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7. New Construction

(j) Homeowner Protection Act Matters

(i) Homeowner Protection Office
(1) What is the Homeowner Protection Office?

The Homeowner Protection Office (HPO) is a provincial Crown Corporation formed in response to the need to introduce basic consumer protection legislation and regulatory improvements within the residential construction sector. The HPO was established under the Homeowner Protection Act.

The HPO is responsible for:

  • licensing residential builders and building envelope renovators, as well as administering owner-builder authorizations;
  • monitoring the performance of the third-party home warranty insurance system under written by the private sector; and
  • carrying out research and education which benefits the residential construction industry and consumers. The Homeowner Protection Office can be reached at:

Homeowner Protection Office
Branch of BC Housing
650 – 4789 Kingsway, Burnaby, BC V5H 0A3
Phone: 604-646-7050, Toll-free: 1-800-407-7757
Website: www.hpo.bc.ca

(ii) New Homes Registry

The Homeowner Protection Office offers a free online New Homes Registry. Licensees can use this tool to help clients make more informed decisions when buying a new home in British Columbia by quickly checking the licensing and home warranty status of a new home or a new home under construction.

Licensees can find out if the home has a policy of home warranty insurance and is built by a Licensed Residential Builder, or whether it is built without home warranty insurance under an exemption, such as an Owner- Builder Authorization. Both single detached homes and multi-unit homes, including duplexes can be searched on the registry.

The New Homes Registry allows licensees to search online for new homes or new homes under construction by using the civic address. Information available also includes: the name and contact number of the warranty provider, the builder’s warranty number and whether an owner-built home can be legally offered for sale. Homes suspected as being illegally built along with the status of related compliance investigations will also be included on the registry.

All homes registered with the HPO on or after November 19, 2007 are searchable on the New Homes Registry. If searching for a home registered after July 1, 1999 and before November 19, 2007, or cannot find a property on the registry, contact the HPO.

The free New Homes Registry can be accessed by visiting the Homebuyers section of the HPO website.

(iii) New Homes – Residential Builder Licensing and Home Warranty Insurance Requirements

All residential builders in British Columbia are required to be licensed by the Homeowner Protection Office and arrange for third-party home warranty insurance on proposed new homes prior to obtaining a building permit. In geographic areas where building permits are not required for new home construction, licensing and warranty insurance must be in place prior to the commencement of the construction. Owner-built homes are an exception to the licensing and warranty insurance requirements.

Home warranty insurance can only be provided by insurance companies that have been approved by the Financial Institutions Commission (FICOM) and meet the requirements of the Homeowner Protection Act. (See more information available on the HPO website.)

Standards of coverage, commencement dates, exclusions and limits on coverage are set by government to ensure clarity and a consistent base-level of consumer protection.

(1) Minimum Standards of Coverage Required: 2-5-10

Home warranty insurance on new homes includes a minimum of two years on labour and materials, five years on the building envelope, including water penetration, and 10 years on structure. However, licensees should be aware that the coverage on labour and materials may, in some cases, be only 12 months.

In general, the two-year labour and materials coverage is broken down as follows: Any defect in materials and labour:

  • 12 months on detached homes and on non-common property in strata units (includes fee simple homes); and
  • 15 months on common property of strata buildings.

Defects in materials and labour related to the delivery and distribution systems (electrical, plumbing, heating ventilation, air conditioning, etc.):

  • 24 months for all buildings.

See the Homeowner Protection Act regulations available at in the HPO website for more details on minimum standards of coverage.

In order to minimize confusion about warranties, the HPO created a 2-5-10-year home warranty insurance logo. This logo can be used in the marketing efforts of licensed residential builders province-wide for homes that have the 2-5-10-year home warranty insurance required by the Homeowner Protection Act. The 2-5-10 year warranty insurance logo has been trademarked by the HPO. Licensed residential builders must sign a logo licensing agreement with the HPO in order to use the logo to identify new homes constructed with the mandatory 2-5-10-home warranty insurance. Enforcement of the use of the 2-5-10-year warranty insurance logo occurs through the HPO.

