Licence Appeal Tribunal / Tribunal d'appel en matière de permis

DATE: 2010-12-21

FILE: 5487/ONHWPA

CASE NAME: 5487 v. Tarion Warranty Corporation

An Appeal of a Decision of Tarion Warranty Corporation under the Ontario New Home Warranties Plan Act – to Disallow a Claim

Applicant Applicant

-and-

Tarion Warranty Corporation Respondent

-and-

1438244 Ontario Inc. Added Party

REASONS FOR DECISION AND ORDER

ADJUDICATOR: ELIZABETH SPROULE, Vice-Chair

APPEARANCES:

For the Applicants: APPLICANT, self-represented

For the Respondent: BRENT J. ARNOLD, Counsel representing Tarion Warranty Corporation

For the Added Party: ROBERT J. KENNALEY, Counsel representing 1438244 Ontario Inc., Added Party

Heard in Toronto: June 15-19 & 22-25, 2010, July 5, 2010, September 9, 13, 14, 15, 2010

REASONS FOR DECISION AND ORDER BACKGROUND

This is an appeal to the Licence Appeal Tribunal (the “Tribunal”) from a written decision letter of Tarion Warranty Corporation (“Tarion”) dated May 12, 2009, (the “Decision Letter”), wherein the claim of the Applicant for water penetration was disallowed.

The Applicant is the registered owner of a four story, 54 unit condominium complex, (the ‘Property’). It is occupied primarily by retirees and individuals over the age of 65. Some residents of the Property have experienced varying degrees of water infiltration into their units since 2004. They would like this to be stopped. Pursuant to the Act every vendor of a new home warrants that that the home is constructed in a workmanlike manner and is free from defects in materials, including windows, doors and caulking such that the building envelope of the home prevents water penetration. This warranty applies during the first two years of possession.

The Applicant claims that poor workmanship in the construction of the Property has lead to a systemic problem with water penetration involving the common elements and that notice of this issue was given within the first two years of possession as required to establish warranty coverage.

Tarion has warranted a common element claim relating to the water penetration of one unit of the Property, but disputes that the problem is systemic. Further, it has denied the Applicant’s claim for water penetration of the Property on the basis that 1) it was not reported by the Applicant within the two year warranty period and therefore is too late for warranty coverage and 2) the Applicant entered into a ‘Full and Final Release’ with the Added Party in October of 2007, thereby forgoing any right to make this claim.

ISSUES:

There are three issues to be addressed by the Tribunal:

1. Is the Applicant’s claim for water penetration properly denied for being outside the statutory warranty period?

2. Can Tarion rely upon the ‘Full and Final Release’ between the Applicant and the Added Party as a basis for denying the Applicant’s claim for water penetration?

3. If the claim should not be denied for the foregoing reasons, should the claim be warranted? What should be the scope of the warranted water penetration claim? Is it a systemic problem?

EVIDENCE

In addition to documentation, the Tribunal heard oral evidence from three witnesses in support of the Applicant’s claim: Paul Johannesson, an Applied Science Technologist, who carried out a building envelope review of the Property commencing in October of 2008; Robert Marshall, a professional engineer who preformed the Bulletin 19 review of the Property; and lastly a unit owner, hereinafter referred to as ‘Consumer A’. Consumer A is also a member of the Board of Directors of the Applicant.

In addition to documentation, the Registrar called two witness: Warren Northcott, the Tarion representative assigned to warranty claims relating to the Property, and Gerry Genge, a professional engineer and a principal of GRG Engineering Consultants, engaged by Tarion to asses the water penetration problems with respect to Consumer A’s unit of the Property.

Further documentation was submitted by the Added Party, and the following three witnesses were called: Ken Pagel, a principal of the Added Party; Lisa Bertrand, a representative of the primary project manager for the construction of the Property; and Mr. Paul Sandori, an architect. The majority of the witnesses summoned by the Applicant did not give evidence.

The following is a summary of the relevant evidence which has been organized according to the three issues to be addressed by the Tribunal.

1) Is the Applicant’s claim for water penetration properly denied for being outside the statutory warranty period?

The first step in addressing this issue of notice is to understand what was known about the alleged defects, when it was known and what notice was provided to Tarion about it. For ease of understanding, the evidence relating to the Property as a whole and that relating to Consumer A’s specific unit has been organized separately, where possible.

Evidence relating notice of the deficiencies of the Property as a whole.

The first assessment of the Property with respect to building defects was in the form of the Bulletin 19 review process. This process, prescribed by the Act and overseen by Tarion, involves an independent engineering review of a new construction and it is intended to form part of the quality control process. Milestone reports are generated every 60 days by a Field Review Consultant (FRC) for the purposes of reporting deficiencies. As Mr. Northcott put it, it tells Tarion what is not going well and what needs to be tracked.

Mr. Robert Marshall, a professional engineer, was the FRC on the Property project. Initially he carried out this role as an employee of J.R. Burnside & Associates Limited, (“Burnside”) but left the employ of Burnside in 2004 and continued as the Field Review Consultant as an employee of Cedaridge Services Inc.

It is not clear when the final Bulletin 19 report was submitted to Tarion. The last Milestone Report in evidence was dated August 12, 2004, so it is assumed it was after that date. A copy of the final Bulletin 19 report appears to have been provided to the Applicant by the Added Party in August of 2006.¹ The Tribunal notes that this was after the Performance Audit, (described below), was completed on the Property.

The ‘Narrative Milestone Reports’ numbers 3 and 4 contained in the final Bulletin 19 report refer to outstanding issues which appear to be connected to the current issue of water penetration. Milestone Report 3 sets out the concern of the FRC that Exterior Insulation Finish System (‘EIFS’) is not an approved roofing material in a horizontal location and that without projections from balconies or roof eaves it may not perform.² EIFS is the exterior cladding system installed on the outside of the Property and was used in horizontal locations such as window sills and the roof parapet. Milestone Report 3 identifies what solutions the Added Party was considering to address this concern with respect to the EIFS window sills. The ‘Narrative’ Milestone Report number 4, prepared after the remedial work was undertaken, describes the deficiencies in that remedial work. The FRC states:

“Based on the FRC concerns that EIFS is not approved as a roofing material in a horizontal location, the vendor/builder forces have installed prefinished metal sill flashings with drip projection over the EIFS window sills. Some of the metal sill flashings are short (in length) and do not extend entirely to the corner of the jambs. The caulking passed adhesion tests requested by the FRC, with excellent adhesion. However, at some of the caulked corners, the gap between the metal sill and jamb is excessive and there is insufficient caulking material to bite on the metal sill to form a water tight seal. Metal end dams with upturns were suggested to be installed at all susceptible locations”.³

Similar deficiencies in the installation of the metal window flashings were noted in the report of GRG Building consultants, dated October 29, 2008, approximately four years later.⁴ This would suggest that the deficiencies noted in the Bulletin 19 report were not appropriately corrected, or at least some of the deficiencies were never corrected.

Tarion received a performance audit for the Property from the Applicant on January 16, 2006, (“the Audit”),⁵ and shortly thereafter provided a copy to the Added Party. The Audit was completed for the Applicant by RBS Consulting Engineering Group Inc. (“RBS”). There is no indication in the Audit that the Bulletin 19 report(s) were reviewed as required under s. 44(5)(c) of the Condominium Act. The facts before the Tribunal suggest that the Applicant did not receive a copy of the final Bulletin 19 report until after the Audit was completed. The Audit also did not include a unit survey as required by Section 44(5)(d) of the Condominium Act. The Audit did identify approximately 123 items requiring repair involving the common elements. It is also noted that under the final section of the Audit entitled “Discussion” it was stated:

“Water ingress to the building structure must also be addressed as soon as possible since it affects the longevity of the structure.”

Mr. Northcott of Tarion testified that he would have noticed that there were no unit surveys. He also acknowledged that he is aware they are to be completed. He indicated that he had no knowledge of whether surveys were done with respect to the Property.

In his evidence, Mr. Pagel, a principal of the Added Party, testified that he was experienced in dealing with consumers and Tarion warranty issues and that this experience was what he brought to the project. Mr. Pagel testified that he had noted at the time that the Audit was received by the Added Party that it was thinner than might be expected and that a unit survey was not included. He acknowledged that he was aware that a unit survey was normally part of a performance audit.

In addition to many items dealing with defects in caulking, there are a number of items on the Audit which specifically mention water leaks, water penetration, or concerns of not keeping the outdoor elements out. Such specific items are set out below, as described in the Audit:⁷

Item 42: One of the 4th floor unit owners was commenting on a roof leak entering from the main roof.

Item 55: The coating on the exterior balconies is incomplete in numerous areas. Cracking of the slabs is allowing water ingress.

Item 60: The top of the parapet has the metal flashing terminating at the top of the stucco finish which is to be sloped outward as documented but is flat or sloping inward and will allow water to penetrate. The top of the stucco finish is also starting to crack in areas.

Item 100: The stucco system does not appear to be a proper rain screen and is not pressure equalized and is not pressure equalized. No through wall flashing was visible and venting was inconsistent.

Item 100 [the numbering system had duplication, this item was subsequently numbered 100A]: The reinforced concrete balconies were found to be cracking substantially in a number of areas and was allowing water to penetrate the balconies below. Rusting exposed reinforcing bars were noted in some areas. There is no thermal break between the building slab and the balcony slab.

On May 3, 2006 the first ‘common element’ meeting was held to deal with the items on the Audit. These meetings were attended by a number of individuals including Mr. Northcott, Mr. Pagel, Mr. Rymell (the principal of RBS and the author of the Audit), Lisa Bertram and lay member(s) of the Board of Directors of the Applicant. The President of the Applicant at the time acted on behalf of the Applicant with respect to the outstanding deficiencies identified on the Audit. This gentleman was a retiree who did not have an engineering or construction background; however, Mr. Northcott testified that he understood that this individual felt himself competent to represent the Applicant.

Notes were taken of these meetings by Mr. Northcott. They were not intended to be ‘minutes’ of the meetings but simply a summary of what occurred. The Tribunal notes that in paragraph 2 of the meeting summary for this first meeting it states:

“it should be noted that the only complaint that has been received by Tarion for (the Property) is the Performance Audit; therefore, only items specifically identified in the Audit are eligible for warranty coverage.”

It is not clear to the Tribunal why such a declaration was made at this point given that the two year warranty period for the Property expired in March of 2007. It was not accurate with respect to other complaints, although Mr. Northcott may not have personally been aware of the complaints.

In fact at this point there had been at least two unit owners submit end of year forms to Tarion identifying water penetration complaints and the Added Party was aware and had responded to these complaints. Mr. Pagel was in attendance at this first meeting. His evidence confirmed that he was aware of the unresolved water penetration problem with Consumer A’s unit from the ‘outset’. The Tribunal understood this to mean from the first occurrence of water infiltration in December of 2004. The Added Party had designated a ‘Tarion co-ordinator’ whom the Unit owners were directly dealing with so it was fully aware of the nature of all claims.

During the two year warranty period for water penetration, ending March 12, 2007, there were three complaints of unit water penetration made to Tarion in addition to Consumer A’s complaint. Two were on Tarion unit owner forms. Specifically, on June 21, 2005, Consumer B had noted water damage as a result of a storm on their First-Year Form. This consumer did not mention water damage on their second-year form.⁶ Consumer C submitted a Second-Year Form to Tarion on August 15, 2006,⁷ indicating that there appeared to be moisture coming in the living room, affecting the floor, from underneath the windows. Mr. Northcott testified that none of these unit holders requested conciliation nor did the Applicant bring the claims forward.

