Licence Tribunal

Appeal d'appel en

Tribunal matière de permis

DATE:

2012-02-03

FILE:

6530/ONHWPA

CASE NAME:

6530 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-

1704608 Ont. Inc. Added Party

REASONS FOR DECISION AND ORDER

ADJUDICATOR:

KEN SELBY, Presiding Member

APPEARANCES:

For the Applicants:

THE APPLICANT, self-represented

For the Respondent:

ELLIE CHOI, Counsel representing Tarion Warranty Corporation

For the Added Party:

FRANK NACCARATO, Agent for 1704608 Ont. Inc., Added Party

Heard in Sault Saint Marie:

January 23, 2012

DECISION AND ORDER

This is an appeal by the Applicant to the Licence Appeal Tribunal (the “Tribunal”) from a Tarion Warranty Corporation (“Tarion”) decision dated February 15, 2011 under the Ontario New Home Warranties Plan Act (the “Act”) denying the Applicant’s claim for compensation related to delayed closing.

BACKGROUND

By an agreement of purchase and sale dated March 21, 2009, the Applicant alone agreed to purchase a specific lot from the Added Party. The scheduled closing date was May 14, 2009. Title to this property was transferred to the Applicant on the scheduled date of May 14, 2009. There was no delay associated with this purchase of the lot.

The Applicant and his family wished to occupy a home on this lot by August 15, 2009. After signing the agreement for the lot they quickly explored a number of options with several different builders who each had several model homes. A retail sales agreement dated April 17, 2009 was signed with Algoma Builders Inc. as vendor. The evidence was that 1704608 carried on business as Algoma Builders Inc. meaning that the vendor is the same organization that sold the lot. This sales contract was to provide one Guildcrest manufactured home which was to be installed on the previously purchased lot. On May 8, 2009 a one-page contract for the home was signed by both the Applicant and his wife and a deposit was paid to the Added Party who signed on behalf of 1704608. There was no completion date written into this contract.

The Applicant provided a document from the Land Registry Office indicating that the ownership of the lot was transferred to three people, including the Applicant, as joint tenants as of September 7, 2009. This is interesting as the three joint tenants do not include the Applicant's wife who is a co-owner of the home which is to be built on this lot.

This factory built home was expected to take about eight weeks from finalizing the design details until it was ready to be delivered to the site. During this eight week period the site was to be cleared and the concrete foundations as well as a crawl space were to be constructed. A floor system would be in place to receive the large factory built exterior wall panels which were complete from drywall on the inside through Tyvek on the outside. It was expected that these pre-built wall and associated roof panels could be assembled fairly quickly with the help of a crane. The sales agreement clearly indicates that the Applicant was to be responsible for: the well, the septic system, finished flooring, interior painting, the cultured stone, in addition to the grass and the landscaping.

ISSUE

The home closed much later than the Applicant expected. Do these two separate agreements (for the lot and the home) between the Applicant and the Added Party effectively combine to put the Applicant in the very same position of having a freehold home which would be entitled to compensation from Tarion for a delayed closing?

EVIDENCE

Evidence on behalf of the Applicant

The Applicant presented several emails from the Sales Manager of Guildcrest Homes. One dated April 7, 2009 which states in part:

In order to move into the new home in mid August, you will need to have the modular components delivered around July 1st. This is still possible as long as contracts are finalized by the end of April or sooner.

The expected rapid construction schedule was a significant factor in the Applicant’s choice of the Guildcrest factory built home.

The Applicant complained that Mr. Naccarato, the president of 1704608, made many promises but rarely delivered and never put his promises in writing.

By July 9, 2009 the Applicant was formally requesting a breakdown of the costs and scheduling associated with the retail sales agreement reflecting the changes that the Applicant had made to the plans. Several sentences from the email suggest that the parties were not getting along well and construction had not yet started.

I also want a revised price to reflect the changes that were made to the plans. Please include a penalty clause if the completion dates are not met. I also want a breakdown of the cancellation costs, whether I decide to terminate this contract or if you do.

This formal follow up is made after several conversations about this matter were not actually resolved to my satisfaction. Please be advised that if adequate breakdowns aren’t provided to my satisfaction I will terminate the deal.

The Applicant was concerned with the length of time required to get the necessary approvals to start construction. When asked by the Applicant, the Plans Examiner for the City of Sault Ste Marie outlined a two month series of approval activities. This process was expected to take a week or so. It was necessary to satisfy the Algoma Health Unit (regarding the well and septic system), the Conservation Authority (regarding the protection of vegetation near water) and the City (regarding the plans and specifications meeting the Ontario Building Code and City Regulations).

