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Archive for October, 2017

Delayed action on consumer protection for homeowners

The Ontario government acted with speed in imposing a new non-resident tax on real estate purchases.

But when it comes to protecting consumer deposits on purchases of new-construction homes and condominiums, both the government and the board of the Tarion Warranty Corporation have been moving slower than molasses in January.

In fall 2015, the province announced a review of Tarion. When it was completed at the end of 2016, the Cunningham report recommended a study of deposit protection rather than dealing in any meaningful way with the issue.

This past spring, Tarion launched a review of its deposit protection —its final report has yet to be released.

Finally, last week, Consumer Minister Tracy MacCharles introduced Bill 166, the Strengthening Protection for Ontario Consumers Act, 2017.

The legislation will separate the provider of the new home warranty program from the regulator of new homebuilders, and establish an administrative authority for each.

A corporation will be established, under the proposed New Home Construction Licensing Act 2017, to regulate licensing of new homebuilders and sellers. A licence will now be required by anyone offering to sell new homes or condominiums — including, presumably, real estate agents and brokers.

Under the Protection for Owners and Purchasers of New Homes Act 2017, the former Tarion legislation will be repealed and replaced, and tighter controls imposed on builders. The body that replaces Tarion Warranty Corporation will have the authority, subject to approval by the minister, to impose regulations governing deposits.

There is no mention in the draft legislation about any changes to the level of deposit protection. In March, the government announced a target implementation date of Jan. 1, 2018, but MacCharles said last week that the new system likely won’t be up and running until 2020.

Tarion currently protects buyer deposits up to $20,000 on new condominiums and $40,000 on new homes. These levels were last established in 2003. But home prices and deposit amounts have skyrocketed since then.

The unprecedented collapse of large builders, such as Urbancorp, and recent insolvencies of other builders, have demonstrated that many home buyers — particularly in the GTA — are vulnerable to losses, not only for deposits they’ve paid, but also for amounts paid for upgrades and extras that exceed the maximum recoverable under the warranty coverage available today.

While the government takes its time about increasing deposit protection, one builder has jumped in to fill the void in government consumer protection.

Last month, Great Gulf, one of North America’s leading homebuilders, and Westmount Guarantee Services announced deposit protection for all new Great Gulf freehold homes in Ontario to insure the amount of the deposit not covered by Tarion Warranty Corporation.

Over the years, Great Gulf has built 50,000 homes in 18 cities.

In its announcement, Great Gulf president Christopher Wein explained, “We’re always looking for new ideas and new innovations to provide our home buyers with the best possible options . . . We are delighted to offer this advantage to our customers so that they may benefit from the serenity of knowing their initial investment is protected.”

Great Gulf will provide Westmount Protect deposit insurance at no extra charge with each new home purchase. The program launches immediately, with the new Westfield community location in Brampton.

It’s a sad reflection on the government’s delayed action on consumer protection when a private corporation has to step up to guarantee deposits. Ontario consumers can’t wait until 2020.

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Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.


Home inspections save money

Home inspections are one of the most important facets of buying and selling homes, but, unfortunately, they’re often overlooked.

Such has been the case during Toronto’s bidding war frenzy over the last few years, during which prospective buyers forfeited their right to a home inspection for fear of their bid being rejected. According to Alice Soon, marketing manager of national programs at Pillar to Post, there was an uptick in calls from people who’d foregone their right to inspection, and got stuck with thousands of dollars in repairs. She says that’s a mistake that can be easily avoided.

Additionally, whether you’re an end-user in the market for a new home, a seller, or an investor, home inspections are integral to saving money down the road. Just imagine buying a rental property only to find out the roof need replacing, warns Soon.

“If you’re buying an investment property, when you have a certified home inspector they should be giving you a thorough report of every part of the house, all the major systems,” she said. “A person buying a property as an investment is different than a person buying to live, though that’s important too, because it’s supposed to make you money, not lose money, so you need to know the condition of the home. If you buy something and you don’t get an inspection but find out later replacements need to be done, that eats into your profits.”