The third report of unit water penetration was connected with item 42 of the Audit. This item refers to a unit owners ‘comment’ on a roof leak. It was in fact determined by the Added Party to be a leak caused by a lack of caulking around some vents on the west wall of the Property. This finding was set out in an email July 17, 2006, from one of the principals of the Added Party to the representative of the Applicant at that time.⁸ The response of the Applicant’s representative, which was copied to Mr. Northcott, is noteworthy. He wrote:

“I do not believe this. We now have signs of leaks in the corridor outside unit [‘x’]. Furthermore why would you not have kept us informed on the repairs you were doing that were listed on the Tech Audit. You also have not made note of this on the Tarion spreadsheet.”

Neither author of the exchanged emails was called as a witness.

The ‘spreadsheet’ being referenced above was a spreadsheet setup and updated by the project manager, Bertram Construction, for the purposes of tracking the status of the deficiencies noted in the Audit. The earliest dated spread sheet before the Tribunal was one revised as of April 2006. The Tribunal notes that the descriptions of the Audit items have been abbreviated and in some cases appear to misstate the deficiency. For example item 60 is described as “flashing sloping inward, stucco cracking”. Item 60, relates to the stucco finish being flat or sloping inward which will allow water penetration. Whether this was of any consequence as to how this issue was dealt with is unclear; however it, and the correspondence above, supports the submission by the Applicant that the spreadsheet was not an exact document.

Consumer A indicated in her testimony that there were other units affected by water penetration which was not reported because the units were owned by the Added Party, or its associates, and therefore such a report would be against their own interests. Her evidence was that three units were owned by the Added Party or its principals and three by other business associates. She provided pictures of the inside of one unit owned by a principal of the Added Party which showed that the wood floor by the patio doors had been replaced by ceramic tile, with some surrounding damaged to the floor still evident. There were also pictures showing water damage in the bedroom of the unit. It was Consumer A’s evidence in chief that this unit was not occupied but used as storage for painting materials and that the Applicant had received a repair requisition for two transom windows and caulking around the sliding glass door.

In cross-examination Mr. Pagel suggested that the water damage in the unit in question may have been caused by a tenant leaving a door open, but that he really did not know the specifics. Nor could he provide comments regarding the apparent water damage in the unit bedroom. Although Mr. Pagel confirmed that the principals of the Added Party and their investors owned a number of units at the time of the registration of the declaration, he stated that he did not know how many. The Tribunal found this difficult to believe.

In late August, early September, of 2007, the Applicant requested RBS to carry out an inspection of four specific units whose owners had complained of water damage. Water damage was in fact found in all four, and it was concluded by RBS that the damage related back to items 103 to 105 on the Audit.⁹ Those items were described in the Audit as follows:

Item 103: The underside of the stucco system and flat trim above doors was found to have minimal or no coating installed and the mesh was exposed and not wrapped behind the insulation in many locations.

Item 104: It appears that the caulking has been installed onto the finish colour coat of the stucco system which is not as specified by the manufacturer due to bonding concerns. Some joints are delaminating from the stucco finish.

Item 105: It was noticed that a number of exterior grilles and louvers around the building were not caulked around the perimeter. The fan housing around the north garage fan is badly damaged.

The RBS findings with relation to the water damage¹⁰ were forwarded to Mr. Northcott at Tarion on September 13, 2007.

Mr. Northcott testified that no mention was made about water penetration of the units during any of the common element meetings with the exception that there had been one issue involving a roof leak entering into a unit and that was identified as item 42 on the Audit. Mr. Northcott gave no indication that he was aware of the subsequent finding that the problem identified as item 42 related to uncaulked vents which the Tribunal assumes is related to item 105 according to the description of that item.

In April of 2009 the Applicant sent Tarion the Building Envelope Review prepared by Burnside & Associates (the ‘Burnside Report’) alleging significant defects with the wall and window systems which have led to water penetration. By the letter dated April 9, 2009,¹¹ addressed to the attention of Mr. Northcott at Tarion, the Applicant set out its position that the deficiencies identified in the Burnside report are related to previously identified deficiencies in the contruction of the Property which were never rectified. The Burnside report merely confirmed that the deficiencies remained. The Applicant advised Tarion at this time that the water infiltration through the building envelope is part of the same deficiency which was reported in December of 2004 by Consumer A, and it should be considered ‘part of the Audit’.

In response, Tarion issued its Decision Letter dated May 12, 2009, denying the claim in part on the basis that other than the water penetration in Consumer A’s unit, other water penetration issues were either repaired more that 2 years ago or were not reported during the first two years and therefore are too late.

Evidence relating to Consumer A’s complaint of water penetration

The Property unit owners began taking possession of their units sometime in 2004. Consumer A took possession of her unit in November of 2004. At this time the Added Party was the registered owner of the Property. The Property was transferred to the Applicant on March 12, 2005. This is when the statutory warranty period began to run for common elements.¹²

A letter was sent out by a representative of the Added Party to the unit owners, dated April 25, 2005, (after the Applicant had become owner), requesting that updates on the outstanding pre-inspection delivery form or 30-day form items be left in the condominium office to the attention of the writer. On November 25, 2005, this same individual wrote to Consumer A as the ‘Warranty Co-oridinator’, for the Added Party who was operating as Mariposa Land Development Corporation (‘MLDC’)¹³ at that time, in response to Consumer A’s end of year one form. The letter confirmed the following item, among others, was in progress; “the master bedroom patio door was to be assessed as it appears to be leaking after initial repair.”

Consumer A’s First- Year Form was dated October 26, 2005, and was received by Tarion. The first item identified by Consumer A was that the master bedroom patio door was leaking whenever it rained and there was damage to the hardwood and trim.

Consumer A also sent Tarion a Second-Year Form dated October 18, 2006. On this form Consumer A checked off box number 2 on the form entitled “water penetration of the rest of your building envelope (eg. Windows, doors, and exterior walls)”, indicating there was water penetration and added the notation ‘see page 3’. Page three was entitled ‘Water Penetration (cont’d)’. It was type written and outlines in detail the history of the water penetration problem involving Consumer A’s unit and attempts to repair it.

Tarion confirmed receipt of Consumer A’s Second-Year Form in writing. The first paragraph of Tarion’s confirmation letter dated, October 23, 2006,¹⁴ read:

This notice is to inform you that we received your Second-Year Form and are accepting it based on the Date of Possession provided by your builder on the Certificate of Completion and Possession for your home, November 4, 2004, instead of the Date of Possession you noted on your Second-Year Form. A copy of this Second-Year Form is attached.

The second paragraph of the confirmation letter read in part:

All items noted on the Second-Year Form that are part of your unit and are covered by the two- year warranty should be repaired or otherwise corrected by your builder by February 26, 2007 except as noted below.

The note ‘below’ referenced related to a qualification that the timelines may not apply due to weather conditions. The consumer was then advised that if any of these items have not been corrected by this date, (February 26, 2007), they may contact Tarion between February 27, 2007 and March 28, 2007 to request a conciliation inspection of the home to assess the situation.

Finally, the last paragraph of this confirmation letter explains that the repair time line described above does not apply to items included in the condominium project’s common elements because such items are not covered by a unit’s statutory warranty and that these items should be reported to the condominium corporation’s Board of Directors. For a complete description of the consumer unit’s boundaries the consumer was referred to Schedule ‘C’ of the declaration of the condominium.

Mr. Northcott testified that unit year end claim forms are not read when received by Tarion.

In accordance with Tarion’s confirmation letter of October 23, 2006, Consumer A requested conciliation on February 28, 2007. Consumer A testified that a Tarion representative attended her unit on April 5, 2007, along with an employee of the Added Party who had been attending to repairs. Rather than inspecting the items of complaint the Tarion representative advised Consumer A that he would not be inspecting the claim items as he had already discussed the problems with the Added Party’s representative. He then went through each of the items and indicated to Consumer A that they were the result of common element problems.

Following this event a Warranty Assessment Report was issued dated April 11, 2007.¹⁵ The Applicant claim for water penetration was denied on the bases that it was a common element claim and Tarion “can only deal with the condominium corporation when and if the corporation chooses to file a complaint”. There was no mention of a time frame for such a claim.

Mr. Northcott became involved with the issues surrounding Consumer A’s unit in August 2007, at which time the Added Party had been unsuccessful in identifying or correcting the cause of the water penetration. Mr. Northcott continued in the role as mediator until October 2008 when the decision was made by Tarion that it would take over repairs as a common element claim. The Decision was made to warrant the claim based on the unit notice, which according to Mr. Northcott is not the usual approach. Mr. Northcott admitted that the leaks in Consumer A’s unit have been ‘troublesome leaks to diagnose’.

In his testimony Mr. Pagel stated that he was not surprised that Consumer A’s claim was considered a common element claim; after all the water was coming in from outside. He was however surprised that in the end Tarion had made a decision to warrant the claim as it was ‘out of time’. In his opinion the Added Party’s participation has been therefore a voluntary gesture of good will and Consumer A was really getting more than she was entitled to. This would appear to include the Added Party’s reimbursement to Consumer A for monies spent addressing a developing mould problem.

LAW

Ontario New Home Warranties Plan Act, R.S.O. 1990, c. 0.31 (“Act”)

S. (2) Upon its designation, the objects of the Corporation are extended to include,

(a) the administration of the Ontario New Home Warranties Plan;

(b) the establishment and administration of a guarantee fund providing for the payment of compensation under section 14, whether by the establishment of a fund for the purpose or by contract with licensed insurers;

(c) assisting in the conciliation of disputes between vendors and owners; and

(d) engaging in undertakings for the purposes of improving communications between vendors and owners. R.S.P. 1990, c. 0.31, s. 2(2)

Relevant Sections of Regulation 892, R.R.O. 1990, dealing with the Administration of the Plan

s.5.2 (1) in sections 5.3 to 5.8

“first-year claim period” means the period beginning immediately after the registration date of the declaration and description for the condominium project and ending on the first anniversary of that date:

“first-year claim form” means the form that the Corporation requires for a warranty claim that an owner makes in respect of the common elements of a condominium project and submits to the Corporation during the first-year claim period:

“owner” means, in respect of common elements of a condominium project, means the condominium corporation.

s.5.3 The Corporation may, in its sole discretion, extend or abridge any times specified in section

5.5 to 5.7, if it determines that,

(a) the vendor is unable or unwilling to repair or resolve the claim items covered by a warranty;

(b) the warranty claim involves items requiring seasonal repairs including air conditioning, items involving health and safety or items involving other extraordinary circumstances: or .....

s.5.5 (1) In order to make a warranty claim during the first-year claim period in respect of the common elements of a condominium project, the owner shall complete and submit to the Corporation a first-year form. O. Reg. 274.10, s. 7

(2) An owner may submit one or more first-year forms to the Corporation at any time during the first-year claim period.

5.6 (1) In order to make a warranty claim during the second-year claim period in respect of the common elements of a condominium project, the owner shall complete and submit to the Corporation a second-year form.

(2) An owner may submit one or more second-year forms to the Corporation under subsection

(1) at any time during the second-year claim period.

