Date: 2021-05-07

Appeal from a decision of Tarion Warranty Corporation under the Ontario New Home Warranties Plan Act to disallow warranty claims

Between:

Suada Jelic ; Nenad Jelic

Appellants

and

Tarion Warranty Corporation

Respondent

and

Millstone Homes Inc.

Added Party

DECISION AND ORDER

ADJUDICATORS: Jennifer Friedland, Member Colin Osterberg, Member

APPEARANCES:

For the Appellants: Suada and Neand Jelic, Self-represented

For the Respondent: Catherine Longo, Counsel

For the Added Party: Gianni Curridor, Agent

Heard by Videoconference: February 24, 25, and March 23, 2021

REASONS FOR DECISION AND ORDER

A. OVERVIEW

1The Respondent, Tarion Warranty Corporation (“Tarion”) issued a decision letter dated September 3, 2020 (the “Decision Letter”), denying claims made by Suada Jelic and Neand Jelic (the “appellants”) under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31 (the “Act”).

2By an Agreement of Purchase and Sale dated April 23, 2017 (“APS”) between the appellants and Millstone Homes Inc. (the “builder”), the builder agreed to design and build a home for the appellants. The appellants took possession of the home on December 21, 2017.

3The appellants identified problems with the home and its construction and complained to Tarion. Tarion conducted a conciliation inspection and then issued Warranty Assessment Reports dated August 12, 2019 and October 4, 2019. Many of the appellants’ complaints were resolved and the items remaining in dispute were included in the Decision Letter.

B. ISSUES

4Several items which were in dispute at the time of the Decision Letter have been resolved. The parties agree that only the following items remain in dispute:

i. Interior staircase – according to the APS, the main stairs in the home were to be made of oak but the Builder installed poplar stairs, which the parties agree are of lesser value. Tarion agrees this item is warranted but disputes the appellants’ claim for replacement costs. Tarion’s position is that only the difference in value is payable. The Builder adopts Tarion’s position. The appellants seek $11,990 plus HST in damages for this claim.

ii. Exterior brick design – the appellants claim that a portion of the exterior brick wall was not constructed in conformity with the approved elevation plans. They claim that the parapet above the front of the house over the garage was supposed to wrap-around the east and the west sides a short distance. The complaint is aesthetic. Tarion and the Builder state that the item is not warranted. The appellants seek $19,145 in damages for this alleged breach.

iii. Exterior brick – the appellants allege that the exterior brick work is chipped, dirty, and uneven, and that the thickness of the vertical and horizontal mortar joints is too wide and not uniform. Tarion and the Builder submit that the bricks were installed in a workmanlike manner and are not warranted. The appellants seek $5,000 in damages for this alleged breach.

5The Tribunal must determine whether there is a breach of warranty with respect to each of the items in dispute; whether the breaches, if any, have resulted in damages; and the quantum of the damages. The appellants bear the onus of proving these three components on a balance of probabilities.

C. RESULT

6For the reasons given below, we find that only the stairway item is warranted. We find the appellant is entitled to $11,990 plus HST in damages for this breach.

D. EVIDENCE AND ANALYSIS

The Stairs

7The parties all agree this is a warranted item. The APS provides for the installation of oak stairs, but the Builder installed poplar stairs. The parties disagree on whether the appellants’ damages should be based on the cost to remove the poplar stairs and replace them with oak stairs, or the difference between the cost to install poplar stairs and the cost to install oak stairs.

8Section 19 of Regulation 892, R.R.O. 1990 (the “Regulation”) of the Act provides:

19 Every vendor of a new home warrants to the purchaser that, where the vendor makes a substitution with respect to an item that is referred to in the purchase agreement that is not an item that is to be selected by the purchaser, the item will be of equal or better quality than the item referred to in the purchase agreement.

9The parties agree that the poplar stairs installed are not of equal or better quality than the oak stairs referred to in the APS.

10The appellants argue that the poplar stairs should be removed and replaced with oak stairs. They seek the cost to have the stairs replaced, in the amount of $11,990 plus HST, based on an estimate they received from Pro-stair & Railing Inc., dated November 2, 2020. Neither Tarion nor the builder presented evidence to suggest that this amount was unreasonable if the Tribunal were to determine that the appellants are entitled to replacement cost.

11Tarion and the Builder argue that the damages awarded should be the difference in cost between the oak stairs and the poplar stairs. They have produced an estimate of the difference in cost completed by G. Spina Solutions, dated January 26, 2021, in the amount of $2,925.45 plus HST. Although the appellants have not provided any evidence as to the correct cost difference, they point out that Mr. Spina based his calculations on the difference between a generic soft wood and a generic hard wood, rather than specifically between poplar and oak, so his estimate may not be accurate.

