TARION: The Downside of Side Agreements

When purchasing a new home or condominium, it isn’t unusual for a homebuyer to negotiate a “side agreement” with a builder. This is when builder offers something beyond what is in your Agreement of Purchase and Sale (APS) such as an upgrade, or something in lieu of another item. A builder can also offer a supplementary warranty that is over and above the statutory warranties. These agreements can be attractive to homebuyers as they may be offered at a discount, or simply as an “extra.”

While most homebuyers would see this as a bonus, it can also be extremely frustrating if the builder does not honour the side agreement. And unfortunately, side agreements fall outside Ontario’s new home warranty program.

The purpose of the new home warranty program is to ensure your new house or condominium meets the structural requirements and health and safety standards of the Ontario Building Code. The warranty includes deposit protection or financial loss, delayed closing compensation, and a one-year, two-year and seven-year warranty that provide coverage for specific items and conditions.

While your builder provides the warranty, Tarion backstops it by getting involved at the homeowner’s request if your builder does not honour his/her statutory warranty obligations.

However, the builder can offer services that are above and beyond the new home warranty, which Tarion does not have authority to get involved with. Over the years, Tarion has seen examples of disappointed homeowners who have approached us for help when either their builder has failed to come through on a side agreement or there is a misunderstanding between parties. We have to tell them that Tarion cannot force a builder to honour an arrangement that falls outside their APS. By the time the homeowner has already hit a stand-still with his or her builder and approaches Tarion for help, it can be extremely frustrating to find out that we are unable to assist.

A common example of a side agreement is the upgrading of electrical components such as wiring for pot lights or pre-wiring for home theatres. Many homeowners negotiate to have their builder wire the home before the drywall has been completed, however, if this was some kind of “deal” not included in the APS as part of their upgrade list (which, in some cases, could be more expensive), Tarion cannot cover this upgrade.  Should something go wrong with the upgrade, the homeowner has no recourse if such an agreement was not made in writing and included in the APS.

Over the years Tarion has received complaints from homeowners not receiving the items their builders have promised, such as finished basements, backyard decks, and extended warranties on heating and ventilation systems or foundation waterproofing.

Purchasing a model home has also caused some confusion. Since it is used as a showcase for many prospective homeowners, it can have normal wear and tear such as chipped floors or peeling paint. Even though homeowners are usually asked to sign a document accepting these defects in writing, they don’t always inspect the extent of the damage beforehand, which can lead to dissatisfaction with the state of their new home. The statutory warranties can be voided if a purchaser agrees to accept in writing specific defects in the home.

Never accept an upgrade or modification for your new home or condominium unit without including it in writing in your APS. Should you want to add something to your home after your APS is signed, you may be able to have it included in the APS in the form of an amendment. To ensure this is done properly, make these changes with the help of a lawyer. This way, the builder’s agreement will be backed by Tarion, and you may have somewhere to turn should you need assistance.

If you have purchased a new house or condominium and have questions about your warranty, contact Tarion atwww.tarion.com or on Facebook.