Relevant sections of Condominium Act, 1998, S.O. 1988, c.19

s. 44 (4) the person who conducts the performance audit shall determine whether there are any deficiencies in the performance of the common elements described in the description after construction has been completed on them that,

(a) may give rise to a claim for payment out of the guarantee fund under section 14 of the Ontario New Home Warranties Plan Act to the corporation; or

(b) subject to the regulations made under this Act, would give rise to a claim described in clause

(a) if the property of the corporation were subject to that Act.

s. 44 (5) In making the determination, the person who conducts the performance audit shall

(c) review all final reports on inspections that the Corporation within the meaning of the Ontario

New Home Warranties Plan Act requires be carried out on the common elements; and

(d) conduct a survey of the owners of the corporation as to what evidence, if any, they have seen of,

(i) damage to the units that may have been caused by defects in the common elements, and

(ii) defects in the common elements that may cause damage to the units.

s. 44 (8) The person who conducts a performance audit shall prepare a written report that includes,

(a) a copy of the person’s certificate of authorization within the meaning of the Professional Engineers Act or certificate of practice within the meaning of the Architects Act, as the case may

be;

(b) details of the inspection and findings made by the person in the course of conducting the audit;

(c) a statement that the person has reviewed all final reports described in clause (5)(c) and a summary of the results of it;

(d) a copy of the survey described in clause 5(d) and a summary of the results of it;

(e) the determination that subsection (4) requires the person to make; and

(f) all other material that the regulations made under this Act require.

s. 44(10) The filing of the report with the Corporation within the meaning of the Ontario New Home Warranties Plan Act shall be deemed to constitute a notice of claim that the corporation gives to the Corporation within the meaning of that Act under the regulations made under that Act for the deficiencies in the report.

Analysis

The Tribunal begins its analysis of the facts and the law with a review of the objects and role of Tarion and the process available to consumers of new homes when a Builder fails to meet the standards expected.

The objects of Tarion as set out in the Act, include the administration of the Act, the establishment of a fund for the payment of compensation under section 14 of the Act, assisting in the conciliation of disputes between vendors and owner, and engaging in undertakings for the purposes of improving communications between vendors and owners. The Act is consumer protection legislation and it is the expectation of purchasers of new homes that Tarion is the entity that will ensure that the intent of the Act is carried out. This is a reasonable expectation, given its stated objectives.

Consumers, when faced with a deficiency in their new home have always had the right to take legal action against a builder based on breach of contract. The Act, however, provides what should be a less adversarial, less complex and a more cost effective means of resolving conflicts with respect to specific deficiencies, (breaches). Ultimately the Act guarantees that there will be funds made available to compensate a consumer if a builder cannot be made to correct certain deficiencies to the standard specified by the Act and its regulations.

The Act and the regulations should provide clarity to builders and homeowners as to what deficiencies are simply not to be disputed. These identified deficiencies form the basis of the warranties under the Act. Clearly not all deficiencies are covered by the warranties; they are limited in scope and in the length of time they are available. For those deficiencies that fall outside these statutory warranties the remedy to a home owner remains to simply, or not so simply, take legal action against the builder in a civil court for breach of contract. A consumer’s ability to enforce their contractual right to have a home built as agreed, and in compliance with the applicable laws and building code, is not dependent on the statutory warranties. However steps to enforce those rights through civil proceedings must also be exercised within a limited time frame. Unfortunately, the warranty period and the period in which legal action can be taken run concurrently, so while pursuing one avenue of recourse, the other may be eliminated.

In order to have the benefit of the statutory warranties provided by the Act, notice of a claim must be given to Tarion within the prescribed time frame. Sections 5.5 and 5.6 of Regulation 892, state that first and second year claims relating to common elements are to be submitted by the owner of the common elements to the Corporation (Tarion). The wording is that the ‘owner shall complete and submit a second-year form”.

Notice was given to Tarion by three homeowners on their first year forms that water had entered their units. One homeowner repeated this complaint with an entire typed page entitled ‘water penetration’ on a second-year form. However, Tarion apparently does not read year end forms from homeowners. It takes the position that unless notice is given by the owner, (here the Applicant), as prescribed by s. 5.5. and 5.6, no warranty coverage will be provided for defects involving a common element.

What is interesting to the Tribunal is that in practice the primary method of notice accepted by Tarion for a common element claim is not that prescribed by regulation 892. The primary and accepted form of notice for a common element claim is the submission of a ‘performance audit’ as prescribed by s. 44(4) of the Condominium Act, 1998. This is deemed to be notice to Tarion pursuant to s. 44(10) of that Act.

There is no reference in section 5 of Regulation 892 to a performance audit. The ‘performance audit’ that is prescribed by s. 44 of the Condominium Act, 1998 requires a unit survey and a review of the reports of the inspections which Tarion required to be carried out on the property – the Bulletin 19 reports. The obvious and logical intent of these requirements is to ensure that those common element problems that were identified during construction are addressed by the audit, and the claims which manifest themselves in connection to the units, would be included and form part of the Performance Audit and thus the common element claims relating to the first and second year warranties.

It is required under the Condominium Act, 1998 that the Condominium Corporation engages either a licensed engineer or architect, for the purposes of completing the performance audit. Requiring the audit to be completed by such highly qualified individuals, who, one would assume, would know what constituted a common element, together with the requirement that there be unit surveys, is indicative, in the Tribunal’s opinion, of the intent to create legislative safeguards to ensure that owner(s) receive the protection offered under the Act for all common element claims.

In the case at hand it is fair to say that a series of mistakes by different persons along the way have thwarted the effectiveness of these legislated safeguards and consumer protection processes such that in the end the process through which the Applicant has had to negotiate did not have the appearance of consumer protection as might have been expected. The Audit submitted to Tarion by the Applicant was clearly deficient in that it did not include a unit survey as required by the Condominium Act, 1998. Mr. Pagel testified that he had noted that there was no unit survey. Mr. Northcott testified that he would have noticed that there were no surveys. Both are experienced in dealing with condominiums and Tarion claims. The Tribunal concludes that both the Added Party and Tarion knew or ought to have known the required unit surveys were not included and that the Audit was not in compliance. The Audit also does not indicate that any review of the final Bulletin 19 reports was undertaken. There is evidence that the Applicant did not have the Bulletin 19 report until after the Audit, but the Tribunal cannot conclude, based on this, that it was not reviewed by RBS. But this fact, combined with the lack of reference to any review of the Bulletin 19 Report(s), does raise suspicion that this requirement was also overlooked. Had the unit survey been completed and had the deficiencies identified in the Bulletin 19 report been tracked as was intended, it is very likely that this proceeding could have been avoided or reduced in scope at the very least.

There is no evidence that this omission of the unit survey was ever relayed to the Applicant or RBS, notwithstanding that the Audit was submitted at least one month in advance of when it was required to be submitted, and notwithstanding that from May 2006 until June 2007 regular meetings were being held, involving Tarion, to discuss the common element claims at which the Applicant and/or a representative of RBS were in attendance.

Counsel for Tarion has argued that it is not up to Tarion to police compliance with s. 44 of Condominium Act, 1998, although he was unable to answer the question as to whose job it should be. It may be that it is not up to Tarion to investigate the thoroughness of the individual findings of an audit; however, when there is a blatant deficiency such as the omission of a unit survey, and when that deficiency is known or ought to be known by Tarion, to suggest it should then be allowed to rely on the defective audit as proof of deficient notice seems to be counter to the intent of both s. 44 of the Condominium Act, 1998 and the Act which is to ensure the new owner of a condominium property has warranty protection against all common element deficiencies.

In addition to wanting to rely on an audit that clearly lacked the required unit surveys, Tarion argues that the unit forms that were sent directly to it indicating water penetration through the building envelope did not constitute proper notice. The reasons are firstly that Tarion does not read the year end forms provided by a unit holder. And secondly, the onus is on the unit holder to determine whether their claim relates to common elements and if so the unit owner must advise the Condominium Corporation as only a form completed by that entity will constitute notice. That is Tarion’s interpretation of s.

5.5 and s. 5.6 of the Act.

Here is the difficulty with this approach. Homeowners are not advised that their forms are not read. On the contrary the letter sent to Consumer A in response to the Second Year Form makes specific reference to the content of the first page suggesting that it was read. The Second Year Form completed by Consumer A requests the homeowner to check off boxes, one of which relates to water penetration of the ‘building envelope’ and gives the examples “windows, doors and exterior walls”. There is no caution in these sections that if your home is a condominium these are common element claims and will not be covered, a simple enough caution to add. There was no evidence before the Tribunal that the unit owner had provided the wrong form; rather that she was simply not the appropriate person to be completing it.

There was a caution, at the end of the letter Consumer A received from Tarion confirming the receipt of her Second Year Form, that common element claims would not be included. However, given the specific reference in the form to the building envelope, which is a common element in condominiums, it is understandable how confusion arose. Consumer A requested conciliation in February 28, 2007, and one would have thought that at this point Tarion would read what had been submitted and advise of the problem. But it was not until April of 2007 that Tarion advised that the water penetration was involving a common element and a complaint had to come from the Condominium Corporation. Apparently the complaint was so clearly a common element problem an inspection was not required. Had Consumer A’s form been read in a timely fashion steps could have been taken to address any issue of irregularity before the expiration of the two year warranty period. Both Tarion and the Added Party take the position that the warranty period expired on March 12, 2007.

There was some evidence that Consumer A did advise the Applicant of the issue of water penetration of her unit. This was sometime in February of 2006, after the submission of the Audit and before she was advised by Tarion that the complaint had to come from the Condominium Corporation. She was told that it was ‘too late’ by the then president of the board of the Applicant. Clearly this was not correct and one more of the mistakes in the chain of events. This mistake, however, was not made by a professional with any particular expertise in the Tarion process.

In the view of s. 44 of the Condominium Act, 1998 that requires unit owners to be surveyed about defects in their units to ensure all common element claims are in the performance audit, it does not seem appropriate to interpret s. 5 of the Act to mean that a unit owner can never give notice of a common element claim when you have a situation such as the one before the Tribunal. This interpretation was initially applied here and the result was that a consumer who found herself owning a condominium unit which, from the first month of possession, did not keep the rain out, and who immediately and continually gave written notification of this defect to the builder and Tarion for two years, was told she had no recourse because, basically, the wrong form had been used.

The builder had initially accepted responsibility to correct this clear breach of warranty, as it should. Regardless of the Tarion warranty program, the builder had contractual obligations to the unit owner of which it was clearly in breach, (a point that the Added Party seems to have overlooked). The builder then ceased to take responsibility upon Tarion’s decision. For Tarion’s involvement to actually dissuade a builder from correcting an indisputable breach of warranty is a total failure of the purpose of the Act. The purpose of the Act is not to provide a shield of protection to a builder who builds a home that from the outset will not keep the rain out and who is immediately and continually advised of the problem and asked to fix it. Tarion’s subsequent change in position to accept the unit owner’s notice as notice of a common element claim may have been ‘unusual’ but clearly it was the right thing to do.

Tarion and the Added Party have argued that this matter is not about Consumer A’s unit as Tarion has undertaken to warrant that claim for water penetration as of October 14, 2008. Although it has been warranted as a common element claim, as one assumes it must as it in fact involves the common elements, Tarion says the notice should only be considered as notice of a claim relating to a localized problem, not as notice of any systematic problem involving the Property.

The Applicant however, takes the position that the water penetration of Consumer A’s unit is symptomatic of a larger problem and that this larger problem stems back to deficiencies previously identified in the construction process and in the Audit, which were never properly corrected. The notice of the water penetration by Consumer A, made within the warranty period, should be therefore viewed as notice of a common element claim relating to defects in the building envelope as a whole which have resulted in water penetration.

The written notice provided by Consumer A of the degree of water penetration and the persistent nature of it, is, in the Tribunal’s opinion, notice of symptoms of a real and persistent problem with the building envelope; a problem the Added Party was intimately aware of, as it had been attempting to solve it for years. In view of the years of failed attempts at resolving the problem by focussing on repairs in and around Consumer A’s unit, and in view of the evidence of previously identified defects and concerns relating to the risk of water penetration, it is difficult to conclude that the problem of the reported water penetration is merely a localized problem.