12The appellants say the proper measure of damages is replacement of the stairs for the following reasons. First, they made design selections based on the stairs being made of oak. In particular, the floors they chose had an oak grain pattern to match the oak stairs. The poplar stairs have a significantly different look and do not match the flooring they selected. The appellants also chose spindles to match oak stairs and those spindles do not look right next to the poplar stairs.

13Second, the appellants testified that oak has a special look that they find appealing. The staircase is a central feature of their home and it is extremely important to them that the stairs be oak, as set out in the APS.

14Third, oak is a hard wood. Poplar is a soft wood. The appellants say that they are concerned that poplar will be less durable than oak.

15Mr. Geoff Wood, the Tarion Warranty Services Representative who conducted the conciliation inspection in this matter, produced a Warranty Assessment Report dated October 4, 2019, which stated that several factors reveal that poplar stairs are not of equal or better quality than oak. The Warranty Assessment Report notes that the grain patterns are significantly different in the two types of wood. The Warranty Assessment Report also states that the Janka hardness scale for wood rates oak as significantly harder than poplar, which results in increased durability.

16The appellants argue that they are entitled to replacement of the stairs because the above concerns give rise to damages which are not properly compensated by simply giving them the difference in the cost of the different wood stairs.

17Tarion and the Builder argue that since the warranty claim arises from s. 19 of the Regulation, removal and replacement of the stairs is not a remedy available to the appellants. They say the only remedy available is payment of the difference between the cost of oak stairs and the cost of poplar stairs.

18In support of their argument, Tarion and the Builder point to the fact that there are two separate and distinct substitution warranties. Those are found in s. 18 and s. 19 of the Regulation. Section 18 contains a prohibition: it states that the vendor shall make no substitutions if the purchaser is entitled to make a selection pursuant to the purchase agreement. Section 19 is permissive: it states that where the vendor makes a substitution, the item will be of equal or better quality than the item referred to in the purchase agreement.

19Tarion and the Builder say it follows that, if a prohibited substitution is made under s. 18, the item must be replaced with the item selected by the purchaser. Tarion and the Builder say it also follows that if a substitution is made under s. 19, the remedy is the difference in quality (quantified as cost).

20We disagree with Tarion and the Builder with respect to the interpretation of s. 18 and s. 19 of the Regulation. In our view there is nothing in those sections which speaks to the appropriate remedy for the specific breach of warranty. Those sections only speak to what is warranted in the case of substitutions that are made in different circumstances.

21Section 18 applies when a purchaser has been given the right to select an item pursuant to the agreement of purchase and sale. If a purchaser makes such a selection and the vendor substitutes a different item for the one selected by the purchaser, then s. 18 says that is a breach of warranty.

22Section 19 applies when an item is specified in the agreement of purchase and sale and the purchaser does not have the right of selection. If an item is specified in the agreement of purchase and sale and the vendor makes a substitution that is not of equal or better quality, then s. 19 says that is a breach of warranty.

23Both sections are silent on the appropriate measure of damages for the breach of warranty; and they say nothing about the available remedy. They only speak to the question of whether an item is warranted or not.

24Tarion and the Builder also argue that s. 19 must be read in context of the Act and regulations. The Act is consumer protection legislation as well as a limited warranty program. It provides compensation only for direct damages resulting from the breach of warranty. Tarion and the Builder also argue that the Act requires Tarion to take into consideration any benefit available to the purchaser, including the value of work and materials furnished to the purchaser from any source. In particular, Tarion refers to s. 13(2)(b), s. 14(3)(b), and s. 14(6) of the Act and s. 6(6) of the Regulation. Tarion and the Builder say s. 19 must be read in the context of the Act, including the “compensation constraints” imposed by those sections of the Act and the Regulation.

25Section 13(2)(b) provides that a warranty does not apply in respect of secondary damage caused by defects, such as property damage and personal injury. During closing argument, Tarion and the Builder agreed this is directed at matters not in issue in this appeal.

26Section 14(3)(b) provides that the owner of the home is entitled to payment out of the guarantee fund for damages for breach of warranty if the owner has a cause of action against the vendor or the Builder for damages resulting from the breach of warranty. That section does not limit the appellants’ available remedies. It provides that, where any warranty is breached, the appropriate remedy is damages.

27Section 14(6) of the Act provides as follows:

14(6) In assessing the amount for which a person is entitled to receive payment out of the guarantee fund under this section, the Corporation shall take into consideration any benefit, compensation, indemnity payable, or the value of work and materials furnished to the person from any source.