The Applicant noted that it was almost two months after the building was to be complete when the various approvals were obtained and construction has not yet started.

A variety of problems occurred and the Applicant finally took possession of the house on June 4, 2010. The Applicant completed and submitted a Delayed Closing Form to Tarion suggesting a late delivery of 293 days. Tarion would limit this claim to a maximum of $7,500, if it were allowed.

The Applicant spoke of many concerns with respect to the home and noted that these problems have led to a settlement with the Added Party involving a full and final release excluding any outstanding Tarion and Guildcrest warranty provisions.

This Delayed Closing/Occupancy Claim was rejected and the Applicant believes that the rejection was based on an unrealistically narrow interpretation of a freehold home by Tarion.

Evidence on behalf of Tarion

Evidence of Irene Swain

Ms. Swain has been employed by Tarion for 23 years. As a Claims Contractual Analyst she deals with more than a 100 delay claims annually.

Ms, Swain denied the Applicant’s delay claim because there was no purchase agreement for a freehold home. Rather there was one agreement of purchase and sale for the lot and a second agreement to supply and install one manufactured home. As well, there was no completion or occupancy date in the contract for this manufactured home.

The purchase of the lot closed on the date set and the home contract had no completion date. The main reason for the claim being denied relates to the purchase arrangement. Ms. Swain stated that:

Section 5 of Regulation 165/08 is interpreted to specifically exclude contract homes where there is no actual sale of the land and home which is required for delay closing coverage.

The Delayed Closing Warranty came into effect as of July 1, 2008. Warranty information for homeowners is readily available on the Tarion website. Part of this information notes the difference between: Freehold, Condominium and Custom/Contract Homes. The following quote is under the title Custom/Contract Homes.

In general terms, a “contract home” is a home that is built on land (a vacant lot, for example) that is already owned by the prospective homeowner. The home is constructed in accordance with a construction contract between the homeowner and a builder, and a contractor undertakes the performance of all of the work and the supply of all materials necessary to construct the completed home.

A custom or contract home is not always covered under the statutory warranty. If a homeowner, rather than a contractor, exercises significant control over the construction of a new home, or is responsible for contributing essential elements to it, the home may be no longer characterized as a contract home. Rather, it becomes an “owner-built” home. This is an important distinction because contract homes are entitled to statutory warranty coverage (except for Delayed Closing Coverage), but owner-built homes are not.

Reference was made to Builder Bulletin series which is used to educate builders with respect to warranty matters. Builder Bulletin 46 deals with Freehold Delayed Closing Warranty as it applies to agreements of purchase and sale. The last sentence of this fourteen page document is relevant to this claim.

The new Delayed Closing warranty does not apply to contract homes.

Ms. Swain believes the evidence is that this is not a freehold home and therefore it is not eligible for the Delayed Closing warranty.

Evidence on behalf of the Added Party

Evidence of Frank Naccarato

Mr. Naccarato has been a home builder since 1979 and exclusively involved in manufactured homes since 2006. To date 1704608 has had no chargeable conciliations from Tarion.

This project went badly commencing soon after the retail sales agreement for the home was finalized. Ten of the many concerns expressed by the Added Party will be briefly outlined.

1. Problem getting permits.

Because the property was owned by the Applicant the Added Party could not get the approvals from the Algoma Health Unit or the Conservation Authority which were necessary for the building permit. The Applicant, as the owner, did not seem to know of his permit responsibilities and in addition his own contractor cut down some trees in the buffer zone which caused the Conservation Authority to withdraw its approval for a period of time. What should have taken about one week took two months.

2. Concrete footings

The site was cleared and the foundation was excavated. The Applicant did not like the roughness of concrete in the footings and questioned the water content of the concrete. He stopped the project for about three weeks until a knowledgeable friend indicated that these footings were acceptable. Since the Applicant owned the site, the Added Party was forced to redeploy his workers to another project while the schedule slipped by several more weeks.

3. Threats

As previously noted the Applicant threatened to terminate the home building contract. This caused the Added Party to remove this home from the factory assembly line which normally was an eight week process. This was done to avoid having a ready to build home with features chosen by the Applicant without a buyer. The Applicant was offered a buyout including any interest costs incurred to date but it was not accepted.

4. Weather impact

This home was initially to be erected in the summer months which typically have favourable weather for construction. The first three items had moved the construction to the fall due mostly to Applicant caused delays. The evidence was that it rained severely for 22 days in the fall of 2009. That is particularly severe for this type of construction as the wall panels arrive with drywall in place and moisture damages drywall. The Added Party attempted to minimize damage by using tarps over the building area, however some drywall damage occurred. Considerable repairs became necessary adding to the cost of the Added Party and further delaying the schedule.