There is evidence before the Tribunal which supports the Applicant’s submission that the water penetration that has occurred is related to previously identified defects. In particular defects identified as early as the Bulletin 19 process and later in the Audit process. The Tribunal finds the following to be facts proven in the evidence:

1. The final Bulletin 19 Report submitted to Tarion, provided notice that EIFS is not an approved roofing material on a horizontal location and that without projections from balconies and roof eaves it may not perform.

2. EIFS was used on horizontal locations at window sills and the roof parapet of the Property.

3. Metal flashing was installed on the window sills, (to address the concern of using EIFS on horizontal locations), but the installations were defective: the metal flashing installed on the sills was too short and the caulking was insufficient to be water tight. These defects were set out in the Bulletin 19 Narrative Report no. 4 provided to Tarion. This defect was found by GRG Engineering consultants in their assessment of the water penetration of Consumer A’s unit. Problems with the metal sills and sealant adhesion was also noted in the Burnside Report in areas unrelated to Consumer A’s unit.

4. The Audit concluded that there were concerns of water penetration. It stated that water ingress to the building structure must be addressed as soon as possible as it affects the longevity of the structure. The Audit identified 6 defects directly relating to, or which may result, in water leakage or penetration: Items 42, 55, 60, 100, 100A, and 105. These defects have been confirmed to be likely causes of the current water penetration of the Property by the expert evidence before the Tribunal.

5. Item 42 on the Audit, identified as a leak into a unit from the roof, was determined by the Added Party to relate to insufficient caulking of vents. Item 105 on the Audit identified a deficiency in caulking of intrusions into the EIFS. Item 42 was notice of the result of this defect: water penetration into a unit. Tarion was advised of the connection of 105 and water penetration within the warranty period. The performance of the EIFS is dependent on the exterior surfaces of the EIFS and the sealants around intrusions/penetrations.

6. Items 55 and 100A, relate to cracking concrete balconies that allowed water ingress. This defect has been confirmed as a cause of the current water penetration issue.

7. Item 60 involves the use of EIFS as a roofing material in a horizontal location on the roof parapet of the Property. EIFS is not an approved roofing material. Item 60 indicated that the condition of the parapet will lead to water penetration. It has been confirmed that this defect has been a cause of water penetration.

8. Item 100 identified a problem with the EIFS being a proper rain screen and the absence of through wall flashing. Both the Burnside and GRG found defects with the wall flashing in the areas where the EIFS was removed.

In summary, the Tribunal finds that Tarion has been provided notice of a common element claim relating to water penetration within the statutory warranty period through the unit year end forms, in particular that submitted by Consumer A, and the Audit in the general comments and in particular defects related to water ingress, specifically items 42, 55, 60, 100, 100A, and 105. Whether Tarion or the Added Party initially appreciated how these defects were connected to water penetration is a different issue. Both have been resistant to acknowledging any connection even during these proceedings. It has taken numerous professional and much investigation but it is clear that the water penetration which has occurred can be traced back for the most part to previous concerns of construction defects that were either not corrected or inadequately addressed. It is unfortunate that the early warnings were not considered more thoroughly and acted upon.

It may be that, had the various professionals involved in the early stages of this project been more thorough, the errors in construction committed by the Added Party could have been reduced, avoided, or corrected. However what is clear is that the Applicant played no part in the construction defects and took those steps required of an owner to have them discovered and reported to Tarion.

Based on the above, the Tribunal finds that the claim for water penetration should not be disallowed on the basis of lack of notice.

2) Can Tarion rely upon the ‘Full and Final Release’ between the Applicant and the Added Party as a basis for denying the Applicant’s claim for water penetration?

In a letter authored by Mr. Pagel dated July 6, 2007 and addressed to the then president of the Applicant, the Added Party set out an offer to settle those items on the Audit that had not been resolved to date and were noted in the minutes of the Tarion meeting of June 21, 2007. This letter is hereinafter referred to as the ‘Settlement Letter’.¹⁶ The Added Party proposed to pay a ‘reasonable cash settlement’ in exchange for a full and final release which was to be prepared by the Added Party’s lawyer and signed by the officers of the Applicant.

In the Settlement Letter Mr. Pagel advises the Applicant that the Added Party has calculated its costs of repairing item 102A of the Performance Audit, relating to the south exit ramp of the Property, to be under $20,000 and that the Added Party had obtained a building permit for the work which the building officials have agreed would correct the deficiencies. He then acknowledged his awareness that the Applicant may want to take other action with respect to that ramp.

The total amount of the cash settlement offered was $44,000. This was to include item 102A being the garage ramp, estimated by the Added Party as approximately $20,000 and the heating reserve payment previously agreed to, which was in the amount of

$18,750. The balance of approximately $5,250.00 was presumably for the remaining items listed in the Tarion meeting summary for June 21, 2007, and not specifically excluded. The following items were listed in the June 21, 2007 summary: 2, 29, 30, 39,

46(b), 54, 60, 102, 103, 104, 105, 102A, 105A, 106, 108, 109, 110, 111, 112, 113, 114,

115, 116, 117, 118.

The Applicant was given until noon on July 12, 2007, to accept the terms of the Settlement Letter after which the offer would be withdrawn. It was also acknowledged in the Settlement Letter that the acceptance of the offer and ‘endorsement’ of the Full and Final Release was conditional upon the Applicant receiving payment of the ‘Heating Reserve Fund’ previously agreed to, within five days of the endorsement of the Full and Final Release.

The Settlement Letter was signed by the then president and vice-president of the Applicant on August 3, 2007, with four hand written terms added. The first identified the amount of the Heating Reserve Fund agreed to as $18,750.00. The others were that the release should be attached as a schedule to the settlement letter, that the release should be mutual, and that the release was conditional on the required work being done by a specific date.

It was Mr. Pagel’s evidence that the Applicant requested an extension of time to consider the details of the offer. This is supported by the series of emails between the Added Party and a representative of the property management company for the Property dated July 12 to 16, 2007.¹⁷ These communications were circulated to the Applicant’s president and other representatives at the time.

According to the evidence of Mr. Pagel, the form of release forwarded to the Applicant by the Added Party was not found acceptable and a form of release was prepared by the Applicant’s solicitor and forwarded to the Added Party.¹⁸ This form of release was then altered by the Added Party’s solicitor: the paragraphs were rearranged by moving what previously were paragraphs 2 and 3 to be paragraphs 1 and 2, additional details were added to the condition precedent originally in the final paragraph, and an additional paragraph was added. The Tribunal finds that the alterations made by the Added party’s solicitor did not add clarity.

In the final version the ‘Full and Final Release (the ‘Release’) was as follows:

FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby acknowledged, the undersigned hereby mutually release and forever discharge each other from any and all actions, causes of action, claims and demands for damages, loss or injury, however arising, where heretofore may have been or may hereafter be sustained by either of them in relation to the following:

1. Any and all further claims for work by Mariposa Land Development Company (“MLDC”), notwithstanding the foregoing, the Tarion warranty shall remain in full effect;

2. Any and all claims with respect to any shortfall in the first year budget for [the Applicant].

3. Any and all claims and all claims (sic) for additional work, including but not limited to all the outstanding items from the Performance Audit for [ the Applicant], Reference #31860-1123859 (the “Audit”) and listed in the Tarion minutes of June 21, 2007 save and except the following work:

a. Complete the paving of the parking garage ramp;

b. Repair the parapet referred to in Item #50 of the Audit as per the repair methodology proposed by MLDC;

c, Addition of a door as per Item #80 of the Audit.

d. The heating reserve payment in the amount of Eighteen thousand Seven Hundred Fifty ($18,750) dollars.

The foregoing shall include all damage, loss or injury not known or anticipated but which may arise in the future and all effects and consequences thereof.

Notwithstanding the foregoing, this release shall become null and void should the items listed under Section 3a to 3d (inclusive) not be completed by MLDC on or before November 15, 2007 in accordance with approved plans and specification filed with the City of ‘X’.

AND FOR THE SAID CONSIDERATION the undersigned further mutually agree not to make any claim or take any proceedings against any other person for the matters discharged by this release.

This Release was signed by the Applicant on October 16, 2007, and by the Added Party October 22, 2007.¹⁹

Mr. Johannesson gave evidence regarding whether the work described in paragraphs 3b and 3c were completed. He testified that items 50 and 80 were in fact not completed. His findings were set out in a letter dated July 8, 2009.²⁰ Noted in this letter is the discrepancy between the description between items 50 and 80 in the Audit and those in the Release. He reiterated his findings in his testimony which were that there was still significant water ponding against the south parapet and that the roof and parapet showed no signs of alteration, and that the electrical outlets in the sump room were not ‘GFI’ protected.

The Applicant’s evidence addressed the items as identified by number in paragraphs 3b and 3c of the Release. The evidence of the Added Party was that, in fact, those items were intended to be items 60 and 30, not 50 and 80 as stated. These latter numbers were used simply in error.

Items 60 and 30 were described in the Audit as follows:

Item 60: The top of the parapet has the metal flashing terminating at the top of the stucco finish which is to be sloped outward as documented but if flat or sloping inward and will allow water to penetrate. The top of the stucco finish is also starting to crack in areas.

Item 30: The exit corridor from the garage and the north exit stair has exposed services passing through the corridor and must be in a fire rated enclosure where they are exposed to the exit corridor. The vestibule off this corridor to a storage room should not have a power panel located within it and the exhaust fan in the ceiling space is always running and is not operating property. The door did not have a fire label which is required. All the ducts passing through the walls did not have fire dampers installed and some had openings around the perimeter. The vestibule and storage room lights were missing protective covers.

On the basis that the excluded work items were 60 and 30, Mr. Pagel testified that all required work had been completed. With respect to item 60 (referred to as 50 in the Release) he directed the Tribunal to an email sent to Mr. Rymell setting out the proposed method of repair for the hair line cracks in the parapet and indicated that that was what was being referred to in paragraph 3b. There was no responding correspondence from Mr. Rymell confirming his approval. Mr. Pagel testified that there had been no discussion to put metal flashing on the parapet cap.

The Tribunal notes that this evidence seems to be in contrast to the written tracking documentation with respect to item 60. On the coloured spread sheet used to track the Audit items, updated as of June 21, 2007, the comments under status are as follows:

“coating/caukling placed over in the good weather in the spring. Rymell wants to see what the coating is prior to agreement. Sloping horizontal stucco to be sealed and capped with metal flashing. MLD to forward repair methodology to [the Applicant].”

In the Tarion meeting summary for April 19, 2007, the notes for item 60 read:

“MLD reported that the parapet was constructed as designed. [The Applicant] has had their consultant review it further and indicated that it is his opinion that all areas of the horizontal stucco should be sealed and capped with metal flashing. MLD to forward the methodology to [the Applicant] for review in anticipation of repairs to take place prior to June 2007.”

The Added Party provided a copy of an email from the Applicant’s representative which states “Inspect the work on Friday, October 5, 2007 competed by Granolite. The repair work can be considered completed.”

With respect to item 30, (referred to as 80 in the release), it was Mr. Pagel’s evidence that the required door was installed in the summer of 2007 and adjusted sometime in October of 2007. In cross-examination Mr. Pagel acknowledged that he ‘heard’ that the Applicant was challenging that the work required under 3c of the Release was complete. He also acknowledged the door installed in satisfaction of this claim item might need to be ‘adjusted’ due to it ‘rubbing’ but otherwise it was complete.

The Added Party produced in its materials a copy of an email from the Applicant’s representative to Mr. Pagel dated September 27, 2007. It states

“for you (sic) information I am still representing Elgin Bay regarding the Tarion Deficiencies. We are not in agreement with your remarks regarding the outstanding deficiencies. Item #80 (sic) is not complete. Drywall finish and painting not complete. Door from corridor is hitting door closer

on new door and requires re installation.”²¹

This last complaint about the corridor door hitting the door closer on the new door is what the Tribunal understood to be the existing problem which Mr. Pagel suggested only required an adjustment to correct otherwise the work was complete.