28Tarion and the Builder say this means that the cost of the poplar stairs must be taken into account when assessing the appellants’ damages in this case. In general, Tarion and the Builder argue that s. 14(6) means that, when damages are assessed for a warranted item, the materials and work performed toward the provision of the item to be repaired or replaced is to be deducted from the compensation to which the appellant is entitled.

29We do not accept Tarion’s interpretation of s. 14(6). There is nothing in the Act which would suggest that the phrase “the materials and work furnished to the person from any source” in s. 14(6) applies only to claims under s. 19 of the Regulation. Section 14(6) applies to all warranty claims under the Act. If we were to accept Tarion’s and the Builder’s interpretation, then compensation for items warranted for poor workmanship would be reduced by the cost of work and materials related to the poor workmanship; compensation for items that are warranted due to breaches of the Ontario Building Code would be reduced by the original cost of installation; compensation for items that are warranted as unauthorized substitutions under s. 18 of the Regulation would be reduced by the cost of the substituted item that is ordered replaced and so on. Those are clearly not the intended outcomes of the legislation.

30The words “the value of work and materials furnished to the person from any source” in s. 14(6) must be read in context. This phrase appears at the end of a list that includes benefits, compensation, and indemnity payable, which clearly refer to amounts received by the purchasers in compensation for a warranted item from sources other than Tarion. Those amounts must be taken into consideration when assessing the damages, the claimant sustained from the breach of warranty. Likewise, the value of work and materials furnished to the claimant from any source in compensation for a warranted item must be taken into consideration when assessing the damages, the claimant sustained due to the breach of warranty.

31In the present case, s. 14(6) requires that the value of work and materials furnished to the appellants from any source in compensation for the installation of the poplar stairs in place of the oak stairs referred to in the APS would have to be taken into consideration when assessing the appellants’ damages. The section does not refer to the work and materials used to install the poplar stairs; that work, and those materials were not furnished to the appellants in compensation for the warranted item.

32Section 6(6) of the Regulation provides that liability for a claim under s. 14(3) or s. 14(4) of the Act is limited to damage to the home only and there is no liability for other damage, direct or indirect. Section 6(6) provides no basis to conclude that the remedy for a breach of the s. 19 warranty is limited to cost differential whereas claimants under s. 18 would be entitled to replacement of the substituted item.

33In our view, there is nothing in the legislation that limits compensation under s. 19 of the Regulation to the difference in cost between the item in the APS and the substituted item. In appropriate circumstances, removal and replacement of the substituted item is an available remedy for breach of the s. 19 warranty.

34Section 14(3) of the Act provides that the owner is entitled to payment for damages resulting from a breach of warranty. In the present case, we find that the difference in cost between oak stairs and poplar stairs is not an appropriate measure of the appellants’ damages.

35The staircase is a central feature of the appellants’ home. They made decorating selections based on the stairs being oak. The surrounding flooring is oak and looks significantly different than the stairs. The durability of poplar stairs is less than that of oak stairs. The difference in the cost of oak stairs and poplar stairs does not compensate for these damages.

36We find that the cost of replacement of the poplar stairs with oak stairs is the proper measure of damages which result from the unauthorized substitution in this case. The damages sustained by the appellants is not the difference in cost, it is the fact that there are poplar stairs in their home rather than oak.

The Altered Exterior Brick Design

37The appellants argue that their home was designed to have a flat roof system and a parapet wall along the front (south) of the house that wrapped around both sides for about ten feet, on the west and east sides. Instead, the house was built without the parapet walls on the west and east sides. The appellants are unhappy with the change in the design they were expecting.

38The appellants argue that failing to include parapet walls on the sides constitutes poor workmanship and is a warranted item under s. 13 of the Act. The appellants also argue that the change in design amounts to an unauthorized substitution under s. 18 of the Regulation.

39We find that s. 18 has no application in the circumstances. Section 18 is only applicable with respect to items for which the purchaser is entitled to make a selection pursuant to the purchase agreement. Although the appellants were asked to initial the elevation drawings which included the missing parapet walls, those drawings were only prepared after the APS had been signed and the floor plans finalized. That does not amount to an entitlement to make a selection for the purposes of s. 18.

40There is nothing in the APS that gave the appellants the right to make a selection with respect to the plans for the building elevations. On the contrary, the APS specifically states that:

All plans and specifications are subject to reasonable modification, as necessary, as [sic] the discretion of the Vendor.

41The elevations showing the side parapet walls did not exist at the time the APS was entered into and the appellants admitted at the hearing that they had no basis to expect that those parapet walls would be present when they purchased the house. They did, however, know that other houses in the development did have such walls, and they liked them and assumed they would be part of the design based on the plans they initialed.

