December | 2021 | CONSUMERS' REFORM TARION

This was the conclusion of a year-long independent review of Tarion, so why have two successive Ontario governments done so little about it?

The government agency with the sole right to administer new home warranties in Ontario is Tarion. The agency was forced to drop the word “warranty” from its name last year, because it doesn’t provide a warranty, according to a report by the Auditor-General of Ontario in 2019.

This has been confusing for new home buyers for years. The new home warranty is the builder’s, but the home buyer pays a fee to Tarion for it, bundled into the price of the new home. Tarion is a third party administrator between the homeowner and builder.

Tarion’s second role as builder regulator has also been removed, since they were found to be in a conflict of interest as both warranty administrator and regulator, according to the Justice Cunningham and Deloitte Consultants Tarion review in 2017.

So what’s left of Tarion now?

All the top executive salaries and most of their top personnel, it seems. They are now a monopoly administrator of the builder’s warranty, and are supposed to step in, under certain circumstances, if the builder doesn’t fulfill his warranty obligations.

The current PC government admitted in Feb. 2019 that Tarion was “broken”. Hard for them to conclude otherwise, after the two independent studies came up with a total of 69 recommendations for change to protect consumers.

What has this government and its predecessor done so little since these two studies to fix this broken system?

The Tarion review’s #1 recommendation was to give Tarion competition, opening up the field to other warranty providers. This hasn’t been done. The review cost taxpayers over $1 million, but has been largely ignored.

Many think the government’s build-more-faster platform is one of the reasons, plus the need to fuel the economy, create more jobs, and get re-elected. The less oversight and scrutiny of bad builders there is, the more new homes can be built, the more builders can enter the marketplace, escape consequences for shoddy work, and leave the purchaser to try to fight heavily-lawyered corporations to get the home fixed.

Opposition MPPs and concerned consumers have been advocating for an end to Tarion’s monopoly for years. That includes many PC MPPs now in power who were vocal in supporting an end to the monopoly while they were in Opposition. Many advocates themselves had bad experiences with Tarion, and continue to try to help others get their homes fixed. Many have participated in several government consultations, the Tarion review, the Auditor-General’s report, and made depositions on new legislation at Queen’s Park. Consumer input has been noted, filed, and largely ignored by the PC government.

Here are three important reasons why the monopoly isn’t working, and should be ended.All of these points were brought to light in the above two independent studies:

1) Tarion doesn’t provide a warranty. Under a competition-based, multi-provider model, warranty providers would be licensed to provide an actual insurance product, a new home warranty, and all providers would all come under oversight of the Insurance Act. Neither is the case with Tarion.

2) There’s no meaningful government oversight of Tarion’s operations. Tarion still enjoys one of the most laissez-faire oversight models in government since 1976, which gives Tarion the latitude to interpret its own governing legislation, what is covered unde the plan, and how, or if, they resolve disputes.

3) There are too many players involved when defects are discovered. This often produces a pass-the-buck, lengthy, frustrating experience for consumers. Tarion acts as a middleman between builder and homeowner, and various other parties such as municipalities, technical experts, and lawyers. None of this should necessitate the homeowner having to hire his own lawyer to fight the warranty administrator/builder/municipality, all passing the buck between them.

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Here’s a further explanation of each of the above three reasons:

1) Not a warranty. Tarion is an arms-length agency of government, and has been granted a special monopoly by government to administer the builder’s warranty. But as the Auditor-General stated in her Oct. 2019 report: “Tarion does not provide the warranty under the Act (..) that’s the builder’s responsibility (even the name “Tarion Warranty Corporation” contributes to this confusion.”) A competitive model, where actual warranty providers provide an insurance product to the consumer, is used in Alberta, B.C. This has been reported to be “working well”, according to a consumer protection official in B.C. (feedback to Ont. Consumer Ministry consultation, Feb. 2019).

2) Lack of effective oversight by government has been a problem with Tarion since its creation, a critique often raised in the Ontario Legislature and in several Auditor-General’s reports in 2002, 2009, and most recently in 2019. But both Liberal and PC governments have taken a hands-off approach to this problem, basically letting Tarion make its own interpretation of its governing legislation, and saying they can’t intervene. This is a nonsensical strategy if the intent of the legislation was consumer protection. The Consumer Minister Thompson simply re-stated this problem to me in a letter dated June 15, 2021: “As you know, my ministry is unable to intervene in Tarion’s operations.“

What are they waiting for to provide more effective oversight? Tarion’s permission?

Several PC MPPs blasted the former Liberal government for this lack of scrutiny of Tarion, but now in power, they’ve mostly looked the other way. That leaves consumers to fend for themselves in this broken system.

Why has government given a monopoly to an agency they can’t, or refuse to, effectively oversee? That’s definitely good for Tarion, and perhaps what some well-connected lobbyists and their lawyers want. But it’s not protecting consumers.

The Ministry advises consumers to hire lawyers, knowing full well that only a small percentage can afford this. The hands-off-Tarion approach has also increased the growing problem of self-represented litigants and lack of access to justice in Ontario.

