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A rendering of the cancelled condominium project, Cosmos Condos, by Liberty Development.

The Ontario government has announced it is coming after “bad apples” in the home building industry, announcing changes to the provincial regulatory framework intended to restore consumer faith and punish those who have abused that trust.

In a release, Bill Walker, Minister of Government and Consumer Services, described Tarion, Ontario’s home warranty operator and home construction regulator, as “broken.” The government plans to split the agency up and empower the Home Construction Regulatory Authority with a new board and new mandate to create rules to crack down on issues that have frustrated consumers, such as large-scale condo cancellations or chronic maintenance problems.

“Really, the focus would be on those bad apples. We’ll penalize them and almost try to squeeze them out of the marketplace,” Mr. Walker said in an interview.

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“I don’t think it’s broke, there’s room for improvement,” said Audry Loeb, partner with Shibley Righton LLP, who has served on panels studying changes to Tarion and the Condominium Act established by the previous Liberal government. “Part of the problem is it’s run by builders, for builders. In my view Tarion has a slant.”

Some of the key elements of the new government’s plans come from a 2016 review of Tarion by Justice Douglas Cunningham, splitting Tarion into two entities was one of 37 recommendations offered in his report. The former Liberal government passed legislation on some recommendations in 2017’s Bill 166, though many of its provisions remain unproclaimed by the crown, and thus are not in force.

“Establishing a separate regulator for new home builders, distinct and separate from the warranty provider who resolves new home deficiency claims, is frankly overkill for the alleged “conflict of interest” that Justice Cunningham noted in his report,” said Harry Herskowitz, former Tarion chairman of the board, and partner with Delzotto Zorzi LLP.

Mr. Herskowitz said the non-profit company would derive no benefit from having its inspectors downplay any builder deficiencies, and further claimed “during my tenure on the board of directors of Tarion, it has never instructed its warranty service representatives to ignore deficiencies, and has never induced or encouraged such conduct (either with incentives, disciplinary measures or otherwise).

“I personally believe that none of Tarion’s employed warranty service representatives are somehow biased against homeowners and therefore would endeavor to rule against them on deficiency claims for the sole purpose of reducing the payout of claims.”

Ms. Loeb, though, does find fault in Tarion and the government’s protections for new home buyers, particularly in the condominium space where a rash of project cancellations has prompted calls for action from the regulator.

“The government has never said to developers -- and Tarion has never said, either -- you have an obligation to act in good faith vis a vis the purchase,” said Ms. Loeb, who likens such good-faith requirements to those standard in franchise business contracts. “My thought is a developer shouldn’t be able to cancel [a pre-sold condo project] unless it has explained to somebody, Tarion or the new entity, and been able to show they really do have to cancel.”

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Projects comprising more than 4,000 condo units were cancelled in Ontario in 2018 – double the previous record of 1,678 set in 2017 – most of which came from two large-scale developments in Vaughan, north of Toronto, that are now embroiled in litigation. In September, Gupta Group cancelled its sold-out, 55-storey Icona building at the Vaughan Metropolitan Centre, affecting buyers of 1,633 units. Six months earlier, Liberty Development cancelled its Cosmos condo project, also on Highway 7, affecting buyers of nearly 1,000 units.

Mr. Walker said, so far, the developers he’s spoken with are receptive to the changes.

“The meetings I’ve had, they want to be part of this. They have the most stake in the game, they want to clean this up as well,” he said. “I don’t want to go after the good builders.”

Mr. Walker also acknowledged he has had little in the way of public consultations with nonindustry stakeholders as of yet.

The ministry will also consult on ending Tarion’s monopoly on new home warranty insurance offerings, with plans to study such markets as Alberta and British Columbia that allow third-party insurers.

As part of the review, Tarion’s board itself will receive greater scrutiny, raising the possibility of governance changes relating to compensation and qualifications of board members.

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“Tarion has nothing to hide in this respect,” said Mr. Herskowitz though he does worry that introducing competition to the home warranty providers will result in higher costs to homebuyers.

Spokespersons for Tarion’s current executive declined to comment by press time.

As of 2017, 5,549 builders and vendors were registered with Tarion and in that year 68,945 new homes, 46 per cent of which were condominium units, were enrolled in the warranty program.

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