42In addition, the elevation drawings contain a qualifier that the plans must be read in conjunction with the truss design. Tarion and the Builder presented evidence that when the floor plan for the home was determined, the truss drawings were prepared, and those truss drawings did not allow for the inclusion of the side parapet walls. While there is no suggestion that trusses could not have been designed to accommodate the parapet walls, these facts are further evidence that the elevation design was not something the appellants were entitled to select for the purposes of the s. 18 warranty.

43The Tribunal finds that the Builder did not breach the warranty contained in s. 18 of the Regulation with respect to this item.

44The appellants also allege that the construction of the house without the side parapet walls breaches the warranty in s. 13(1) of the Act that the home is to be constructed in a workmanlike manner, is fit for habitation, and is constructed in accordance with the Ontario Building Code (“OBC”). The appellants claim that the wall, as built, was not constructed in a workmanlike manner. However, the appellants have presented no evidence of this at the hearing.

45At the hearing, Mr. Wood testified that the areas of wall in question were built in a workmanlike manner and in compliance with the OBC. He reviewed the plans provided by the appellants which included the side parapets and concluded that the as-built walls were minor design deviations which did not impact the use or performance of the building.

46Mr. Wood concluded that there was no defect in workmanship or materials. He concluded there was no breach of the OBC. The appellants presented no evidence to contradict this assessment.

47The substance of the appellants’ complaint with respect to this item is that they do not think the house looks as good without the side parapet walls as it would if those walls were present. Previous Tribunal decisions have found that, while aesthetics can be a factor in assessing workmanship, it is not the prominent factor and cannot entirely be separated from an assessment of functionality. We agree. The Act is not intended to warrant items strictly based on aesthetics.

48Section 13(2)(b) of the Act provides that a warranty does not apply in respect of secondary damage. Section 6(6) of the Regulation provides that liability under a warranty is limited to damage to the home only. Aesthetic considerations without a functional component amount to secondary damage when considering workmanship and do not constitute damage to the home only. The facts in the present case are similar to the ones in Tarion Warranty Corp. (Re), [2016] O.L.A.T.D. No. 60. In that case, the Tribunal considered a claim in which family room windows were not positioned symmetrically in relation to a fireplace and were not built in accordance with the interior plans. The Tribunal dismissed the claim and found:

a) there was no defect in workmanship or material in the construction of the windows.

b) the spacing differential had no impact on the windows’ service life; and

c) the window spacing was built in accordance with the dimensions of the exterior plans.

49The Tribunal concluded that the change in spacing was a minor variance from the interior plans and solely an aesthetic issue that did not breach the warranty.

50The present circumstances are similar in that there is no defect in the workmanship or material and there is no evidence that the deviation from the elevation plans will have any negative impact on the durability or function of the construction.

51The Tribunal finds that the appellants have not proven that there is a defect in workmanship or materials in the building in relation to the subject walls as they are currently constructed.

52We find that the appellants have failed to prove that there has been a breach of warranty with respect to this item. As a result, it is not necessary to consider the quantum of damages that the appellant requested.

Exterior brick installation

53The appellants allege that the bricks on the exterior of the house were not installed in a workmanlike manner and that they should be warranted pursuant to s. 13 of the Act. The appellants have three concerns about the workmanship of the exterior bricks. First, they say that the mortar joints are uneven and too wide. Second, they say that there are too many chips in the bricks. Third, they say that the bricks were laid unevenly.

54We find that the appellants have failed to prove that the bricks were not installed in a workmanlike manner. As a result, we find that there has been no breach of warranty under the Act with respect to this item.

55With respect to the mortar joints, the appellants produced photographs which they say show that the mortar joints are too wide. They also point to three measurements taken by Mr. Wood when he attended the house for the conciliation inspection.

56We have reviewed the photographs and we find that they do not reveal any defect in the mortar joints by which the Tribunal could conclude that they were deficient. The vertical joints appear consistent and even, as do the horizontal joints.

57The Construction Performance Guidelines (2019) (the “CPG”) is a standard which Tarion uses to assess the quality of construction of homes and which help to ensure there is consistency in the application of the statutory warranties. The CPG is not law but is based on the OBC and consultation with industry professionals and the public. It has been relied on by the Tribunal in the past to aid in determining the appropriate standards of workmanship to apply when assessing warranty claims.

58With respect to vertical mortar joints, s. 4.32 of the CPG provides that they are to appear uniform when viewed from a distance of no less than six metres and shall be 10 mm with a tolerance of -5 mm to + 10 mm in accordance with the OBC. Mr. Wood stated that this means that the vertical mortar joints may be 5 mm to 20 mm wide to comply with the CPG and the OBC.

