April 25, 2018
Author: Leor Margulies
Effective January 1, 2018, builders backed by Tarion will be providing new home warranties for residential condominium conversions as a result of amendments to the Condominium Act. As a result, any project whose first agreement of purchase and sale was sold to an arm’s length purchaser after January 1, 2018, will be required to adhere to the new procedures which are dealt with in detail in Tarion’s Bulletin 51.
Bulletin 51 coverage will only apply to conversions from non-residential uses. Therefore, apartment buildings, hotels, boarding houses and similar residential-type buildings are not covered. The theory is that those buildings were always designed for residential use and, presumably, had the appropriate structure to support residential use. Non-residential buildings were not designed for residential occupation and, therefore, have greater potential for improper design when converting to residential use.
All of the usual one-year, two-year and seven-year warranties apply to converted buildings, except that the standard first year warranty will not apply to pre-existing elements (i.e. the existing structure).
Reporting Under the Bulletin, the following three reports are required to be submitted for any conversion project at least 90 days before the earlier of commencement of marketing and construction.
Property Assessment Report: It will provide a general description and condition of the property as well as any conversions, modifications and repairs.
Capital Replacement Plan: This plan must specifically outline the pre-existing elements and their known history, contain a building assessment of its condition and the results of any testing. It will also address required repairs together with specific schedule repairs over the next 45 years plus a breakdown of the major repair schedule for the initial seven-year period to be covered by the warranty program, for both common elements and units.
Pre-Existing Elements Study: The key information to be provided in this report is the expected seven-year repair schedule and the calculation of the builder contribution to the pre-existing element fund, broken down by units and common elements, to be updated annually prior to registration of the condominium. This amount will form the basis of the security to be posted by the developer.
All reports are to be prepared and certified by a professional engineer.
Pre-Existing Elements Fund
An amount equal to the cost of the expected major capital repairs during the first seven years is to be posted prior to commencement of sales and construction with an approved arm’s length trustee. It will be updated annually and, if the amount is to be increased, the developer will be required to post additional security.
Release of Pre-Existing Elements Fund
Prior to condominium registration, the builder may seek periodic releases of the funds to cover costs based on certification and engineering reports. Post condominium registration, the fund, to the extent it remains, can be turned over to the condominium corporation with respect to common elements and to unit owners, up to $10,000 per unit for specific units that have allocated amounts. Beyond $10,000, the unit owner will have to apply and substantiate the repairs for which the owner is seeking reimbursement. There are also a series of rules to address the interplay of the pre-existing elements fund and the Tarion warranty. The warranty will kick in for pre-existing elements repairs if the appropriate procedure is followed and there is insufficient monies allocated for this repair.
Implications for New Conversions
As a result, consumers will be better protected on conversion projects covered by the warranty program. The downside is that they will be more expensive and less plentiful, thereby adding to the already short supply of housing product in the GTA.