to builders with poor warranty records.
-Senior management was rewarded for minimizing payouts to homeowners.
-Tarion dismissed thousands of requests for help from homeowners who missed Tarion’s “restrictive deadlines.”
-Tarion took as long as 18 months to compensate homeowners for builder defects.
-Tarion describes itself as a “home warranty provider,” when in fact it’s the builders that provide the warranties.
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