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Buy With Confidence : Tarion

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Buy With Confidence : Tarion

Deposit protection changes are on the way

When new homebuyers put down a deposit on a new home or condominium in Ontario, they enjoy peace of mind that their deposit is protected should anything go wrong with the sale.

Since 2003, Tarion, which backstops the new home warranty in Ontario, has provided consumers with deposit protection up to $40,000 for new freehold homes and up to $20,000 for new condominiums. Condominium deposits also have the added protection of being placed in trust and protected under the Condominium Act.

This level of protection has worked well over the years, but a lot has changed since 2003. The price of homes, particularly in the GTA, have sky rocketed in recent years, and Ontario has seen the collapse of large builders, most notably Urbancorp.

That’s why in 2016, Tarion committed to review deposit protection for freehold homes. Tracy MacCharles, Minister of Government and Consumer Services, also publicly stated last March that she wanted a review to go ahead. The review has been looking at three options.

The first is to require builders to put all freehold deposits in trust, similar to condominium deposits. This would be a very effective protection for consumers, but could act as a barrier to new companies entering the industry because builders of freehold homes use deposits as working capital to finance their construction of new homes.

A second option is to increase the deposit protection cap for all freehold homes, perhaps to $50,000 or $60,000, or for each home by using a formula, such as 10 per cent of the purchase price (but not less than $40,000).

This option provides better deposit protection for consumers but could result in a small rise in enrollment fees that may be passed on to the consumer. But builders of freehold homes would have more working capital, and new home sales may rise, boosted by increased consumer confidence.

The third option is a blend of the first two: an increase in the deposit protection cap and any funds collected above that cap must be held in trust. Under this scenario, consumers would enjoy enhanced protection and builders would have greater working capital, although they would need to take on the extra work of administering the trust.

All options under consideration would provide consumers with greater protection, but there are trade-offs that have to be considered before a final decision is made.

The Ministry of Government and Consumer Services is expected to make an announcement on deposit protection this fall.

For more information, visit Tarion.com.

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