59At the conciliation meeting, Mr. Wood accompanied the appellants around their home and asked them to show him the mortar joints that they considered to be too wide. They did so and Mr. Wood measured those locations. None of the mortar joints Mr. Wood measured were more than 15 mm wide. He also stood approximately six meters away from the walls at various locations and observed that the vertical mortar joints appeared uniform.

60Mr. Wood concluded that the vertical mortar joints complied with the CPG and the OBC.

61With respect to horizontal mortar joints, the CPG provides that they are to appear uniform when viewed from a distance of at least six meters. Where they appear out of alignment, the variance may not be more than 12 mm from the specified plane.

62At the conciliation meeting, Mr. Wood stood approximately six meters away from the walls at various locations and observed that the horizontal mortar joints appeared uniform. The appellants could not point to any areas where this was not the case.

63Mr. Wood concluded that the mortar joints did not fall below acceptable standards of workmanship and that they complied with the CPG and the OBC.

64With respect to the chipping of the bricks, the appellants produced photographs which were taken at the conciliation meeting and argued that the chipping shown in those photographs fell below the acceptable standard. The appellants did not present any evidence as to the appropriate standard by which to make that assessment. We find that the photographs did not show an unusual amount of chipping of the bricks on the house.

65Tarion and the Builder referred to the CPG which contains standards with respect to chipping on clay bricks. The appellants’ home is constructed with concrete bricks, but as there is no CPG standard for chipping to concrete bricks, Mr. Wood thought it was reasonable to use the clay brick standard as a reference. He stated that chipping is more of a problem with clay bricks because the surface of that type of brick is often a different colour than the interior of the brick and so chips may be more visible on clay bricks. Concrete bricks are more uniform in colour and so chips do not show as much. There were no areas on the appellants’ home which did not comply with the CPG standards for chipping on clay bricks.

66Based on both the CPG standards and his own observations of the appellants’ home, Mr. Wood concluded that the chipping of the bricks on the appellants’ home was within acceptable tolerances.

67We find that the appellants have not shown that the chipping of the bricks in their home falls below acceptable standards of workmanship.

68With respect to the unevenness of the bricks, the appellants rely on photographs of various areas of the house in evidence at the hearing. In almost all the photographs, the bricks appear even and uniform, and do not show any areas which appear to fall below a reasonable standard of workmanship. In one photograph of the wall above the garage door, the bricks appear uneven. However, in other photographs of the same area, the same wall appears flat and even. The appellants took no measurements of that area and did not present evidence from anyone who had seen that area in person that the workmanship fell below acceptable standards of workmanship.

69Mr. Wood testified that the area above the garage door looked significantly different in the photograph in question than it did in person at the conciliation meeting and he noted that this was not an area that the appellants indicated was an area of concern at that meeting. He suggested that the position of the sun and the resultant shadows makes the wall above the garage look worse in the photograph than it really is.

70Given that other photographs show the wall above the garage door to be flat and even, that the appellants did not indicate they were concerned about that area at the conciliation meeting, that Mr. Wood observed the wall to be even and flat at the conciliation meeting, and that the appellants have not presented additional evidence as to the workmanship in that area, we find that the appellants have failed to prove that the area above the garage was constructed to an unacceptable standard in terms of workmanship.

71We find that the appellants have failed to show that the unevenness of the bricks on their home fell below an acceptable standard of workmanship.

E. SUMMARY

72The installation of poplar stairs rather than oak stairs as specified in the APS is an unauthorized substitution and is warranted pursuant to s. 19 of the Regulation. In this case, we consider that the appropriate measure of the damages sustained by the appellants as the result of this breach of warranty is the cost to remove and replace the poplar stairs with oak stairs, which we find to be in the amount of $11,990 plus 13% HST for a total amount of $13,548.70.

73The appellants have failed to prove on a balance of probabilities that the parapet walls on the house were not constructed in a workmanlike manner or that they are not constructed in accordance with the OBC. The design of the parapet walls on the house is not an unauthorized substitution for the purposes of the Act. While we appreciate that the appellants are unhappy with the look of the house without the parapets, we are unable to find that there has been a breach of warranty with respect to this item.

74The appellants have failed to prove on a balance of probabilities that the bricks on the exterior of the house were not constructed in a workmanlike manner or that they are not constructed in accordance with the OBC. The appellants have failed to prove that there has been a breach of warranty with respect to this item.

F. ORDER

75For these reasons and pursuant to s. 14(19) of the Act, the Tribunal directs Tarion to pay the appellants the sum of $13,548.70 for item 7 in the Decision Letter.