Canada: Builder Issues With Tarion

Builders Arbitration Forum and Alternatives to the Builders Arbitration Forum

Tarion, pursuant to Bulletin 41, created the Builders Arbitration Forum (BAF). Builder Bulletins are promulgated from time to time by Tarion to set out requirements builders must meet as part of the terms and conditions of continued registration.

Bulletin 41, does not have the force of statute or regulation, but is designed to provide to builders a right of appeal to BAF from findings of breaches of warranty, which appeal rights are subject to Tarion's exclusive discretion. Theoretically, BAF allows builders to appeal all unfavourable conciliations to that forum, including delayed closing claims, contested substitutions, deposit refund disputes, and breaches of warranty.

However, the right of appeal is not automatic, and is certainly not as broad as an owner's right of appeal to the Licence Appeal Tribunal (LAT) when Tarion rules against a homeowner.

Specifically, with respect to the right to proceed to BAF, the builder must be a builder in good standing, which means that there are no fees owed to Tarion, that the registration has been renewed and remains intact, there are not amounts owing for past breaches of warranty and all appropriate security has been provided.

In addition, a builder cannot be a builder that Tarion decides is unable or unwilling to carry out its warranty obligations, again determined at the exclusive discretion of Tarion.

If any of these factors exist, then Tarion will unilaterally deny the right to such an appeal and the builder is out of luck, in that he has no right to challenge Tarion's decision not to permit the appeal to proceed.

Even if a builder does appeal breaches of warranty to BAF, Tarion can subsequently decide, that it will refuse to renew or propose to revoke the builder, and if that occurs, then the issuance of such Notice of Proposal is inconsistent with the builder being in good standing, and the right to appeal to BAF is lost

What is a builder to do when faced with an unfavourable breach of warranty determination with which he disagrees, given these obstacles to BAF?

A builder may decide not to appeal breaches of warranty to BAF, because only in the most routine cases will Tarion actually allow such a proceeding to occur, and those are the cases in which there are minor breaches of warranty and the cost of proceeding to a hearing and prevailing for the builder, is greater than the cost of the actual deficiency.

That being case, BAF as an appeal route is often of little use to most builders; in effect, builders have no viable right to appeal breaches of warranty findings against them, because of the many restrictions in qualifying for a BAF appeal.

Alternatives to BAF

It may be more advisable for builders to consider by-passing the BAF procedures and concentrate on preparing to defend what they believe to be invalid or mistaken breach of warranty findings by Tarion. Builders can be far more pro-active by accumulating and preparing evidence to refute such breach of warranty findings than by filing an appeal to BAF that Tarion can easily deny.

When Tarion carries out a conciliation inspection and finds breaches of warranty, it can subsequently cash settle those breaches warranty or pay to have the work done, and the builder is often left to defend against a lawsuit that Tarion may commence to recover the settlement amount; in the alternative, the builder may have to defend against Tarion proposing to revoke the builder for having a record of breaches warranty and failing to indemnify Tarion.

If either of these routes is taken by Tarion, then it behooves the builder, as early as the conciliation stage or even beforehand (when the complaint first arises), to obtain its own consultant's report with respect to what it believes to be the actual existence and scope of deficiencies, rather than leaving the field open to Tarion to make initial breach of warranty findings, and then subject such claims to additional investigation, wherein Tarion brings in consultants that prepare elaborate reports for Tarion supposedly detailing and confirming breaches of warranty, and/or expanding on such breaches.

The builder should spend far more time preparing its own evidence, either at the conciliation stage or thereafter, rather than worrying about whether it should appeal such matters to the Builders Arbitration Forum.

Considerable time and effort may be spent appealing to BAF, only to discover at the last minute that Tarion has decided that the builder is not in good standing or decides to issue an NOP against the builder, all of which stops the BAF process.

Resources should be spent on ensuring that the builder arrive at the conciliation with his own consultants and experts to ensure he will be well prepared to defend against any unfavourable findings of Tarion. In order to ensure access, the builder would be well advised to have consultants or independent contractors accompany him to inspections prior to any prospect of conciliation, because at conciliations owners can ask that the builder be excluded, and if so, the builder's opportunity for reasonable access may be lost.

In circumstances where Tarion is asked to review a long list of complaints by the homeowner on a one year claim, or a Condominium Corporation Year-End Performance Audit, the builder has to expect that in most instances, Tarion will find breaches of warranty, and if that is the case, then the builder should be ready to refute those breaches of warranty by assembling his own evidence against such initial complaints.

If Tarion settles a claim and proposes to revoke the builder, the builder can appeal such revocation to the Licence Appeal Tribunal. In the circumstances of an appeal to the Licence Appeal Tribunal, the builder does not have to convince Tarion that it is a member in good standing, it does not have to worry about whether or not Tarion has unilaterally found it to be a builder that is unable and unwilling to perform its warranty obligations; in such circumstances the appeal right is a statutory right, not a discretionary right like a BAF hearing and all of the issues surrounding the breaches of warranty and failure to indemnify can be heard at the LAT hearing.

Similarly, if Tarion sues the builder for recovery of funds expended in a settlement it has made with a homeowner or Condominium Corporation, the builder has every right to defend against such action and again does not have to worry about its status with Tarion, as it does in trying to assert its rights to BAF.

Therefore, the importance of this newsletter to builders is that I urge all builders to prepare to defend themselves any time an owner makes a claim, because the owner can decide that he or she would rather have Tarion settle the claims, rather than allow the builder access to resolve claims pursuant to its statutory warranty rights. Although builders are entitled to full access to inspect and repair in order for the statutory warranty to work, this often is not the case.

There are too many circumstances where clients have been denied access to homes and Tarion has carried out conciliations in their absence; thereafter, the homeowner has not allowed the builder back in to remedy deficiencies, the claim is settled by Tarion and Tarion invoices the builder for an amount that bears no relationship as far as the builder is concerned to any deficiencies that might have existed.

In many instances, by the time that process has occurred, it is difficult, if not impossible, for the builder to access to the premises and prepare adequately to defend against what it believes to be erroneous findings of breaches of warranty or monetary settlements that bear no relationship to cost of repair.

In today's climate, it is important for a builder to ensure he has the evidence to support his beliefs, and to that end, I cannot emphasize too strongly that he bring his consultant, that he be at the conciliation, that the document every failure to obtain access, every communication with the homeowner or Condominium Corporation, because Tarion, when faced with a persistent claimant, will not hesitate to settle the claim, invoice the builder and pursue the builder thereafter.

Conclusion

All registrants must be diligent in communicating with Tarion regarding disagreements they have with Tarion's unilateral actions, including denial of access, findings of breach of warranty, findings by Tarion that the builder unable and unwilling to perform his warranty obligations and denying the right to proceed to BAF.

Without access, warranty obligations cannot be met and builders cannot mitigate their damages. In such circumstances, the builder's warranty becomes meaningless. In effect, the warranty becomes Tarion's warranty and the builder is simply left to pay up or jeopardize his registration.

Tarion's policies regarding the builder's very limited rights to appeal to BAF, the absence of protection from denial of access and unilateral findings by Tarion that a builder is deemed to be unable and unwilling, all conspire to prevent the Act from working to enable builders to resolve warranty claims, deal with after-sales service and successfully challenge decisions of Tarion with which they disagree.

The builder must resist this rush to judgment by Tarion whose policies short circuit the process, otherwise, Tarion is simply in the business of processing and paying claims received from homeowners, and thereafter extracting payment from the builder.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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