 


(2) Commencement Dates

Commencement dates on home warranty insurance are:

  • Fee simple (primarily detached dwelling units):
    • Custom homes: date of first occupancy or date of first occupancy permit, whichever transpires first.
    • Speculation homes: date of first occupancy or date of transfer of legal title to first owner, whichever transpires first.
  • Strata homes:
    • Strata unit: earliest of date of first occupancy or date of transfer of legal title to first owner.
    • Common property: earliest of date of first-unit occupancy in strata building or date of transfer of legal title to first owner in building.
(iv) Disclosure Requirements

For new homes constructed by licensed residential builders, a warranty provider must, as soon as reasonably possible after the commencement date for the home warranty insurance, provide an owner with a schedule of the expiry dates for coverages under the home warranty insurance as applicable to the dwelling unit and, in the case of a dwelling unit which is part of a strata plan, the schedule must include the expiry dates of the coverages applicable to the common property.

(v) New Home Warranty
(1) Home Warranty Insurance Exclusions

The Homeowner Protection Act regulations specify what the home warranty insurance companies can exclude from their policies.

General exclusions can include: landscaping; non-residential detached structures (however, parking structures, recreational and amenity facilities in multi-unit buildings are covered); commercial-use areas; roads, curbs and lanes (however, driveways are covered); site grading and surface drainage; the operation of municipal services; septic tanks and fields; and water quality and quantity.

Defect related exclusions can include: normal wear and tear; normal shrinkage of materials from construction; use of new home for non-residential purposes; materials, labour and design supplied by the owner; damage caused by anyone other than the residential builder; damage caused by insects or rodents; failure of an owner to prevent or minimize damage and acts of nature.

(2) Limits on Coverage

Coverage on claims is as follows:

  • Fee simple (primarily detached dwelling units):
    • The lesser of the first owner’s purchase price or $200,000.
  • Strata homes:
    • Strata unit: lesser of the first owner’s purchase price or $100,000.
    • Common property: the lesser of $100,000 X the number of dwelling units in the building or $2.5 million per building.

The following are suggested clauses for use with respect to new-construction warranties where the seller is not an owner-builder:

Licensed Builder and Warranty Insurance Clauses

Subject to the Buyer confirming on or before (date) that the Seller is duly licensed pursuant to the Homeowner Protection Act and that the mandatory warranty insurance pursuant to that Act is in place.

This condition is for the sole benefit of the Buyer.

OR

The Seller represents and warrants that the Seller is duly licensed pursuant to the Homeowner Protection Act and that the mandatory warranty insurance pursuant to that Act is in place.

The Seller will provide to the Buyer on or before (date) all details of the warranty insurance coverage pursuant to the Homeowner Protection Act.

(3) Home Warranty Insurance on Homes under Construction

A buyer may be purchasing a new home being built by a residential builder (not an owner-builder) that has not been completed when the Contract of Purchase and Sale is negotiated. The home warranty insurance provided by a warranty provider generally begins on the earlier of when the home is occupied or upon transfer of title to the buyer. While it does not frequently occur, it is possible that the company providing the warranty insurance could revoke their commitment to do so prior to that time.

(4) Permission To Sell New Homes under Construction

Under the Homeowner Protection Act, new homes that are under construction but not complete may not be sold (or offered for sale) unless the home is covered by home warranty insurance or exempt. This affects new homes that originally had home warranty insurance coverage but are de-enrolled for a variety of reasons, including: cancellation of a builder’s contract, owner bankruptcy or cancellation of builder’s acceptance by a warranty provider. Such homes may no longer be offered for sale or sold ‘‘as is.’’ Owners must write to the HPO for the registrar’s express permission, and may be subject to conditions, such as that the home is sold to a licensed residential builder to enrol with home warranty insurance. This ensures that a partially complete new home is not inadvertently sold without the protection of the legislation in place for a new homebuyer. The prohibition applies to new homes at all stages of construction.

The Homeowner Protection Act states that a new home built by a residential builder may not be built, offered for sale, or sold without warranty insurance. The following clause could, however, make a buyer’s position more certain should the warranty insurance commitment be revoked for any reason.

Mandatory Warranty Insurance Coverage Clause

It is a fundamental term of this contract that the mandatory warranty insurance coverage required pursuant to the Homeowner Protection Act be provided.