LAW

Ontario New Home Warranty Plan Act, R.S.O. 1990, c. O.31

13. (6) The warranties set out in subsection (1) apply despite any agreement or waiver to the contrary and are in addition to any other rights the owner may have and to any other warranty agreed upon.

Cases considered:

Metropolitan Toronto Condominium Corp. No. 1101 v Ontario New Home Warranty, [2003] O.J. No. 5145.

Markey v. Tarion Warranty Corp, [2006] O.J. No. 2929

ANALYSIS

In disallowing the Applicant’s claim on the basis of the Release Tarion is relying on s.14 (3)(b) of the Act which provides that an owner of a home is entitled to receive payment out of the guarantee fund for damages resulting from a breach of warranty if the person has a cause of action against the vendor or the builder, as the case may be, for damages resulting from the breach of warranty. Tarion argues that because the Applicant signed the Release with respect to the outstanding Audit items it no longer has a cause of action against the Added Party for damages resulting from a breach and therefore it is not entitled to receive payment out of the guarantee fund.

Tarion relies on the Divisional Court cases of Metropolitan Toronto Condominium Corp. No. 1101 v. Ontario New Home Warranty [2003] O.J. No. 5145. In that case the Divisional Court held:

“It would, therefore, be contrary to the purposes of the Act to construe s. 13 (6) as barring settlements by denying effect to the releases that form an essential part of settlement agreements. There is no issue that the statutory granting of the warranties themselves cannot be waived. There is nothing in the legislative scheme created by the Act, however, that limits the ability of a vendor and a warranty claimant from settling a properly filed warranty claim in exchange for a release and such a release should be enforceable, unless it would be unconscionable due to the existence of some vitiating factor.”

Clearly the purpose of Section 13 (6) of the Act is to ensure owners are not deprived of the protection of the warranties. It does not prevent a purchaser from making a bargain to forego their entitlement to a claim in exchange for some other valuable consideration. Such an agreement however, must be in writing and in such language that leaves no reasonable doubt that the purchaser knew and understood what they were waiving.²² All this must be in the absence of any factors which would make the enforcement of such an agreement or waiver unconscionable.

The Applicant has argued a number of grounds as to why the Release should be found null and void. The Tribunal will address these arguments starting with the least persuasive.

The Applicant first argues that the Release is void on the basis that the Settlement Letter of July 6, 2007, was to be accepted by July 12, 2007 but was not signed by the Applicant until August 3, 2007, well after the apparent expiration of the offer. Although an expired offer cannot be accepted, it is possible that an offer can either be renewed or extended. Mr. Pagel testified that the Applicant requested that it be given further time to respond to the settlement offer. The emails between representatives of the Applicant and the Added Party do, in the Tribunal’s opinion, confirm this.

It was also argued that the Release was to be mutual and the Added Party had failed to sign it. Apparently, until these proceedings, the Applicant did not have a copy of the Release signed by both parties. However, based on the evidence submitted, the Tribunal finds that the Release was signed by both parties. Therefore the Tribunal does not find it void for this reason as suggested by the Applicant.

The Applicant has also argued that the Release was conditional on certain work being completed by a certain date and that condition was not met. In support of this the Applicant points to the findings of Mr. Johannesson. Mr. Johannesson reviewed the items identified in the mutual Release as Items #50 and #80. According to the Performance Audit item 50 relates to the roof and is described in the Performance audit as “The main roof has a low spot by the south parapet and is ponding water”. Item 80 relates to the sump room and reads “Electrical outlets within the room were not GFI protected”.

The Added Party has argued that the item numbers referred to in the signed Release are incorrect, simply due to typographical errors and should be read as items 60 and 30 respectfully. The full descriptions of item 60 and 30 are set out above. The description of work set out in paragraphs 3b and 3c do not make the connection to items 60 and 30 obvious. In fact it would be difficult simply reading paragraph 3c to connect it in any way to item 30, particularly in view of the fact it refers to item 80 and the addition of a door which is not specifically mentioned in Audit item 30. At least 3b refers to a parapet which item 60 does discuss.

The Release is conditional on certain work being done. Clearly it was important to the parties that this work be completed or it would not have been made a fundamental term. Did the parties intend the excluded work to be that relating to 60 and 30 as argued by the Added Party? Various versions of the Settlement Letter, which gave rise to the release, were put before the Tribunal. The Settlement Letter reproduced at Tab 37, in Exhibit 3, is a faxed copy of the agreement and is of such poor quality that the item numbers referred to are not legible. A non-faxed version of a settlement letter with the same date was included in Tarion’s materials,²³ however, it was not the version accepted by the Applicant as there is no reference to a replacement door as either item 30 or 80. During the proceedings the Added Party provided a more legible copy of the Letter of Settlement signed by the President of the Applicant and the items referred to appear to be items 60 and 30.²⁴ It is not clear why this more legible copy was not produced earlier. The Tribunal accepts that this is a copy of the Settlement Letter which was ultimately signed by both the President and Vice-President of the Applicant. Based on this more legible copy of the Letter of Settlement, together with the notes of the Common Elements meetings, there is support for the conclusion that the intent of the parties was to address outstanding work relating to items 60 and 30 of the Performance audit, and the numbers 50 and 80 were in error. This could not have been concluded based soley on the written words of paragraphs 3b and 3c.

If the conclusion that the exempted work related to items 60 and 30 is correct, was that work completed? The terms of the Release are not very helpful in determining what the expectations of the parties were with respect to the work to be done. Little detail was given. Paragraph 3d states “repair the parapet referred to in Item #50 of the Audit as per the repair methodology proposed by MLDC”. It has already been discussed that item 50 should have read item 60. As set out above item 60 involves two issues, one of putting metal capping on the parapet and the second involving cracks in the stucco. The Added Party has argued that the methodology which was ‘proposed’ was that set out by a company called Granolite Company Limited in a letter to the Added Party dated May 31, 2007. The Granolite ‘methodology’ clearly only addresses the ‘hair line’ cracks in the stucco at the moulding trim.

The exclusion of any reference in the repair methodology ‘proposed’ of one of the two issues encompassed by item 60 is somewhat puzzling. All previous notes on the spreadsheet and in the meeting summaries leading up to the June 21, 2007, meeting indicate that the Applicant’s engineering consultant required that a metal cap flashing be installed to repair the deficiency. At the June 21, 2007, meeting when the Applicant apparently agreed to the methodology, (according to the Tarion summary), the Applicant’s engineering consultant Mr. Rymell, was not in attendance. Mr. Pagel testified that the methodology was sent to Mr. Rymell for approval; however there was no evidence before the Tribunal that Mr. Rymell did approve it.

There was no evidence of any correspondence to the Applicant directly as to what was proposed. There were no details attached to the Release, as to what was proposed by MLDC. And although the Added Party had indicated they would be calling the representative of the Applicant at that time, and the Applicant’s engineering consultant Mr. Rymell, it in fact did not call either witness to clarify what was agreed to. There is evidence that the lay representative of the Applicant approved the repair work done to the cracks in the stucco by Granolite. Whether this was all that was expected is not completely clear, given the lack of details of the proposed methodology in the Release and in view of the required repairs stated repeatedly on the Audit spread sheet and common element summaries. The Tribunal is unable therefore to reach any conclusion with certainty as to what was agreed to and if what was agreed to was or was not completed. What is clear to the Tribunal is that item 60 as set out in the Audit was not repaired.

Paragraph 3c involved the installation of a door relating to Item 30 (misstated as 80). The description for Item 30 is set out above and is quite lengthy. Paragraph 3c of the Release simply stated “Addition of a door as per Item #80 of the Audit”. Mr. Pagel was informed on September 27, 2007, in writing that this work was not considered by the Applicant to be completed for two reasons, one relating to drywall finish and painting. The other reason was that the door from the corridor was hitting the door closer and, according to the Applicant, needed to be re-installed.²⁵ In his evidence Mr. Pagel suggested that the door just needed to be adjusted. The Tribunal took this to be an acknowledgement that there was an issue with the two doors hitting each other and that there is still an outstanding step to be done. This is many years after the fact.

The Tribunal was not provided evidence to determine the magnitude of this problem: whether the Applicant’s representative was correct in saying it needed to be re-installed or whether Mr. Pagel is correct in that it can be corrected with an ‘adjustment’. Nor did Mr. Pagel explain what was involved in what he described as ‘an adjustment” and how that would correct the defect complained of, that he did not dispute. It is clear to the Tribunal that Mr. Pagel and the Applicant view things differently. Again, there is some question as to whether the work was completed in accordance with the agreement and expectations of the party.

Aside from the incorrect numbering, and vagueness, there is also ambiguity in the terms of the Release. Paragraph one of the Release makes a general statement that the Release shall relate to “Any and all further claims for work by Mariposa Land Development Company (“MLDC”), notwithstanding the foregoing, the Tarion warranty shall remain in full effect”. Tarion and the Added Party have argued that this should be interpreted to mean in relation to major structural defects. Strictly speaking, that is not what it says. The Tribunal finds this term ambiguous.

Thus far, in order to interpret the Release in the manner suggested by the Added Party, the Tribunal must change the item numbers referred to in two fundamental terms of the contract, piece together what was intended to be the repairs contemplated by the parties from various emails from unrelated parties, and restrict the meaning of ‘Tarion warranty’ to only major structural defects. In the Tribunal’s opinion, this process is more akin to the creation of an agreement rather than interpreting a written agreement, and that is not the role of the Tribunal. Referring back to the cases discussed at the outset of this issue, a consumer can forgo their right to a claim but it must be done in accordance with a written agreement in language that does not create any doubt as to what has been agreed to. The Release in this case is not such an agreement and in the Tribunal’s opinion it should not be enforced due to the uncertainty created by the various errors, vagueness and ambiguity.

However, if the Tribunal is wrong on this point and the Release is enforceable, what does the Release encompass?

Paragraph 3 indicates that the Release is to relate to “any and all claims and all claims (sic) for additional work, including but not limited to all the outstanding items from the Performance Audit for [ the Applicant], Reference #31860-1123859 (the “Audit”) and listed in the Tarion minutes of June 21, 2007”. The initial language of this paragraph appears broad; however it is then qualified with the addition of the word ‘and’. The Tribunal finds that it is reasonable to interpret the Release as including those outstanding items from the Performance Audit and listed in the Tarion ‘minutes’ of June 21, 2007. This interpretation is supported by the Settlement Letter which states that the purpose of the settlement was to resolve all ‘remaining claims’, including those for additional work, including outstanding items from the Performance audit ‘as indicated in the Tarion minutes of June 21, 2007’. The Tribunal therefore finds that the intention of the parties was to address those items on the Audit which were noted in the summary notes for June 21, 2007. These included items: 2, 29, 30, 39, 46(b), 54, 60, 102, 103, 104, 105, 102A, 105A, 106, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117, 118.

The Tribunal notes these items do not include items 42, 55, 100 and 100A, which represent four of the six defects which have been connected with the current water penetration complaint; clearly they were never properly resolved. In addition, the Release explicitly excludes item 60. Clearly item 60 was not corrected in all aspects. As reviewed, the capping of the parapet has been the recommended repair to deal with the water penetration of the horizontal EIFS moulding since the time of the Audit, and noted in the Bulletin 19 review, and it remains the best recommended repair.

