History of New Home Warranty In Canada
New Home Warranty in Canada
is modeled after a home warranty plan which has been in existence in the United
Kingdom since the mid 1930's. In 1973 the Housing and Urban Development Association
of Canada (HUDAC) conducted a study of the home warranty plan in place in
the United Kingdom.
At the time of the study, discussions were already underway between the Housing
and Urban Development Association of Canada (HUDAC), Central Mortgage &
Housing Corporation, now known as Canada Mortgage & Housing Corporation,
and the federal government agency responsible for consumer affairs, concerning
voluntary implementation of a home buyer protection scheme as an alternative
to government imposed regulations on the home building industry or government
mandated and operated new home buyer protection schemes.
Delegates reached the conscionable decision
not to proceed with a national home warranty scheme as a National New Home
Warranty plan was not practical due to Federal and Provincial policies. HUDAC
recommended to its provincial councils that they give due consideration to
the implementation of a regional new home warranty program.
The Alberta Council of HUDAC created a task force, charged with the responsibility
of studying proposals for an industry, sponsored, operated, and funded New
Home Warranty Plan. The Plan would regulate its members, and comply with any
governing laws and regulations in the Provinces. The structuring of the Program,
all contracts and documents and an official logo was licensed to all other
provinces for their use. By 1976, there were seven New Home Warranty Programs
incorporated; the result of thousands of hours expended by industry builders,
lawyers and others with expertise in areas of housing and consumer matters,
all without pay. VOLUNTEERS WITH A VISION!
Alberta, Saskatchewan, Manitoba, Ontario and Quebec incorporated mono-provincial
warranty programs while British Columbia included the Yukon, and in the Atlantic
area the provinces of Nova Scotia, New Brunswick, Newfoundland and Prince
Edward Island chose to incorporate under one New Home Warranty Program.
Admittance into the industry sponsored warranty plans was opened to all qualified
residential builders and not just to those builders having membership in the
Canadian Home Builders' Association. This universality provided the means
to ensure that Canada's new home buying public could benefit from New Home
Warranty protection.
By the end of 1976, every region in Canada except the North West Territories
had a New Home Warranty Program. To ensure that the mandate of the warranty
schemes were met, positions on boards of directors or special advisory boards
were created to ensure all parties having an interest in the fulfillment of
the warranty obligation had their expectations met. Parties represented include
the Federal Government (Canada Mortgage & Housing Corporation), provincial
government, mortgage insurers, mortgage lenders, consumers, builders, lawyers
and realtors. In this manner the New Home Warranty Programs were able to ensure
"corporate distancing" from its creators, and to dispel allegations
of conflict and bias in favour of builders. It was then and still is important
to New Home Warranty that its business operations, practices and policies
be vetted continuously, thereby ensuring New Home Warranty Programs perform
as expected.
Consumer Protection
To protect the interests of the new home buying public, the warranty
programs, with assistance provided by actuarial consultants devised a complementary
blend of (a) surety and (b) structural warranty guarantees to reflect
ever changing conditions in the marketplace. Such guarantees have been modified
from time to time to reflect the ever-changing market conditions, and construction
risk.
(a) Surety coverage include:
- purchaser
deposit coverage
- completion
of deficiencies recorded at closing
(b) Structural warranty coverage:
the warranty
period is five years which commences on date of possession of the home and
this date normally
coincides with
the date of occupancy Structural warranty coverages are two fold in nature.
1) WORKMANSHIP & MATERIALS
In most cases this coverage is limited to one year, and in the coverage period New Home Warranty ensures builder performance to correct qualified defects which become manifest in the workmanship and materials incorporated into the structure by the builders, his employees, and sub-trades under contract to the builder. To qualify defects alleged to occur in this warranty period, New Home Warranty provides a quasi-judicial dispute handling process referred to as conciliation. The findings and decisions contained in the conciliation are binding on both the builder and the consumer. The dispute handling processes are intended to resolve issues quickly, effectively and without imposing any heavy financial burden which otherwise may be experienced with litigation. Where the builder defaults, that is for whatever reason he is unable or unwilling to carry out the directions as referenced in "the award" published by the Conciliator, the responsibility to do so then rests with New Home Warranty. In the event that the builder ceases business, the responsibility to perform the warranty obligations rests with the New Home Warranty.
2) MAJOR STRUCTURAL WARRANTY
In this warranty period,
coverage is limited to the correction of defects, which qualify as Major Structural
Defects. That is a defect which is having an adverse effect on the structural
components, or the load-bearing systems, or where a situation exists which,
if left unattended, could result in a failure in the load-bearing systems
of the structure.