(vi) Home Warranty Insurance on Resale Homes

The Homeowner Protection Act creates certain warranty insurance disclosure requirements for warranty providers, but does not place any requirement on future owners to ensure that they provide details on the home warranty insurance to subsequent buyers.

Home warranty insurance stays with the property. Therefore, if information on the warranty insurance is not provided to a subsequent buyer, it does not mean that a claim cannot be made on the policy.

Subsequent buyers should be provided copies of home warranty insurance documents, including information regarding the expiry dates associated with the policy. Not being aware of the expiry dates could result in missing the opportunity to submit a claim under the policy. If such documents have not been provided to a buyer at the time an offer is being written, the Contract of Purchase and Sale should include a clause that makes the contract conditional on the seller providing home warranty insurance documents to the buyer, and the buyer having an opportunity to review and accept the policy. While the buyer will not be able to change the level of coverage provided under warranty, he or she may be concerned about the length of the remaining term of the policy. Wording such as the following should be used in these circumstances.

Receipt of Home Warranty Insurance Documents Clause

Subject to the Seller providing to the Buyer a copy of the home warranty insurance policy, and the Buyer being satisfied as to this policy, on or before (date) .

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal

(vii) Owner-Built Homes – Changes to the Homeowner Protection Act

No person may build, sell or even offer to sell a new home except in compliance with the HPA.  Under that Act, a new home is defined to include a home that is "substantially reconstructed".  Sections 20.1 and 22(1.1) prohibit the offer or sale of an owner-build home and new home respectively unless specified conditions are met.  A licensee may not accept a listing of a new home unless and until the owner has complied with the requirements of the HPA.

When the Homeowner Protection Act regulations, came into effect on July 1, 1999, owner-builders were permitted to be exempt from licensing and home warranty insurance requirements provided that they built a detached, self-contained dwelling for their own personal use not more than once every 18 months. Owner-builders who sold their home within 10 years of completion were required to provided prospective purchasers with an Owner-Builder Declaration and Disclosure Notice identifying that the builder was not licensed and was not providing a policy of home warranty insurance, however a 10-year statutory warranty would apply, giving the purchaser some rights against the owner-builder should defects occur during the 10-year period.

There was a sizeable abuse of this owner-builder exemption, involving either an owner who was not actually building or managing the construction of the home himself or herself or an unlicensed builder who was trying to avoid meeting the requirements of licensing and the cost to provide 2-5-10-year home warranty insurance for the home buyer.

As of November 19, 2007, changes to the Homeowner Protection Act and Regulation regarding owner-built homes enhanced protection for homebuyers, including the following changes:

  • Individuals planning to build a new home for their personal use are required to meet stricter eligibility requirements, pay a fee, and obtain an Owner-Builder Authorization from the HPO prior to commencing construction of the home.
  • Owner builders must occupy the new home themselves for at least one year after obtaining an occupancy permit and are not permitted to sell or rent the new home during that one-year period. The owner-builder is also not permitted sell a new home during construction ‘‘as is’’ without permission from the HPO.
  • Owner builders who sell their home within the first 10 years after obtaining an occupancy permit are obligated to subsequent purchasers for defects in the new home during that 10-year period. The legislation clarifies that an owner-builder’s obligations under the statutory warranty are similar to obligations of a licensed residential builders under a policy of home warranty insurance. That is, 2 years for material and labour, 5 years for defects in the building envelope and 10 years for structural defects. The statutory warranty enables subsequent purchasers to sue the owner-builder for defects as set out on the statutory warranty. There are some reasonable exceptions to the statutory warranty (for example, defects caused by someone other than the builder, natural disasters) and these are set out in detail in the Regulation.

Licensees acting for either an owner-builder or a potential purchaser can check the HPO’s New Homes Registry to determine whether a new home built under an Owner-Builder Authorization can be legally sold as having met the occupancy requirement.

Buyers should be aware that the statutory warranty from an owner-builder is only as good as the ownerbuilder’s ability to pay and/or their ability to rectify the defects of the home. Factors such as ongoing financial stability, continued local presence and an owner-builder’s willingness to fulfill his or her obligations, may affect the buyer’s ability to seek recourse for these defects. Licensees acting for buyers of such homes should advise buyers to consider these issues in making their purchase decision.