5. Late selections by the Applicants

The Applicant had chosen to select the siding and considerable time was taken to make the choice. Finally on December 29, 2009 the Added Party was advised of the selection. The following day it was ordered. This meant that a pair of workers were up on ladders installing siding, soffit and facia for many hours in the cold winter weather. The evidence was that temperatures of -34 degrees F were experienced during this siding installation.

6. Applicant changes during construction

Several such changes follow: the stone at the front of the home was switched to siding in order to spare expense, a outlet suitable for welding was to be added to the garage, electricity was to feed the septic pump when the system was to have been provided by the Applicant’s own contractor and a copper sink ordered from Mexico was delayed by customs so the Added Party provided a temporary replacement sink in order to obtain a temporary occupancy permit.

7. The evidence was that the Applicant who was installing 4’ x 8’ sheets of flooring damaged the ceiling drywall on more than one occasion requiring repairs. The retail sales agreement stated that the Applicant was to install flooring and do interior painting.

8. Added Party was locked out

As the last few improvements were being made the Applicant refused to allow entry to the home. Indeed for a period of time the Added Party was not even allowed to recover his tools. This lockout was only possible because the lot was in the Applicant's name while construction was underway.

9. Release

A full and final release dated May 11, 2010 from the Releasors which included the three joint tenants of the property and the Applicant's wife released 1704608 Ontario Inc. This release dealt with everything except the protections under the Tarion Home Warranty Program and Guildcrest Home Warranty Program. The Added Party understood these warranty exceptions to relate to matters of the future such as a possible major structural defect. Any possible delay claim information had been known for many months so any delay claim was believed to be settled by this release. The Applicant’s Delay Closing/Occupancy Claim Form was dated September 3, 2010 several months after this full and final release.

10. Summary

In a freehold home the ownership is not transferred to the ultimate owner until the building is completed. The owner would have little, if any, right to affect the schedule without agreement with the vendor. Tarion advises the builders that delayed closing is not relevant for a contract home. Thus a closing date was not provided.

THE LAW

Section 5 of Regulation 165/08 deals with delayed closing/delayed occupancy. Section 5 states:

5. (1) If parties enter into a purchase agreement for a freehold home or a vacant land condominium home on or after July 1, 2008, the following are conditions of registration under the Plan:

6. The vendor shall ensure that the parties complete the applicable one of the following documents, for which the form is available for inspection at the offices of the Corporation during normal business hours, and that the completed document forms part of the purchase agreement:

i. The Freehold Home Addendum (Tentative Closing Date) dated April 20, 2008 or April 22, 2009.

ii The Freehold Home Addendum (Firm Closing Date) dated April 20, 2008 or April 22, 2009.

APPLICATION OF LAW TO THE FACTS

The freehold home involves a single agreement for both the land and the building while in this matter there were separate agreements for the lot and the home. A freehold home remains owned by the vendor until the home is completed and turned over upon closing. In this case there are different owners for the lot and the home. The ownership of the property changed to three joint tenants, not including the Applicant's wife, prior to the delay claim being filed. The contract for the lot closed on the required date.

There was no closing date provided by the vendor in the retail sales contract. By Builder Bulliten 46 all Tarion builders have been advised that the new Delayed Closing Warranty does not apply to such contract homes.

In this case the lot was owned by the Applicant throughout the home building period. The Applicant frequently visited the site and played a major role in the project being delayed. As owner the Applicant actually stopped work for several weeks in the summer causing the work to be done in less favourable weather. This would not be possible if it was a freehold home.

The Applicant performed some of the interior work and contracted out the site work including the well and septic system. This is unusual even for a contract home, however most of this involvement was noted in the retail sales agreement.

A full and final release was signed between the parties and it appears to be inconsistent with subsequently bringing forth this delay claim since the delay was well known at the time of the release.

CONCLUSION

This delay claim fails for the several reasons noted above. The basic problem is that this is not a freehold home and therefore it is not covered by the Tarion Delayed Closing warranty. It is essential that the vendor has total control of the project if both the price and schedule have been established by contract.

ORDER

For the reasons stated above, and pursuant to the authority vested in it by section 16(3) of the Ontario New Home Warranties Plan Act, this Tribunal dismisses the appeal of the Applicant relating to his claim for compensation for delayed closing.

LICENCE APPEAL TRIBUNAL

Ken A. Selby, Presiding Member

Released: February 3, 2012