3) Too many players involved. There should be one contact only for the homeowner when he discovers symptoms of a defect, such as for example, mould, a leaking roof, or crack in the foundation. That one contact should be a person at the warranty provider, preferably someone with a real name, contact data showing their responsibility, meaningful construction knowledge, and someone who will give continuity in the communication with the homeowner. No third parties, communications middlemen, or in-house lawyers.

The Auditor-General’s report found that if builders refuse to fix defects, there are often no consequences under the Tarion regime. In 65% of the cases the Auditor looked at from 2014-18, builders should have fixed defects and didn’t. (pg. 7)

“We can’t force the builder to do anything”, said Tarion’s former CEO Bogach at an annual public meeting. So the ministry can’t intervene in Tarion’s operations, and Tarion can’t force builders to do anything. Great. What kind of consumer protection does that leave us with?

On this point the Auditor-General stated (pg. 33): “About 80% of the investigations into these complaints [i.e. consumer complaints to Tarion about builders] cleared the builders. Tarion staff who conducted the investigations told us that it was difficult to determine when builders acted dishonestly or without integrity because Tarion has no code of conduct to define these terms.”

This is shocking. Why, at the very minimum, was there no code of conduct, ever, at Tarion to define what a bad builder is?

After this revelation and 31 others, Tarion said yes to all of the Auditor’s recommendations. Then they went ahead to promote executives who must have known about these failings, but seem to have just been content with the status quo. Tarion’s recently-promoted CEO, Mr. Balasubramanian, a 10-year veteran of Tarion’s legal and executive team, said in a Nov. 27, 2019 Legislative Committee hearing, when asked why Tarion never initiated on its own any of these 32 recommendations, said – because there had been no Auditor-General’s report before. (Hansard, Nov. 27, 2019, P-281)

This is a jaw-dropping statement from a senior executive, but most of all, extremely sad for the consumers who’ve suffered under this dysfunctional system.

For the 14 years I’ve been observing Tarion, I’ve seen them act as a go-between, a communications agent between builder and homeowner, sometimes trying to nudge builders to fix problems, or dismissing claims at the outset for late reporting or denied entry, or delaying repair periods, or burying the homeowner in rules and regulations, letting multiple parties enter into an increasingly hostile fray.

The lengthy, back-and-forth sometimes ends up suddenly in the hands of Tarion’s lawyers, whose client is Tarion itself, not the homeowner. Some builders don’t want to pay for repairs, or don’t want to indemnify Tarion, and they want no mention of defects on their record. These interests are often aligned with Tarion’s, to avoid a pay-out and make the whole thing just go away, or the homeowner give up.

The Auditor-General stated in her report (pg. 8) “Tarion’s senior management was rewarded for increasing profits and minimizing financial aid paid to homeowners.” Tarion’s top executives denied this at Committee hearings on the Auditor’s report in Nov. 2019. But they’ve now promised this had changed. We’re to believe no one at Tarion or the board of directors knew this was going on, and we should trust it’s a good idea to promote many of these executives within Tarion. It’s been a “complete overhaul” says the Consumer Ministry.

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Who’s the homeowner’s friend when he discovers a defect?

The purchaser paid for a new home free of construction defects, built according to the Building Code, that’s what the law says he’s entitled to. The Tarion fee is mandatory, and you can’t refuse to pay it, even if you’re skeptical about Tarion.

The warranty provider, a real one, should be the homeowner’s only contact from day one. Fix the problem, leave the homeowner to get back to his own work. No more blame games, delays, forbidding homeowners from recording inspections, using denied entry excuses, or making cash payments in off-the-record “gestures”.

When my car was damaged at a car wash, for example, my insurer told me I didn’t have to get involved, they would handle it. Two weeks later, my car was repaired. No finger-pointing, no dueling inspectors, no multiple visits of reps and employees in training.

Some construction disputes end up at License Appeal Tribunal, with the homeowner self-representing, due to the high cost of legal help. It’s often a terrifying, drawn-out ordeal. I’ve witnessed it several times, both personally and as a friend of homeowners, and I’ve seen it end up destroying families, their health and finances, usually ending up in a win for Tarion and builders, or a settlement with an agreement to be quiet about everything.

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Builder influence on Tarion’s board and senior management was supposed to have been addressed by the Auditor’s report, but it seems to have gotten only window-dressing from the PC government. To call this an overhaul is misleading.

Here’s one example of how governance at Tarion seems to have gotten worse in the last two years since the Auditor’s report. In the fine print of the Tarion 2020 Annual Report (pg. 31, below) a new industry advisory council has been created on Tarion’s board, replacing the former so-called consumer council. Now both councils seem to have equal weight, as highlighted in yellow below.

There still seem to be no consumer advocates on Tarion’s board: home buyers are just one of several “stakeholders”, of which Tarion itself is one. But this is supposed to be a consumer protection agency. The building industry has two builder board members, and now its own advisory council, plus four board members with ties to the real estate industry. Who’s representing the consumer experience with the warranty on the board?

