Ontario’s Auditor-General has issued a scathing report on the inner workings of the province’s home-building industry regulator, Tarion Warranty Corp., urging changes that target everything from high-priced salaries, too-cozy relationships with home builders and confusing rules that allowed it to reject thousands of legitimate claims from homeowners.
Tarion’s role in the new home construction industry is both to regulate builders and to offer insurance payments to home buyers when builders do not repair defects that meet warranty requirements. Because builders provide those warranties, the report goes so far as to suggest Tarion remove the word “warranty” from the corporation’s name, to clarify its role to consumers.
Auditor-General Bonnie Lysyk was invited to review the agency in 2018 by Queen’s Park’s standing committee on public accounts. The Progressive Conservative government and the current Tarion leadership say they accept all 32 recommendations in the audit and are pledging to implement them.
The report’s top-line recommendation urges more distance between Tarion and the Ontario Home Builders’ Association. Ms. Lysyk concludes the “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 took issue with Tarion policies that required it to give the OHBA advance notice of any new regulations and that gave the builder’s lobby eight of the 16 seats on the board of directors. Tarion had also paid $185,000 over five years to sponsor a leadership dinner at the industry’s annual conference.
Joe Vaccaro, CEO of the OHBA, agrees that his organization has tight ties with Tarion. “I can appreciate the word ‘imbalance’ because we are so active in the advocacy space.” But he acknowledged in a later e-mail that the imbalance may have cost consumers. “Yes, it probably has happened where the system has failed to resolve legitimate home buyer issues and left them out of pocket.”
Former Tarion board chair Chris Spiteri said the optics “are horrible.” He criticized Tarion’s participation in golf tournaments and award ceremonies with OHBA. “These are the guys we’re supposed to be regulating.”
The report says Tarion’s “processes and practices do not always conform to the spirit or intent of the Ontario New Home Warranties Plan Act.” For example, homeowners must first contact their builder regarding any defects, and it is the builder who provides the actual warranty for the home (despite what Tarion’s name suggests). If a builder fails to resolve the complaint, homeowners can appeal to Tarion for a remedy.
Since 2003, Tarion has imposed two deadlines for contacting the agency: 30 days after taking possession of a new home, and then a second 30-day window one year later. “Between 2014 and 2018, Tarion refused assistance on about 9,700 requests because the homeowners had missed the 30-day deadlines. About 1,300 of these requests had missed the deadline by a single day,” the report says. A sampling of the rejected claims included such major issues as cracked foundations, building-code violations and lack of proper insulation.
While the Auditor-General found Tarion can be strict with home buyers, the report concludes it can be too lenient with builders, going so far as to collect less money from builders, underfunding its own operations. Tarion’s main funding comes from security deposits from builders, but the Auditor-General found the deposits are often assessed at below market value while payouts to home buyers are based on current values. "As a result, [Tarion] paid out about $127-million from the Guarantee Fund over the last 10 years, and recovered from builders only about 30 per cent of the pay-outs.”
In multiple cases, builders that failed to honour warranties were able to renew their licence to build new homes. “Tarion told us that it would be unfair to use its licensing power to force collection payments from builders,” the report says.
In 2018, Tarion received 70,000 requests for help from home buyers, and eventually paid out $17.4-million in about 800 cases.
Tarion’s online builder directory is also missing many examples of data buyers might be interested in. Between 2009 and 2018, it convicted 666 individuals of illegal building, but those convictions were never recorded in the builder directory.
“The Builder Directory should be administered by government, not by industry-dominated or secretive agencies like Tarion. There needs to be transparency on builder track records to properly inform the public,” said Barbara Captijn, a consumer advocate and long-time critic of Tarion. “Consumers have been muzzled for over a decade for saying this is a rogue corporation with no credible oversight, or accountability to the public.”
The report also raises concerns about bonuses and salaries at the not-for-profit company, noting that five of 11 performance indicators that contribute to bonus payments relate to maximizing profits and keeping expenses low. “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 home buyers,” the report says. Senior leadership, vice-presidents and above could earn 30 per cent to 60 per cent of their annual salaries in bonuses; $2-million in bonuses were paid out in 2018.
Tarion is a delegated authority; its employees are not government workers, so salaries do not appear in Ontario’s annual Sunshine List. On Oct. 15, Tarion revealed its compensation to top leadership for the first time in 41 years: Howard Bogach, president and CEO of Tarion, collected $681,616 in salary and bonuses in 2018, and together the 11 senior leaders collected $4.04-million in total compensation.
"We thank the Auditor-General for her recommendations and look forward to acting on them with the best interests of homeowners in mind,” Mr. Bogach said in a written statement.