For sellers, pre-listing inspections are also important, says Soon. For starters, transparency is a bargaining chip.

“You can get a higher asking price if you get a pre-listing inspection,” said Soon. “The seller can decide if they want to repair it or not, but you’ll avoid problems later. If you’re more transparent, even if you decide not to fix it, you have better negotiating power because the buyer will be comfortable.”

Pillar to Post has inspected over a million homes in the last 20 years, inspecting homes as an impartial third-party. However, everybody from buyers, sellers, and even realtors, reap the benefits.

“We’re there to represent the client’s best interest, and give them honest third-party objective feedback about the house’s condition,” she said. “But from a realtor’s perspective, we’re like part of their team because we help their client.”

Written by Neil Sharma and reproduced with permission from REP Magazine. REP provides excellent information on real estate in Ontario.

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Government announcement spurs debate

06 October 2017

Bob Aaron, a real estate lawyer with Aaron & Aaron in Toronto, says Tarion essentially acts as an arm of the government and can only act in accordance with its mandate, therefore, Tarion sometimes brunts undue criticism.
“They’re operating within the confines of the legislation and regulation that are already set up,” said Aaron, “so I fault the government for (the shortcomings), not Tarion.”

The government intends to take a more active role in establishing warranty terms and reset deposit protection measures so that they’re commensurate with today’s price points. It will also provide builders with improved dispute resolution guidance, while making the process less onerous for homeowners.

Aaron sat on the Tarion board from 2009-2011 and says he never witnessed impropriety.

“We were dealing with a lot of things there,” he said. “One was we got legislation changed during my time; there were builders who were passing on fake costs to buyers and we got legislation changed to prohibit fake costs, like development charges.”

But Tarion’s builder directory – which logs malfeasance – has been opaque for years and still has a long way to go, he says.

Still, Aaron is critical of the government’s inaction on the deposit protection front. Deposits of up to $40,000 on houses are protected, and only half of that for condos, but those amounts are woefully meagre relative to today’s home prices.

“They’ve been diddling around this for years,” said Aaron. “In 2016, Tarion publicly committed to conduct a review of deposit protection, and on March 28, 2017 Tracy McCharles [Minister of Government and Consumer Services] stated Tarion needs to move forward.

“What’s taking them so long?”

He added that government acts swiftly when it has to, like when it implemented the 15% non-resident tax.

“Meanwhile, prices from 2003 to now have doubled, tripled, quadrupled and deposits are no longer anywhere near the $20,000 range,” he said. “They should, frankly, get off their behinds and do something immediately and do something because people are out there every single day putting down six-figure deposits on condominiums and they’re not protected. The government can act quickly when it wants to, but it’s not acting quickly enough on deposit protection. Consumer protection isn’t a priority for this government.”

Frank Leo, a broker with REMAX West Realty, welcomes the Tarion update in the form of a third-party arbiter because he says it will lend the entire process more credibility than it’s had till now.

“If you’re the one with the insurance and you’re making the decision, there could be some perception of bias,” said Leo. “I think having a third party would make the process at least seem fair, and I think it’s better for everyone. It’s a good thing.”

He cited a case wherein his client found a defect and informed the builder, who kicked their tires and waited for the buyer’s limited one-year warranty to expire, thereby robbing them of their recourse.

“There are some problems and it takes them a little while to get resolutions,” said Leo. “There were some rules in place, and having clearer information for the consumer is a good thing. As a realtor, we try to inform our clients so that they’re taking full advantage of the warranty. We provide knowledge.”

Written by Neil Sharma and reproduced with permission from REP Magazine. REP provides excellent information on real estate in Ontario.

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Scotiabank: Mortgage carrying costs for new buyers to increase by 8% next year

11 Oct 2017

3d render of rising percentage sign isolated on white background.

 

Amid steadily rising mortgage costs, prospective home buyers should brace themselves for a less friendly purchasing environment in a few months’ time, although current home owners would remain largely unaffected.

