New home consumer protection agency in Ontario could face $90M in claims as developers walk away from projects

Homes under construction (File photo)

Ontario's new-home consumer protection organization says it expects to pay home-buyers more than $90 million this year, the “largest claim event” in its history, in the wake of more receiverships and developers failing to deliver on residential projects.

In recent months, real estate experts have reported seeing an influx in residential development projects entering receivership and builders walking away from projects amid high interest rates and rising construction costs. Tarion, which was established to ensure builders follow through with their warranty obligations to consumers, said the “extraordinary claims event” last year was a result of “builder failures, receiverships, and illegal building and vending.”

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Although developers are required to abide by new-build warranties, if a builder fails to deliver a home to the purchaser and is unable to provide a refund, a deposit claim can be made by the buyer to Tarion.

According to Tarion, those who signed a purchase agreement after Jan. 1, 2018, deposits are protected up to $60,000 for homes with a sale price of $600,000 or less. For homes with a sale price of more than $600,000, deposits are protected up to $100,000.

“While the projects and receiverships are not fully resolved as at the time of writing this plan, the gross claims for homeowner deposits may exceed $90M,” the organization noted in its 2024 business plan.

“The risk of builder insolvency combined with illegal deposit taking is an emerging risk which may be heightened due to uncertainty in the overall housing market.”

Tarion did not disclose how many developers failed to complete projects last year.

"The statement in the business plan was forward-looking and estimates the gross impact anticipated for Deposit Protection claims in connection to a number of vendor companies, including the StateView Homes companies involved in receivership proceedings," Andrew Donnachie, a spokesperson for the organization said in an email to CP24.com.

"These were situations where the builder was unable to finish their projects and deliver the homes to the purchasers."

Tarion said this year, it will “continue to mitigate the risks of similar losses” going forward by “increasing homeowner education” and improving its “underwriting approach.”

“Other process improvements are being investigated including the qualification for enrolment process and/or the tracking and registration of deposits and agreements of purchase and sale,” the organization wrote.

Tarion noted that it will work with the Home Construction Regulatory Authority (HRCA) to pursue “appropriate sanctions against the builders involved.” Details of the sanctions were not provided.

Despite the massive increase in payouts, Tarion said it is not expected to impact its ability to respond to future claims.

“While the deposit claims represent an historical and material amount, at this time we do not believe that the overall losses will impair the ability of the provincial fund to respond to future warranty claims due to our capital management and reinsurance programs,” the business plan read.

“The long-term impact of the deposit losses will also be mitigated by the capital replenishment program.”