Is your deposit protected with new construction builds?
As an increasing amount of condominium buildings are populating Toronto’s skyline, buyers are getting in on the action. For a (sometimes hefty) price, you too can live in the city’s downtown core in a unit of your own in one of many built or soon-to-be-built towers.
In most cases, when you purchase a newly constructed home or condo with a tentative occupancy date, you will be presented with a deposit structure from the builder. The deposits are usually a predetermined amount at signing with regular payments at intervals until a certain amount has been forwarded to the builder.
But the question for many would-be condo buyers is can their deposit be protected?
How are deposits lost?
In recent years, several people who had submitted deposits on new or pre-construction homes or condo units subsequently lost them for a variety of reasons. These reasons included project failures, outright cancellation of projects, and in some cases, fraudulent practices.
According to data from FCT, nearly 20,000 new condo units were moved into in 2018. Despite the fact that there are condo developments in many of the province’s largest cities, projects can sometimes get cancelled. With so many people losing their deposits, which often totaled several thousand dollars, the legislation needed to be amended to protect buyers’ deposits.
In one notable case that occurred in 2014, a Toronto real estate lawyer named Meerai Cho was arrested after not returning deposits submitted by at least 142 people for two new condo developments on Yonge St. in North York. The deposits, which ranged in value from $40,000 to $700,000, were not returned to the would-be unit owners upon the announcement of the project’s cancellation. Three years later, Cho plead guilty to one count of criminal breach of trust and was sentenced to 3½ years in prison.
Protection for new construction deposits
The Ontario New Home Warranties Plan Act was put into place to ensure that deposits on new construction builds would be protected. As a result, homebuyers’ deposits are now officially protected by the trust provisions detailed in the Ontario Condominium Act. The program is handled by Tarion, the regulator for Ontario’s new home building industry. Regarding the coverage itself, Tarion provides deposit protection of up to $20,000 for condo units and $40,000 for single-family homes.
If an issue regarding a lost deposit on a new construction property ever arises, Tarion’s job is to ensure that the buyers receive the statutory warranty coverage they are entitled to under the terms of the Act. Although some disputes regarding deposits are often settled between the buyers and developers, Tarion can step in on the buyers’ behalf if the builder fails to uphold their warranty obligations.
What is covered by the statutory warranty coverage?
According to the Ontario new home building industry regulator, Tarion, the following elements are covered by the statutory warranty coverage:
- Deposit protection
- Financial loss protection for contract homes
- Protection against unauthorized substitutions
- Compensation for delays in closing or occupancy -seven-year warranty for significant structural imperfections
- One and two-year warranties for specific flaws discovered in work or materials
- Common elements of condos, such as any common or shared areas within buildings
It’s important to note that unlike warranties provided by manufacturers of consumer products or service providers like contractors, the statutory warranty coverage only applies to the work performed by the builders. In the event that you need to make a claim regarding a defective product you purchased or issues with a service, you would have to contact the provider or manufacturer directly.
What you should know before you buy
If you do run into issues with the builder, or if the project gets derailed or cancelled outright, you do have rights. Sometimes, disputes regarding your deposit can be settled with the builder directly, but in the event that that process fails, Tarion can step in and advocate on your behalf. As the Ontario government’s official regulator for the new home building industry, Tarion will ensure your deposit receives the protection it is guaranteed in accordance with the Ontario New Home Warranties Plan Act.
A home or condo unit is among the largest purchases you’ll make in your lifetime. Before you decide to submit your deposit on your dream home, take plenty of time to analyze the situation. Ask yourself if the builder seems legitimate and do research on their previous developments. In most cases, it may be better to do business with a more established builder, as they will have a good track record and a higher quality of service