Builder Registration
The capacity of New Home Warranty to provide the guarantees to protect
the new home buyer is contained in a contract entered into by the New Home
Warranty with the builder, commonly referred to as "The Agreement with Builder"
In the contract, the builder assigns to New Home Warranty the right to administer
the terms of warranty; that is to monitor the builders' construction practices,
to resolve disputes that arise between the builder and his purchaser, to enforce
compliance to dispute resolution process findings, to carry out the terms
of warranty should the builder default or fail to carry out the terms of the
warranty, and within the limits of the warranty the builder undertakes to
reimburse the Warranty Program for any costs incurred to settle bona fide
warranty claims. The Warranty Programs have developed processes to measure
the technical skills of a builder applicant, in addition to measuring a builder's
financial capacity; that is to finance the initial construction and to ensure
that the builder has sufficient funds available to service the home throughout
the warranty period. As such, the New Home Warranty Programs have taken on
the responsibility and have been recognized as the sole means of builder vetting.
Once qualified and registered, a builder is required to provide the benefit
of warranty to all residential construction eligible for warranty coverage.
Further, Registered Builders are monitored on an on-going basis, and are subject
to annual renewal requirements
Housing Eligibility
Housing eligible for warranty coverage varies widely from one Warranty
Program to another, from the singular eligibility which is limited to housing
built "for sale", to eligibility of all housing including built-for-sale,
rental occupancies, and housing built by public/social agencies (commonly
referred to as non-market housing).
OBJECTIVES OF NEW HOME WARRANTY
The objectives of New Home Warranty are to ensure:
1. That housing is built to established building code
standards and with good building practice.
2. Warranty commitments given by the builder, pursuant
to the signed agreement with New Home Warranty; are guaranteed
by New Home Warranty.
3. That consumer deposits taken by a builder are protected
to the limits established by the individual Programs.
4. That consumer complaints are handled quickly and
equitably.
5. That positive industry action and consumer protection
guaranteed by New Home Warranty may result in greater confidence
in the residential construction industry,
and a lessening in the need by government to introduce legislation to regulate
the
residential construction industry.
6. That industry specific education and training courses
are available for technical and business skill improvement, and in this
regard the New Home Warranty Programs
have become the principal sponsors of education and training programs delivered
to industry.
7. That the philosophy and the terms of warranty will
be discharged by New Home Warranty without bias in terms of its
relationship with builders and
consumers.
SUCCESS OF NEW HOME WARRANTY
1. Recognition by the Canadian judicial system
that the quasi-judicial conciliation dispute handling processes is just and
equitable.
2. The primary success of New Home Warranty arises
from the settling disputes that arise each year between builders and their
buyers, where through the warranty
dispute resolution processes the vast majority of these issues are resolved
without a claim
against the New Home Warranty.
3. The success of New Home Warranty to be highlighted
here must be referred to as "the safety net" where for whatever reason
the builder cannot or will not
honour his warranty commitments and is deemed by New Home Warranty to be in
default, the
New Home Warranty acts to ensure
the complaint/claim is handled quickly and effectively.
4. Recognition by government, businesses involved
in mortgage and finance, real estate sales, law firms, etcetera, that New
Home Warranty has proven an
acceptable alternative to consumer protection legislation while simultaneously
ensuring industry
self regulation.
NATIONAL WARRANTY COUNCIL
The business of New Home Warranty is recognized as being provincial or
in some cases regional in jurisdiction, and within that framework New Home
Warranty carries on its day to day business dealing with matters arising from
within its jurisdiction, be they matters involving the interests of the new
home buying public, industry or government.
There are however, issues which go beyond the scope of any New Home Warranty
jurisdiction; issues which might be of national interest or international
interest. To ensure the New Home Warranty community has the facilities in
place to deal with these sorts of issues, the National Warranty Council took
form in 1977. Operating on consensus, the Council is a federation of Canada's
six New Home Warranty Programs. Participation in Council matters has been
provided to the Canadian Bankers' Association the Canadian Home Builders'
Association, Manufacturer's Council, Canada Mortgage and Housing Corporation,
all to encourage discussion and consensus on matters of national interest.
The National Warranty Council also functions as a means whereby the representatives
of the six Warranty Programs can meet with representatives of the federal
government and the national lenders in an effective forum for discussion and
action.
The business of New Home Warranty and its relationships with consumers, industry,
government and other support businesses is dynamic. It behooves New Home Warranty
to be sensitive to the concerns and expectations that are generally held perceptions,
and to ensure that its business is conducted with these sensitivities in mind.
Year after year the New Home Warranty Programs continue to demonstrate their
effectiveness in providing the best possible new home buyer protection, ensuring
industry self-regulation through established warranty monitoring practices,
and participating in industry and government programs intended to improve
housing quality and durability.
Conclusion
"New Home Warranty is dedicated to excellence in consumer service, excellence
in housing construction, and the perpetuation of industry order through self
regulation"
