May 18, 2022

Illegal building: The HCRA, Tarion, and you

Consumers want someone they can trust to guide them through the ins and outs of buying a home.

But if you are selling a new home that was illegally built, you’re not only putting your clients at great risk, you’re also exposing yourself to potentially serious consequences.

When we say illegal building, we mean new home construction that violates two different pieces of provincial government legislation: the New Home Construction Licensing Act and the Ontario New Home Warranties Plan Act. The first is administered by the Home Construction Regulatory Authority (or HCRA) and the second by Tarion.

What is the HCRA?

The HCRA regulates new-home builders and vendors in Ontario, which includes ensuring they have the required skills and adhere to the highest professional standards. The HCRA also investigates and prosecutes illegal building activity.

A vendor is a person or company who will sell or offer to sell a new home. It is the vendor who sells and transfers title of the new home to a purchaser.

A builder is a person or company who will build or offer to build a new home. It is the builder who performs the work and supplies the materials necessary to complete the construction of a home. By law, all builders and vendors of new homes in Ontario must be licensed by the HCRA. Anyone building or selling a new-build home without being licensed as a new-home builder or vendor is operating illegally.

Illegal building hurts both consumers and legal builders. Illegally built homes may not have been constructed according to the Ontario Building Code and may contain serious defects and dangers. Illegal building also forces legal builders to compete in an unfair marketplace. By and large, illegal building reduces confidence and trust in the industry itself.

The HCRA can lay charges against individuals caught illegally building and selling new homes, and the charges can lead to fines and even imprisonment.

What is Tarion?

Tarion administers Ontario’s new-home warranties and a protection plan. Vendors of new-build homes are required to provide warranties and protection to new-home buyers, which includes deposit protection, delayed closing/occupancy coverage, financial loss coverage for contract homes, and a total of seven years’ coverage against construction defects. Tarion’s role is to ensure that buyers of newly built homes in Ontario receive the coverage they are entitled to under their builder’s warranty.

By law, a new-build home cannot be sold or built in Ontario unless Tarion has approved the home for enrolment in the warranties and protection plan. Anyone selling or building a new-build home without approval from Tarion is operating illegally.

Before approving a home for enrolment, Tarion will assess a number of things, including whether the vendor and builder of the home have the experience and funds required to complete the construction and sale of the home, and to provide warranty service to the home buyer. This assessment and approval by Tarion can give a purchaser confidence about the home they are buying and the vendor they are choosing.

Tarion investigates newly built homes that have not been enrolled in the plan to determine whether they are eligible for warranty coverage. If Tarion determines that a home is eligible for coverage and should have been enrolled, it shares these findings with the HCRA for potential enforcement action.

Protecting your clients – and yourself

When your client is looking at a new home, be sure to take the following steps to ensure that the vendor and builder are operating legally:

    • Check the Ontario Builder Directory, hosted by the HCRA, to confirm that the vendor and builder are licensed to sell and build homes in Ontario. The directory also discloses historical information about the vendor and builder, such as previous building projects and any conduct records.
    • Use the Ontario Builder Directory to confirm that the home is enrolled in the warranty program. If you are having difficulties finding the home,contact Tarion.
    • If the vendor or builder is not licensed or the home has not been enrolled, advise your clients immediately and bring the matter to the attention of the HCRA and Tarion.

Tarion has a page dedicated to information for real estate professionals. You can also find more information about licensing requirements for building and selling new homes by visiting the HCRA’s website.

Your licensing requirements

Real estate agents in Ontario do not need a licence from the HCRA to represent a purchaser or vendor/builder (although they will need to be registered with RECO). However, real estate agents are required to be licensed as vendors by the HCRA if they want to sell new homes on behalf of a builder or in their own capacity as a builder.

If you are seeking the HCRA licence as a vendor, the HCRA will want to know your licensing history with other regulators, such as RECO, including any history of discipline. Being forthcoming is the best way to ensure that the HCRA has all the relevant information it needs to determine whether you meet licensing qualifications.

Know the law

As a real estate professional, you have a duty to know the law and protect your clients from illegal building activities. An illegal building conviction can leave a stain on your reputation and could affect your registration with RECO. Protect yourself, and your clients, from illegal building.