Previous Auditor-General’s reports in 2003, 2009 found an imbalance at Tarion “which favoured the interests of builders at the expense of homebuyers.” So why has this never been properly addressed? The interests of the building industry clearly take a front seat with the current Ford government. His oft-stated priority is to get more homes built faster, and cut red tape for builders, and he avoids ever mentioning that homes must be properly built to protect consumers.

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Adding to consumer concerns, Minister Romano recently said at an annual public meeting of the new regulator HCRA, via a virtual Zoom session, that he himself was having a new home built “by one of the members“, and had “promised to not go too hard on him.” We’re hoping this was a very bad joke. The overseer of the regulator talking about going easy on a regulatee is not a good look for the ministry.

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Those who insist on keeping Tarion as a player in the new home warranty field were also taken into account in the Tarion review. The judge recommended Tarion could continue (under a different not-for-profit organization and under the Insurance Act) to compete with other providers. The review states pg. 28, recommendation #4, “A new not-for-profit corporation should be established to assume responsibility for existing enrollments and be permitted to participate in the competitive model.” So this wouldn’t eliminate Tarion, it would give them competition

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Some PC MPPs seemed to be grasping at reasons to keep Tarion as a monopoly model last spring, and said at Legislative depositions they worried small builders might not be able to get insurance under a competitive model. But that’s not correct, according to insurance industry people I’ve spoken to: some warranty providers actually specialize in the small business sector. If it’s a bad apple builder, no one wants to buy a home from them. So if these marginal builders can’t get insurance, that’s ok with most consumers. Let these builders first improve their performance, then get insurance, not use our life savings as a learning experience.

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“The role of warranty provider is not a natural monopoly”, justice Cunningham wrote in his review, (pg. 6). Utilities like gas and oil are natural monopolies, since they require an expensive infrastructure to deliver product, and smaller companies usually can’t afford this.

But new home warranties are a service, not a utility. There are no examples of monopolies which come to mind which deliver excellent service at a good price. There’s no incentive for monopolies to do so, since they own the entire market and have no competitors. In Tarion’s case, government gave them the monopoly, and only government can remove it. In a competitive model, if you don’t like one warranty provider, at least you have choice of another through your choice in builders.

The stories of Daniel Emery, Earl Shuman, and the Ferland family, are three of the very tragic ones I’ve seen, and I’ve written about each of them in this blog. Treating consumers like this is harsh and unnecessary. Requiring homeowners to sign non-disclosure agreements after mediation, or after a chat in the CEO’s office, only protects builders and Tarion, not the homeowner, and leaves no trace of a builder’s record for anyone to research.

Ontario needs an actual warranty provider, a true insurance product, regulated as one, and only one contact, the warranty company, if construction defects are discovered.

Here’s how judge Cunningham stated this in his review:

“I am recommending the introduction of a competitive multi-provider model for warranty protection.” […] I am recommending that the warranty be clearly characterized as an insurance product, and made subject to Ontario’s Insurance Act.” […] “Tarion is providing an insurance-type product to homeowners, but neither Tarion nor the warranty protection are subject to oversight that would ordinarily apply to an insurance company delivering a similar insurance product.” (pg. 7, Tarion Review)

There’s no clearer way to state this problem and its solution. That’s it.

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Now is the time for the PC government to stop making cosmetic touch-ups to Tarion selling it to us as an overhaul. Fixes have been tried and failed. It’s time to follow the advice given to government in 2017 after the costly and extensive Tarion review, for which taxpayers paid about $1 million.

Affordable housing can’t be achieved by burdening new home buyers with the cost of somebody else’s shoddy work. Premier Ford himself has said he’s against government running monopolies. So why the special status for Tarion?

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Tarion’s former CEO, Mr. Bogach reportedly said in March 2017 after the judge’s review was released: “We’re going to really lobby hard against this.” He seems to have done so. His salary of over $800,000 and his retirement handshake of $1.9 million, seem to have made the lobbying worthwhile.

Tarion’s financials are still concerning to many, and cry out for more scrutiny. In 2020, Tarion paid out salaries of (approx.) $31 million for about 200 employees, administrative expenses of $14 million, but only approx. $21 million in claims. And they have amassed over $680 million in investments, mostly earned through fees collected from new home buyers, (see Tarion Annual Report 2020, pg. 48).

New home buyers have been mislead to thinking something may have improved in 2021, after Tarion’s immediate yes to all of the Auditor’s 32 recommendations. The Auditor didn’t make a decision on whether to keep the monopoly or not, that was beyond the scope of the audit. “That’s a decision for government”, she told me in a phone call in Dec. 2019.

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The PC government’s failure to take action is one of the reasons which prompted the NDP party in December 2021 to introduce bill 77, the Consumer Watchdog Act, to help consumers who’ve been victim of unfair practices, and to establish a way to impartially investigate complaints. A Consumer Watchdog Office is necessary.

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The new home “warranty” monopoly in Ontario is flawed and outdated. Attempts to fix it have been timid and ineffective. Tarion doesn’t provide a warranty. And it’s a fickle friend when you need one, and it’s the only game in town.