Have you heard?
As of February 1, 2014, all new homes built in Alberta require a new home buyer protection warranty policy. The Alberta Government’s New Home Buyer Protection Act encourages higher quality standards to protect buyers.
Under the new legislation, all home builders—with the limited exception of owner-builders—have to buy a warranty policy, estimated at $1,700 to $2,000 on an average home, before being eligible for a building permit. While home builders that had building permits issued to them prior to February 1, 2014, are not required to register and obtain a warranty policy for the buyer of the new home, one can expect buyers to insist as a condition of purchase that the home be registered and a warranty policy be issued to them. Warranties must be purchased for single-family homes, condos, manufactured, modular and mobile homes, as well as recreational properties such as cottages. Warranties are currently available from one of five registered private firms which are listed below.
Builders also have to register each property online for $95, creating a public record of the status of the warranty for future buyers. The registry will be managed by the government’s New Home Buyer Protection Office.The standardized warranty terms include protection for a minimum of one year on labour and materials, two years for plumbing and electrical systems and five years for building envelope protection against water damage. While most home builders already provide those basic warranties, the major change is a doubling of coverage term on major structural parts from five to 10 years.
- Single-Family Homes
- Multi-Family Homes
- Manufactured Homes
- Recreational Properties
First Year — Issues with the way a home was built or the materials it was built with, such as flooring and trim.
2 Years — Defects in labour and materials related to heating, plumbing and electrical systems.
5 Years — Building envelope means the exterior shell of the home, including the roof and exterior walls.
10 Years — Key structural components of your home, including its frame and foundation.
There are five certified warranty providers in Alberta that builders may partner with for coverage:
- Aviva Insurance Company of Canada represented by National Home Warranty Group Inc. – www.nationalhomewarranty.com
- Blanket Home Warranty Ltd. – www.blankethomewarranty.ca
- Progressive Home Warranty Solutions Inc. – www.progwar.com/progressivewarranty
- The Alberta New Home Warranty Program – www.anhwp.com
- Travelers Insurance Company of Canada – www.travelerscanada.ca/new-home-warranty/index.aspx
What the Homeowner Needs To Know Before They Close
Homeowners need to do their research. They need to get to know their potential builder’s record, including years in business and references. They should also familiarize themselves with the warranty provider, key warranty dates, and steps to take if they ever need to make a claim.
Once the new home is built, they’re responsible for basic maintenance and upkeep, such as cleaning out eaves troughs and changing furnace filters. They’re also responsible for maintaining appropriate grading with any new landscaping work.
Buyers of homes which are less than 10 years old must have warranty which transfers to the new owners. Ensure you check who the builder and home warranty provider are, and ask if the former owner has had any work done which was covered by the home warranty provider. The public registry can be found at http://homewarranty.alberta.ca/public-registry/
Builder & Warranty Provider Responsibility
Builders are responsible for partnering with a registered warranty provider, becoming an authorized user of the online home registry and entering all new construction projects into the registry. They are then a homeowner’s primary point of contact during the construction of their home and are responsible for making sure that building permits are in place and that the house is built to the standards set out in the Alberta Building Code.
Warranty Providers are responsible for creating policies and responding to claims.
The Government’s Responsibility
Alberta’s New Home Buyer Protection Act mandates and regulates new home warranties in the province. The Government of Alberta is responsible for compliance of the legislation. Alberta Municipal Affairs will also provide tools to municipalities to ensure warranty coverage is in place before new construction permits are issued. The government will enforce penalties against builders, warranty providers and others not complying with the Act — up to $100,000 for first offences and up to $500,000 for subsequent offences.
If you have clients with more questions than you can answer, they can contact Municipal Affairs toll-free at 1-866-421-6929.
Are ‘self-builds’ exempt from requiring home warranty?
If a property is built by a builder intending to move in upon completion, then they can be exempt from requiring home warranty, but they must apply for such exemption. If they sell the property prior to the end of the first 10 years, they will need to provide the new buyer with the balance of the home warranty that would have been in place from the completion date.
If you are an owner-builder constructing your own home to live in, you have two options. You can obtain the required home warranty coverage for your home or you can apply for an owner-builder exemption authorization, which will allow you to build your home without a warranty policy being required. If you transfer your house within 10 years, you will need to obtain and provide to the transferee a warranty policy for the balance of the 10 years containing at least the required minimum warranty coverage.
Failure to comply is serious business!
Contravention of the Act by any person or company can result in a maximum fine of $100,000 for the first offence and $500,000 for subsequent offences. There are additional administrative penalties and fines between $250 and $10,000 or up to $1,000.00 per day for various infractions of the Act to a maximum of $100,000. One should also note that liability of the acts of a corporation extends personally to its directors, officers and every other person who authorized, permitted or acquiesced in or participated in the commission of the offence, and they are all guilty of the offence and liable to the fine provided for the offence, whether or not the corporation has been prosecuted for or convicted of the offence.
What does this mean for mortgage brokers and how they approach a new build deal?
Mortgage brokers should expect that lenders will be checking to ensure that all new builds have been registered and a new home warranty policy issued on a go-forward basis. Check the registry on new builds to ensure you know in advance the status of this issue.
How can brokers help clients understand what research they need to do to protect themselves?
The content of this article is intended to provide a general guide to the subject matter only. Specialist advice should be sought about your specific circumstances.
– By Dale Koeller, Calvert Home Mortgage Investment Corp. & Kevin Weeks, Weeks Law