What the Release also does not address is any common element claim for water penetration. As both Tarion and the Added Party have argued consistently that water penetration was not raised as a common element claim on the Audit nor raised at any of the common element meetings it is difficult to understand then how the Release signed in October of 2007 is to be interpreted to include a claim for water penetration. Counsel for Tarion conceded that the Release cannot be interpreted to include the water penetration claim as it relates to Consumer A’s unit as that claim was not part of any common element discussions at any point. It was unclear to the Tribunal whether it was being suggested that the Release could, however, be interpreted to include any common element claim with respect to water penetration.

The claim for water penetration submitted by Consumer A has been found by this Tribunal to be a properly filed common element claim for water penetration for the Property, the scope of which has yet to be determined. The Tribunal does not understand how this common element claim could be found to be addressed by the Release with respect to the Property as a whole but not with respect to the one unit. The parties clearly had not addressed their minds to this claim and therefore the Applicant can not be deemed to have understood they were waiving their right to this claim, and certainly there was no consideration given for the waiver of this claim. At the time the Release was signed the water penetration was an on going issue, although it had been denied as a claim, and clearly would not have been waived in exchange for nothing.

Further, Mr. Pagel indicated in his testimony that he did not believe that the Added Party had an obligation to do any of the repairs to address the water penetration issue which manifested itself with respect to Consumer A’s unit as it was’ out of time’. He of course was wrong on this; however, it certainly makes it clear that the claim for water penetration was not contemplated by the Added Party at the time the Release was signed and the settlement amount was negotiated. The Tribunal finds that the common element claim for water penetration is not encompassed by the Release signed in October of 2007.

In summary, the Tribunal concludes there are two grounds to hold that the Release does not bar the Applicant’s claim. Firstly, because the Release is not enforceable as it cannot be interpreted in a meaningful way without being altered and embellished. It contains errors, lacks detail and therefore certainty, and contains ambiguous terms. Secondly and in the alternative, if it is enforceable, it only encompasses those outstanding items listed in the Tarion summary of June 21, 2007, excluding item 60. It does not encompass items 60, 55, 100, 100A identified in the audit and which relate to the defects presently found to be contributing to the water penetration of the Property, and it does not include the common element claim of water penetration for the reasons set out above.

3) If the claim should not be denied for the foregoing reasons, should the water penetration claim be warranted? What should be the scope of the water penetration claim? Is it a systemic problem?

Burnside Findings

The Applicant relies upon a report produced by R. J. Burnside & Associates Limited (‘Burnside’) dated January 8, 2009, (hereafter referred to as the ‘Burnside ‘ report) in support of its claim that the water penetration is a systemic problem, a result of improper construction of the Exterior Insulation Finish System (‘EIFS’) which is the cladding on the Property. A summary of the observations and conclusions of that report follow.

Mr. Johannesson was the author of the Burnside Report and was a Senior Building Science Specialist and Project Manager at Burnside at the time he conducted his assessment of the building envelope of the property. A building envelope is defined in the report as the building assembly or the ‘large membrane’ that separates the indoor and outdoor environments. In particular it includes the exterior walls, including windows and doors and the roof assembly. Given that the concrete floors at the second and third floors of the Property penetrated the exterior wall assembly, they were regarded as part of the building envelope in the Burnside Report.

The investigation conducted by Mr. Johannesson involved a general visual review of the building envelope, a unit owner survey, a thermographic review of the building exterior, water leakage testing of windows and patio doors, air leakage testing of the building envelope and, sealant and EIFS cut tests. Cut tests means sections of the EIFS cladding were removed in order to view the underlying components. The water leakage testing was performed by Mr. Johannesson, for the purpose of gaining a qualitative representation of in-situ performance of the units.²⁶

Based on a visual review of the building envelope Mr. Johannesson made the following observations.

The roofing membrane, where reviewed, appeared to be a two-ply torch-applied modified bitumen membrane with granular surface. The joints appeared to have been sealed with lap sealant to protect exposed bitumen from solar degradation. The membrane was described as being in good condition and was not suspected of leaking.²⁷

The concrete balcony slabs on the north and south sides of the building had an unusually high occurrence of sectional cracks through the slab. Some cracks appeared to be repaired. Many of the cracks were noted as actively leaking. In many locations the cracks continued through the up-stand curbs at the exterior wall. Mr. Johannesson concluded “the cracks are consistent with concrete shrinkage and may have been due to a higher than normal water cement ratio maintained during construction”.²⁸

The exterior walls are constructed of structural steel studs with interior gypsum finish, exterior gypsum sheathing and EIFS. There was a large urethane sealant joint at the foundation and first floor wall connection. There was no through wall flashing but, instead, one inch (approximately) wide intermittent gaps in the sealant. Typically continuous through-wall flashing would be present at a joint such as this. Upon closer review of the joint it was observed that the sealant had pulled the finish coat of acrylic stucco away from the base coat.²⁹

It was noted during the thermographic review that patterns consistent with EIFS saturation were noted at the window sills on the south elevation of the buildings. It is pointed out in the Burnside report that leaks at these locations would be consistent with the observations in the Oct 29, 2008 GRG report that noted that the sill flashing is not caulked to the EIFS below therefore water blowing under the flashing can access the drainage plane.³⁰

A water leakage testing was conducted on November 5 and 11, 2008 by a method consistent with the ASTM E1105 standard, on ten randomly selected patio doors and windows. All windows and patio doors leaked within three minutes of beginning the test, in varying degrees and in different locations: transoms, sills, and floors.³¹

Sealant and EIFS ‘cut tests’ were conducted at four different locations around the building in areas it was believed provided a reasonable representation of the conditions and detailing of the building envelope. A section involving both the wall base and window sill was chosen, and a section of the EIFS removed. It was found that the sealant around the window had poor adhesion to the finish coat of the stucco and that sealant adhesion at the metal window sill was also poor. The sill had been attached to the base coat of EIFS with dabs of construction adhesive and no sealant had been applied. In addition to the lack of sealant, no flashing was found below the sill to direct water from the drainage plane to the exterior of the building.

Further review of sheathing uncovered the de-bonding of the glass matt facing and disintegration of the internal gypsum core. It was also found that there was corrosion of the sheathing fasteners and significant corrosion of the steel studs.

With respect to the roof parapet, it was noted that the sealant used to secure the metal coping was not continuous. It was therefore suspected that wind driven rain could enter the drainage plane behind the EIFS.

With respect to the drainage plane, it was observed that there was no suitable path for water to drain out in certain cut test locations. The flashing (behind the EIFS) was not fully adhered and would not be effective in redirecting water out of the assembly. Also where the cut test was done near a patio door, the base flashing was not integrated with the patio door jamb flashing and the patio floor flashing terminated behind the concrete curb. Therefore water that entered the EIFS system would remain trapped.

A unit survey was also conducted and 31 unit holders responded. In response to questions relating to the exterior wall, eight indicated that their units had leakage or stains at exterior walls at windows, 3 had leaks at the top of exterior walls, 5 had leakage or stains at the bottom of the walls, and 5 reported leakage only when it rains. In response to a questions related to windows and doors 7 unit holders indicated that they had leakage.

The Applicant, through the testimony of Consumer A, suggested that unit surveys were not completed by the unit owners connected with the Added Party, nor by a number of the retired residents who go south for the cold weather season.

The Tribunal notes that the units found to have water damage due to water infiltration in August of 2007 all responded on the Burnside unit survey of November 2008 that they have some kind of leakage or water stains.

The conclusion of the Burnside report is that the building envelope was not built in accordance with good building practices, 1997 Building Code and the Act. If it had, the exterior envelope would be free from water leaks and premature deterioration of building envelope components. The Building Code requires protection of wall assemblies from ingress of precipitation. The Code Appendix also acknowledges moisture related material damage as the most obvious and significant problem with uncontrolled leakage. The frequency of test failures and the inconsistency of construction practice lead Mr. Johannesson to the conclusion that there are systemic flaws in the design and construction of the exterior wall assemblies. In cross- examination Mr. Johannesson opined that he would not expect leakage in windows and doors only 3 to 4 years old.

The Applicant also relies on a letter dated April 29, 2010, from the company BASF which supplied the wall system for the Property. The system is called “Senerflex Channeled Adhesive Design Wall System”. The conclusion of the supplier was that the problems being experienced by the Applicant were not related to the quality of material supplied but rather the installation. The author of this letter did not testify. The deficiencies noted included improper flashing details, (including the cap on the parapet which does not extend over the system as required), the absence of drainage means, substitution of materials not provided by the supplier, improper treatment of penetrations, and adhesive patterns not in accordance with application instructions. It was noted that at least some of the photographs reviewed by BASF were provided to it by Consumer A.

Mr. Johannesson reviewed the BASF letter and provided a further opinion regarding the property in a report dated May 12, 2010.³² He concluded that because of the substituted components the system no longer meets the Ontario Building Code 1997 requirements.³³ Specifically section 9.27.1(1) states:

“Exterior walls shall be protected with cladding including flashing, trim and other special purpose accessory pieces required for the cladding system being used to restrict the entry of rain and snow into the wall assembly”.

His interpretation is that this section supports the position that the Senerflex Channeled Adhesive Design Wall System must be completed with BASF components only. The peel and stick flashings installed at the window and door perimeters are not BASF components and therefore the installation does not meet the requirement of the Code. This is the basis for Mr. Johannesson’s opinion that the water penetration that is occurring is related to this issue and is therefore a systemic problem.

A list of recommended repairs was included in the Burnside report, although no estimate as to cost. A subsequent estimate was prepared by Burnside dated July 6, 2009, in the amount of $716,374.79.³⁴ The Tribunal notes that there is some variation from the recommended repairs in the Burnside report and the subsequent estimate.

Findings of the Field Review Consultant

The Bulletin 19 Review of the Property was performed by Mr. Rob Marshall, a professional engineer. This review is a requirement of the Ontario New Home Warranty Program and is to represent an independent engineering review of the Property construction. In his testimony Mr. Marshall acknowledged that he was the Field Review Consultant (‘FRC’) on the Property project. Initially he carried out this role as an employee of Burnside, but left there in 2004 and continued as the Field Review Consultant as an employee by Cedaridge Services Inc.

Mr. Marshall testified that the cladding system installed on the Property was a ‘type C’ system which is a ‘drain’ system. At the time it was installed there were no published standards; the first practice guide was published in 2010.³⁵ He confirmed that a number of things could affect the way it performs, the most important being the adequacy of the details. When asked if a change in the system would change the integrity of the system he replied that it would depend on the nature of the change. He was unable to comment on the change regarding the ‘blue skin’ membrane. Nor could he give a definitive answer regarding the flashing details as he did not have the architectural details. He was not aware of changes affecting the ‘envelope’.

As part of Bulletin 19 Milestone report number 4, dated August 12, 2004, Mr. Marshall completed a narrative Report indentifying the deficiencies in the steps taken to cover the horizontal EIFS used as window sills, steps required to address the concern that EIFS was not an approved roofing material.

Findings of RBS Consulting Engineer Group Inc.

RBS completed the Audit on the Property. The relevant findings of that Audit are included in the findings of GRG set out below.

In his written report dated September 12, 2007, regarding his investigation of water egress into particular units Mr. Rymell made the following comments about deficiencies related to unit doors:

The PVC strips had been caulked intermittently and have now failed where it was applied. These strips have also buckled in many places throughout the building. This will likely not pose a water ingress problem in the near future for those doors located under a balcony. However, for all those doors which are exposed there is a likelihood of water ingress.

These PVC strips should be reset and caulked using a compatible sealant as recommended by the door manufacturer. In addition the reveal over unit 402 bedroom door should be caulked using a sealant compatible with the EIFS system.