In its latest outlook, Scotiabank predicted that mortgage carrying costs will increase by about 8% next year. This is almost 3 times larger than the bank’s forecast for household income growth (pegged at 2.5%).

“Further rule changes, including more stringent stress tests for uninsured mortgages, are expected to be unveiled later this year and would exert additional drag on new buyers,” the bank said, as quoted by CBC News.

“We anticipate some moderation in home sales over the forecast horizon, as rising borrowing costs and tougher mortgage-qualification criteria lead to some further erosion in affordability.”

RBC provided a similarly cautious view of the near future, stating that affordability is currently at its lowest since 1990, having worsened for 8 consecutive quarters.

RBC is expecting four more rate hikes by the end of 2018, placing Canada’s central bank rate at 2 per cent — a level it has last reached before the previous decade’s financial crisis.

“All markets would be affected, but the effect would be most substantial in high-priced markets — almost seven percentage points in the case of Vancouver,” the bank said. “The days of ultra low interest rates in Canada are over… These increases are just the beginning of a hiking campaign.”

by Ephraim Vecina of Real Estate Professional Magazine

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Condo corporations need to prepare plans to deal with marijuana use

Questions are being raised about whether landlords will be able to restrict cannabis in residential units. When marijuana becomes legal next summer, landlords, tenants and condominium owners can expect an increase in disputes related to both indoor and outdoor smoking.

Effective July 2018, anyone 19 and over will be able to smoke marijuana in their units and grow up to four plants per residence. The maximum height of the plants may not exceed one metre.

This raises the question of whether landlords and condominium boards will be able to prohibit both the cultivation and smoking of marijuana in residential units.

In the landlord-tenant sphere, landlords may legally prohibit smoking both tobacco and marijuana in new leases, but it may not be possible to prohibit existing tenants.

Condominium corporations can enact smoking bans by amending their declarations, provided that 80 per cent of the unit owners vote in favour of it.

Condo boards can also attempt to regulate cannabis use by enacting reasonable rules, striking a balance between the rights of smokers and non-smokers.

Any new rules might exempt existing owners or occupants as long as efforts are made to ensure that the second-hand smoke is self-contained. In addition, under our human rights legislation, some accommodation should be made for disabled individuals who smoke marijuana in their units for medical reasons.

In a growing body of cases in courts, landlord and tenant boards, and human rights tribunals, many rulings have been sympathetic to the plight of non-smokers unwillingly exposed to drifting second-hand smoke in their own homes. To date, the cases have dealt exclusively with tobacco use. But it is not unreasonable to expect more litigation starting next summer due to the effects of marijuana smoke.

Until now, court cases which focus on objections to second-hand smoke have usually been based on the legal principle of nuisance.

The first court case I was able to find on this topic is the pre-Confederation Upper Canada decision in Cartwright v. Gray in 1866. The plaintiff complained about smoke from a neighbour’s carpentry shop — which burned pine shavings and other refuse.

The judge said: “A man may not use his own property so as to injure his neighbour . . . Every man, by common law, has a right to pure air, and to have no noxious smells or smoke sent on his land…”

Court cases, rental housing tribunal decisions and human rights cases across the country, even as high as the Supreme Court of Canada, have followed this legal principle.

A British Columbia decision in 2003 involved drifting second-hand smoke in a social housing project. The tenant was evicted, even though he argued that he had a Charter right to grow and use marijuana.

The judge wrote that that the odour made neighbouring suites virtually unlivable and the government was obliged to protect them from unreasonably disturbing odours. The decision was upheld on appeal and the Supreme Court of Canada dismissed an application for permission to appeal to that court.

In the 2014 MacKay case in Toronto, the owners of a condominium were forced to move out due to noxious cigar smoke migrating from a neighbouring unit. The owners sued the condominium corporation for failing to respond adequately to their complaints. The judge was critical of the condominium corporation and ordered it to pay $32,500 in court costs.

In light of the impending legalization of cannabis, landlords and condominium corporations would be well advised to prepare action plans to deal with the issue before it becomes a problem.

Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.  Bob Aaron
He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.