Findings of GRG Building Consultants

In response to the Burnside report, GRG Building consultants were engaged by Tarion to review the problems described in the Burnside report, determine what is the cause of the problem, whether it was caused or was the result of the audit deficiencies or repairs, whether the problem has the same cause as that involving consumer A’s unit, and what is the recommended method of repair and cost. GRG had previously investigated, and assisted, in resolving the issues with Consumer A’s unit.

Mr. Genge, a professional engineer, authored the GRG report dated April 1, 2010. His findings include that the EIFS cladding on the Property is ‘essentially’ a face-sealed cladding system that has some facility to drain small amounts of water. The report states that EIFS does not leak through the face of the wall unless there were defects in the exterior lamina; however, sealants, openings and other interruptions in the EIFS may leak and be presumed to represent a failure in the EIFS itself.

This description of the EIFS system is somewhat different than the description that Mr. Genge has previously given this system. In an email letter to Tarion dated November 12, 2008, copied to Consumer A, Mr. Genge states, in relation to the Property EIFS system, that:

‘this design would be considered to be a “drained” system if there were no defects in the construction.”³⁶

With respect to the windows and doors of the Property, Mr. Genge reviewed the certification testing for the windows and doors and noted that the test does not certify the performance of the transom light above the casement windows and the patio doors. His conclusion was that there was no verification that the compound window and window/door assembly had been tested and found to comply with the applicable standard and the Ontario Building Code requirements for water leakage resistance.

GRG reviewed the Bulletin 19 Reports and noted there was a deficiency identified below the window sills where the recommendation was to install a Senershield water penetration barrier. Senershield is a product sold by Senergy, a BASF company. A water penetration barrier was installed, with mechanical penetrations with upturns. GRG was advised by the Added Party that the as-applied wall system included some modifications from the Senergy system. The details of those modifications however were not identified by the Added Party and therefore were not known by GRG.

Mr. Genge noted the concerns identified by the FRC in June of 2004 that EIFS is not approved as a roofing material in a horizontal location. Prefinished metal sill flashing with drip projection over the EIFS window sills were installed in response to this concern. However, Mr. Genge does not comment on the FRC’s subsequent findings, after the installation of the sills. Those findings were that:

Some of the metal sill flashings are short (in length) and do not extend entirely to the corner of the jambs. The caulking passed adhesion tests requested by the FRC, with excellent adhesion. However, at some of the caulked corners, the gap between the metal sill and jamb is excessive and there is insufficient caulking material to bite on the metal sill to form a water tight seal. Metal end dams with upturns were suggested to be installed at all susceptible locations”.³⁷

It is therefore not clear that his conclusion that the FRC found that there were no deficiencies is actually based on the last Bulletin 19 Milestone Report which appeared in the Bulletin 19 Milestone Report submitted to the Tarion and provided to the Applicant on November 8, 2006,³⁸ ( after the Audit was submitted).

Mr. Genge then reviewed the Audit and those items that could be related to building envelope leaks. GRG concluded for a number of items that “There appears to be no relationship between reported leaking and these defects.” Set out below are summaries of the notes and findings for those Audit items considered by GRG which appear to have some relationship with the reported leaking.

Item 55:

The coating on the exterior balconies is incomplete in numerous areas. Cracking of balcony slabs is allowing water ingress.

It was noted that the Added Party had done repairs on more than one occasion in relation to this item. Based on what Mr. Genge has referred to as the ‘minutes’ of the Common Element meetings, he notes that the Applicant indicates this item is resolved. Mr. Genge confirms the existence of cracks in the balconies that appear to be sealed but exhibit evidence of leaking and may direct water to the interior space.

Item 60:

“The top of the parapet has the metal flashing terminated at the top of the stucco finish which is to be sloped outward as documented but is flat or sloping inward and will allow water to penetrate. The top of the stucco is also starting to crack in areas.”

GRG noted that the Audit does not describe the ‘horizontal’ portion of the EIFS molding to be a deficiency in the same manner that the FRC described the horizontal window sills as a deficiency. Relying on the meeting summaries, Mr. Genge concludes that the Applicant’s consultant advised that the areas need to be capped with metal flashing, (which the Tribunal notes is a similar solution as that undertaken with respect to the sills during construction), and that the Added Party undertook to supply a repair methodology recommended by the system supplier. GRG was not provided with the proposed method of repair.

GRG also noted that the parapet moldings are cracking at the joints between sections, that leak stains are evident below the moldings at these joints, but that there was no evidence that the cracked joints have contributed to water ingress; however, GRG required the cap flashing-to-EIFS joint to seal the cap flashing against wind-driven rain. GRG then included the statement, “We are unaware of any other repair methodology that may have been undertaken.” (It is unfortunate that GRG was not given the repair methodology that was apparently undertaken on the parapet; it might have been helpful to know what was actually done.)

Item 100:

The stucco system does not appear to be a proper rain screen and is not pressure equalized. No through wall flashing was visible and venting was inconsistent.

Based on the meeting summaries GRG concluded that the Applicant considered the item resolved and it was not listed in the ‘minutes’ of June 21, 2007. GRG concluded that there was no overall complaint about the design of the EIFS, or that the Applicant had come to understand that the EIFS design was consistent with the custom of the trade and the RBS reported defect that it was not a proper rain screen and not pressure equalized, was not a required repair. With respect to flashing, it is noteworthy that GRG, in assessing Consumer A’s unit in this report, found that the quality of the flashings was poor and had it corrected.

With respect to Consumer A’s unit, the Tribunal notes Mr. Genge’s previous findings set out in his letter of report of November 12, 2008. He then wrote:

“our repair efforts to date have focused only on the found defects in construction at this unit and have been based on the assumption that isolated defects in construction have lead to the observed leaking. Since we have found that the construction defects at the critical drainage areas are not discrete but repeated at both sides of the door and both sides of the HVAC unit, we do not believe that the level of construction review applied can be relied upon as a measure of general quality. The problems observed may well be wide spread.³⁹

Item 104:

It was noticed that the caulking has been installed onto the finish colour coat of the stucco system which is not as specified by the manufacturer due to bonding concern. Some joints are delaminating from the stucco finish.

GRG noted from the meeting summary of June 21, 2007 that the Added Party advised that this issue was resolved: the Applicant was to notify if there were further concerns. GRG comments that adhesion of sealant to finish coat is not recommended and that the noted sealant adhesion problems would appear to be localized sealant installation problems. It is noteworthy that sealant adhesion problems were observed.

Item 105: It was noticed that a number of exterior grilles and louvers around the building were not caulked around the perimeter.

Mr. Genge’s comments were that missing sealant adhesion would appear to be a localized sealant installation problem. As the defect locations were not made known to GRG, as the locations are undefined, he concluded that there was no connection between the reported leaking and the defects. These conclusions suggested to the Tribunal that GRG was not directed to any particular location regarding this defect and therefore he was not able to determine any connection.

Item 100A:

“The reinforced concrete balconies were found to be cracking, substantially, in a number of areas and were allowing water to penetrate balconies below. Rusting exposed reinforcing bars were noted in some areas. There is no thermal break between the building slab and the balcony slab.

GRG noted that the Common Element Meeting summary notes only make one reference to this issue. On May 3, 2006, it is noted that the issue of the slab not having a thermal break is a “comment requiring no further action”. GRG, however, concluded that the balcony cracks on the units as noted in 100A are contributing to leaks in those units.

GRG reviewed the findings set out in the report of RBS dated September of 2007 with respect to water penetration of four particular units. The report suggested that the water penetration related to items 103, 104 and 105 of the audit. Mr. Genge found that Mr. Rymell’s more detailed description of the defect, of an unsealed ‘flat strip’ set out under RBS findings above, did not relate to items 103-105 of the Audit; however, he did find that those head flashings were not sealed and he required that they be sealed, as well as the transom lite framing joints at Consumer A’s unit. In addition, although the caulking was not missing, at the time of the GRG inspection, the HVAC in Consumer A’s unit had been removed and reinstalled and it was found that the perimeter flashing tie-in from the cabinet was deficient and the flashing of the exhaust box was also deficient. Both were corrected.

GRG noted that there were other defects involving Consumer A’s unit that were observed that were not reported by RBS.

With respect to the Burnside report, GRG concluded, based on the fact that only 10 of the 54 units (18.5 %) reported wall or window leaks, and only 17% reported leaks at balcony slabs, the problem is not systemic.

GRG also reviewed the findings of the Burnside report regarding the specific units; as well GRG carried out a visual review of a number of other units. In all GRG inspected approximately 14 units, which included the four identified by Mr. Rymell (of RBS) as having water penetration in September of 2007. Detailed findings as to the water damage and the possible leak sources were included in the report. They included, among other things: unsealed flashing, loose head flashing, water being directed into the EIFS from balconies above, water being directed into the EIFS from the curb, inadequately flashed exhaust vent louvers, open or cracked frame welds of doors or window, faulty transom lites, sill flashings with inadequate caulking, roof parapet cap flashing, unsealed wall penetrations, door jam weather striping, and faulty balcony slab crack seals.

Recommended remedial work was identified at a cost estimated at $192, 500.

Mr. Paul Sandoori

The Added Party’s witness Mr. Sandoori provided some comments regarding the reports. He indicated he could have provided more comments had he had more time to review them. He confirmed he was not an expert in sealants. His opinion was that windows should last years before they leak.

On page 2 of his report Mr. Sandori makes the comment that “no attempt was made by RJB to determine, as far as possible, the effect of years of neglect and lack of maintenance or routine repairs”. He pointed to two general comments made in the GRG report that localized repair of sealant failure should be undertaken as part of normal building maintenance, and that maintaining the weather stripping in good condition and adjusting sliding doors can correct the leaking at the jamb which occurred during the water testing of RJB. Mr. Sandoori also stated he did not feel the lack of maintenance was sufficiently stressed in the GRG Report. The Tribunal has read all the reports which Mr. Sandori based his opinion on and found nothing to support his conclusion that the Property is suffering from years of neglect and lack of routine maintenance. His report was not helpful.

LAW

Relevant sections of the Act:

13(1) Every vendor of a home warrants to the owner,

(a) that the home,

(i) is constructed in a workmanlike manner and is free from defects in material,

(ii) is fit for habitation, and

(iii) is constructed in accordance with the Ontairo Building Code;

(b) that the home is free of major structural defects as defined by the reulations;

(c) such other warranties as are prescribed by the regulations.

Exclusions

(2) A warranty under subsection (1) does not apply in respect of

(a) defects in materials, design and work supplied by the owner;

(c) normal wear and tear;

(f) damage resulting from improper maintenance;

Relevant sections of Regulation 892

s. 15 (1) In this section,

“building envelope” means the wall and roof assemblies that contain the building space, and includes all those elements of the assembly that contribute to the separation of the outdoor and indoor environments so that the indoor environment can be controlled within acceptable limits:

s. 15(2) Every vendor of a new home warrants to the owner ,

(a) that the home is constructed in a workmanlike manner and is free from defects in materials, including windows, doors and caulking such that the building envelope of the home prevents water penetration;…

(3) The warranties described in subsection (2) apply only in respect of claims made during a two- year warranty period ending on the second anniversary of the date of possession in respect of homes that were enrolled, or should have been enrolled, after December 31, 1990.

(4) The warranties described in subsection (2) are prescribed under clause 13(1)(c) of the Act.

ANALYSIS

Section 15(2) of Regulation 892 provides that every vendor of a new home warrants the home is constructed in a workmanlike manner and is free from defects in materials, including windows, doors and caulking such that the building envelope of the home prevents water penetration. The evidence submitted by both the Applicant and Tarion confirms that the Property of the Applicant was not constructed in a workmanlike manner, and was not free from defects, such that the building envelope of the Property prevented water penetration. The common element claim for water penetration has been found to have been made within the warranty period and should therefore be warranted. Tarion has in fact warranted the water penetration claim as it relates to Consumer A’s unit; the issue is what is the extent of the poor workmanship and the defects which have lead to water penetration? Is it a systemic problem?

A significant quantity of expert evidence and documentation has been provided to the Tribunal to assist in the determination of the cause and extent of the water penetration problem involving the Property. Sorting through it all has been a challenge but in the end there appears to be a number of similar findings amongst the experts. Although the Burnside Report and the GRG Report do not appear to agree as to whether the problem is ‘systemic’ they both conclude that there are defects in the building envelope which have lead to the water ingress. Based on those reports and other evidence the Tribunal finds the following facts to have been proven:

1. The EIFS system installed on the Property was considered by the FRC to be a ‘drained’ system. However, given the way it was constructed it is essentially a face-sealed cladding system that has some facility to drain small amounts of water. Where water has penetrated the wall assembly there has been premature deterioration of the sheathing and envelope components. The performance of this wall system is largely dependant on the integrity of the exterior surface of the EIFS and the sealants to the window/door, and louvers etc.

2. The water penetration of the Property is the result of a variety of causes. In some instances it has been the result of deficient tie-in of the curbs, window/door lovers, etc., to the substrate below the EIFS cladding: in other words it is the result of a failure to construct the wall assembly as designed. GRG found this to be the case involving Consumer A’s unit. Burnside found this to be the case where it conducted cut tests.

3. There is a common condition of leaking at the cracks and joints in the balcony slabs. The slabs are extensions of the floor framing system and as such a crack in the balcony slab extends into the unit. Leaking at the crack in the balcony has lead to water being directed into the interior, where it has dripped into the ceiling bulkhead and caused damage. Repairs have been attempted but they were insufficient and unsuccessful.

4. The transom windows are faulty and require repair. There are also glazing defects in the windows generally that have allowed water ingress. The water ingress relating to windows is not the result of poor maintenance.

5. The roof parapet has been a source of water ingress. EIFS is not an approved roofing material on a horizontal location. This deficiency relates back to concerns identified on the Bulletin 19 report and it was also noted on the Audit as item 60. This deficiency has never been properly addressed.

6. The metal sill flashing, installed in response to concerns raised by the FCR were not installed so as to ensure a water tight seal and have resulted in water ingress.

The GRG and Burnside Reports confirm that the construction of the wall assembly was not as designed in the locations they carried out their most thorough investigations.

Although at the time of construction there were no published standards, the expert evidence before the Tribunal has indicated that the way it was constructed has allowed water to enter into the wall assembly but that it is not properly directed out. In two of the locations it was noted that there was deterioration of the wall assembly components. The Applicant has asked the Tribunal to conclude that the poor workmanship exposed by these investigations is systemic, and is the cause of the water penetration.

Although it would not be unreasonable to suspect that the installation method was consistent, and therefore defective throughout the Property, and in fact GRG noted this possibility in November of 2008, the evidence however relating to the water penetration that has been documented to date does not indicate that water penetration has in fact been a consistent problem throughout the Property. In view of this, the Tribunal is hesitant to conclude that to correct the water penetration issue the entire EIFS system needs to be reinstalled. Clearly, however, there are a number of deficiencies in construction and materials which have caused water penetration of the Property and they should be corrected.

The recommended remedial work by Tarion’s expert, set out on Pages 37 and 38 of the GRG report, addresses what the Tribunal has come to understand as the key deficiencies that have lead to water penetration and it is the work that the Tribunal finds ought to be carried out by Tarion, at a minimum. In summary this remedial work includes:

1. With respect to window and sliding doors, all exterior vinyl joints be sealed including the trim, mitres, and butt joints. All transom lite glazing be provided with a bead of sealant by removal of the interior stops.

2. The underside of all metal sills at all punched window openings should be sealed and the sealant drawn up the ends to reseal the top of the sill-to-EIFS jamb connection. (As noted above, this relates to a defect that was noted on a Bulletin 19 milestone report).

3. Balcony slabs are to be waterproofed. Where the balconies pond water the membrane should be built up to allow drainage. (This relates to items 55 and 100A of the Audit).

4. The roof cap flashing shall be replaced with a wider flashing that covers the nose of the EIFS moulding and includes a drip edge. This would reduce the ingress of water at the EIFS moulding. (This relates to item 60 on the Audit, and is the repair that was recommended by RBS in 2006, and was noted as required by the supplier). This is the repair identified by GRG as the better method of repair of the roof parapet, and it is the repair that the Tribunal finds ought to be done.

It is also recommended by GRG that the sliding doors should be adjusted to fit correctly at the jams and meeting stile and be re-weather stripped, and the jamb to sill joint should be cleaned and sealed on both the operable and fixed sides of the door. The Tribunal is of the opinion that this work does not clearly address a defect in work or materials and therefore should be undertaken at the expense of the Applicant.

Finally, it is recommended by GRG that if the repair work identified on pages 37 and 38 of the Genge report are not completely successfully then additional destructive testing would be required to assess EIFS-related leaks. The Tribunal understands this to mean that if, after the remedial work water penetration occurs then an investigation of its cause will occur similar to that undertaken to resolve the water penetration issue of Consumer A’s unit. The Tribunal agrees and orders that this recommendation should also be followed. Although the current problems that need to be addressed are significant, if the water penetration is allowed to continue and the wall assembly becomes saturated clearly the magnitude of required repairs will be even greater and may lead to a major structural defect.

The Added Party has voiced objection to the balcony slabs being waterproofed on the basis that it is ‘betterment’ and is not a code requirement. It is not in the Tribunal’s opinion betterment if it is in fact a requirement to prevent water leakage into the Property and to meet the Added Party’s s.15 warranty obligation.

The Added Party has also argued that the roof parapet was built as designed. There has been some challenge to that as there were different diagrams with different roof parapet designs on record. Two show a fully capped moulding, as in diagram A14-1 for the ‘stair roof parapet’, dated June 17, 2004, and diagram A14-3 of the ground floor roof dated July 11, 2002 and submitted with the building permit application.⁴⁰ One diagram, A14-7 of ‘TYP. roof parapet ‘dated June 4, 2003, shows a portion of the stucco moulding as being exposed. This later diagram was identified as ‘for construction’. It is not clear why the stucco moulding would be covered in two roof situations and not in all roofing situations. In any event, it seems clear to the Tribunal that the design that the Added Party has relied upon used EIFS as a roofing material. Based on the FRC comments in the Bulletin 19 this would appear to be inappropriate. There was no evidence provided to the Tribunal that countered the finding of the FRC back in 2004. It was also pointed out in the Audit as a deficiency that would lead to water penetration. It was also pointed out by the supplier of the EIFS system that this was a deficiency. The Tribunal concludes that using EIFS as a roofing material, even as designed in diagram A14-7, would fall under either poor workmanship or a defective material, and it did in fact lead to water penetration. It was one of the mistakes in this Property’s history.

The history of the problems with this Property is long. As suggested earlier, there has been a series of missteps that have contributed to this. Mistakes were made in the construction of the Property. The Bulletin 19 process did not apparently identify all the construction errors that were occurring and those identified where not tracked. The performance audit process did not include all the required steps. Recommended repairs were not followed. Communications were not read. Rights and obligations were not understood. In the end, there has been a long and costly resolution process. It is hoped that the remedial process will not be as long, given that all parties now have clarity as to what is necessary and expected.

One of the factors that has prolonged this process, and is worthy of additional comment is the lack of trust. The Added Party’s denial of any legal responsibility to repair the water penetration of Consumer A’s unit certainly has not been helpful in establishing credibility or trust with the Applicant. Equally unhelpful were comments by Counsel for Tarion during these proceedings suggesting that Consumer A was getting more than she was entitled to. This has done nothing to instil trust in Tarion to carry out sufficient repairs to truly address the problems faced by the Applicant. The Act is consumer protection legislation. That Tarion appeared to begrudgingly offer that protection, when clearly it should and has agreed to do so, is unfortunate to say the least. Consumer A has been without the full use of her home for almost 5 years through no fault of her own. The persistence of this water penetration problem involving Consumer A became a red flag to the Applicant and the doubt as to the commitment of Tarion and the Added Party to fixing the problem has clearly contributed to the length and expense of this resolution process.

As stated earlier, now that there is clarity that there are defects in workmanship and materials, that are covered under warranty, and that if not properly dealt with will lead to greater problems, it is hoped that the remedial stage will proceed without incident.

ORDER

Section 16(3) of the Act gives the Tribunal the authority to order such action as the Tribunal considers Tarion ought to have taken. The Tribunal hereby orders Tarion to ensure that the remedial work set out by its own expert on pages 37 and 38, of the GRG Report dated April 1, 2010, including the replacement of the parapet cap, be completed in a timely and thorough fashion. The goal is to eradicate water ingress into the Applicant’s property, and these repairs at seen as the minimum repairs required. There is only one exception and that is that, unless agreed to otherwise, Tarion shall not be responsible for the adjusting, re-weather stripping, cleaning and sealing of the jamb to sill joint, relating to the sliding doors as described on page 37. This work should be the responsibility of the Applicant and it is recommended that it be completed and such completion be documented.

LICENCE APPEAL TRIBUNAL

Elizabeth Sproule, Presiding Member

Released: December 21, 2010

Item 55: The coating on the exterior balconies is incomplete in numerous areas. Cracking of the slabs is allowing water ingress. Item 60: The top of the parapet has the metal flashing terminating at the top of the stucco finish which is to be sloped outward as documented but is flat or sloping inward and will allow water to penetrate. The top of the stucco finish is also starting to crack in areas. Item 100: The stucco system does not appear to be a proper rain screen and is not pressure equalized and is not pressure equalized. No through wall flashing was visible and venting was inconsistent. Item 100 [the numbering system had duplication, this item was subsequently numbered 100A]: The reinforced concrete balconies were found to be cracking substantially in a number of areas and was allowing water to penetrate the balconies below. Rusting exposed reinforcing bars were noted in some areas. There is no thermal break between the building slab and the balcony slab.

Footnotes

1. 1Exhibit 7
2. 2Exhibit
3. 3Exhibit 7
4. 4Exhibit 6, Tab 10
5. 5Exhibit 3, tab 7
6. 7Item 42: One of the 4th floor unit owners was commenting on a roof leak entering from the main roof.
7. 6
8. 8Exhibit 3, tab 14
9. 9Exhibit 3, tab 17
10. 10Exhibit 10
11. 11Exhibit 15, tab 30
12. 12Exhibit 11
13. 13Exhibit 4, tab 58
14. 14Ontario New Home Warranties Plan Act, s. 15(b)
15. 15Exhibit 10
16. 16Exhibit 3, tab 37 and Exhibit
17. 17Exhibit 15, tab 20
18. 18Exhibit 23
19. 19Exhibit 3, tab 37
20. 20Exhibit 6, tab 13
21. 21Exhibit 16, tab 45
22. 22See Markey v. Tarion Warranty Corp. [2006] O.J. No. 2929
23. 23Exhibit 3, tab 33
24. 24Exhibit 36
25. 25Exhibit 16
26. 26Burnside Report, Exhibit 4, pg 3 of 18
27. 27Burnside Report Exhibit 4, pg 4 of 18
28. 28Burnside Report Exhibit 4, pg 6 of 18
29. 29Exhibit 4, pg 6 Burnside Report
30. 30Exhibit 4
31. 31Exhibit 4, pg 8 Burnside Report
32. 32Exhibit 11
33. 33Exhibit 11
34. 34Exhibit 6 Tab 13
35. 35Exhibit 26
36. 36Exhibit 9
37. 37Exhibit 7
38. 38Exhibit 7
39. 39Exhibit 9
40. 40Exhibit 30