(viii) Owner-Builder Disclosure Notice

Owner builders who built their home prior to November 19, 2007 must continue to provide prospective purchasers with the old-form Owner-Builder Declaration and Disclosure Notice within the first 10 years after occupancy.

Owner builders building under an Owner-Builder Authorization (after November 19, 2007) are required to provide an Owner-Builder Disclosure Notice, obtained from the HPO, to prospective purchasers within the first 10 years after occupancy. The owner-builder must advise the HPO of the occupancy date and the HPO does not release the Disclosure Notice until the one-year occupancy requirement has been verified. Subsequent purchasers are also required to provide the Disclosure Notice if they sell the home within the 10-year period. The Disclosure Notice will state that the home was built under an Owner-Builder Authorization, when the 10-year period started, and whether or not there is a voluntary policy of home warranty insurance in place for the home.

NOTE: A survey of owner-builders conducted in 2007 found that the majority of purchasers of owner-built homes did not receive a disclosure notice and did not know whether or not their home had home warranty insurance. Not providing a disclosure notice is an offence under the legislation and, thanks to stronger compliance tools now available to the HPO, the requirement to provide the disclosure notice will receive increased attention.

When a licensee represents a seller who is an owner-builder, or who is a subsequent owner within the first 10 years as required by the HPA Regulations, the licensee should insert a clause in the Contract of Purchase and Sale confirming delivery of the Owner-Builder Disclosure Notice as follows:

Receipt of Owner-Builder Disclosure Notice Clause

The Buyer acknowledges having received a copy of the Owner-Builder Disclosure Notice dated (date) , prior to making this offer, in accordance with the Homeowner Protection Act and regulations.

(ix) Permission To Sell

Despite the occupancy requirement for owner-builders, the Homeowner Protection Act does allow an ownerbuilder to apply to the HPO on the basis of undue hardship for permission to sell during construction or earlier than 12 months after occupancy. For homes built under an Owner-Builder Authorization, applicants can download an application form from the HPO website and mail in the completed form along with any required supporting documentation and the applicable processing fee. Such approvals are not given lightly and conditions may be imposed on any approval given. An owner-built home may not be offered for sale or sold either during construction or earlier than the 12 months from obtaining an occupancy permit without approval.

(x) Illegal Sales under the Homeowner Protection Act

Licensees acting for either owner-builders or purchasers can avoid becoming a party to an offence under the HPA by remembering the following:

  • Owner-built homes may not be offered for sale or sold without providing the Owner-Builder Disclosure Notice to all potential purchasers.
  • For owner-built homes since November 19, 2007, Owner-Builder Disclosure Notices must be obtained from the HPO and will not be released until the one-year occupancy requirement has been verified.
  • The HPO is advised by the Land Title Office whenever the title of an owner-built home is transferred and pursues enforcement action if the sale is illegal (which may include compliance orders, monetary penalties, court injunctions, or convictions under the Homeowner Protection Act).

Licensees can assist owner-builder clients by advising that occupancy permit information should be filed early with the HPO (owner-builders can file using their online account) so the HPO will have time to verify the information and provide an Owner-Builder Disclosure Notice well in advance of any offers for sale.

(xi) Homes with Building Envelope Renovations

Repair contractors who perform building envelope renovations, which meet a certain dollar value and percentage of building face to be repaired thresholds, are required to be licensed by the HPO as building envelope renovators and arrange for warranty insurance on the repair in order to obtain a building permit or commence construction in geographic areas where building permits are not required. Some exceptions apply. Contact the HPO for more details.

Coverage for warranty insurance on building envelope repairs subject to the licensing and warranty insurance provisions of the Homeowner Protection Act regulations includes two years on labour and materials and five years on the building envelope including water penetration. In strata title developments, the ‘‘holder’’ of the policy for repairs is typically the strata corporation. A warranty provider must, as soon as reasonably possible after the commencement date for the materials and labour warranty or water penetration warranty, provide the original holder with a schedule of the expiry dates for coverages under the materials and labour warranty and water penetration warranty.

Licensees wishing to determine whether or not a particular building envelope renovator is licensed may visit the public registry of licensed builders on the HPO website at www.hpo.bc.ca. Further information regarding the Building Envelope Renovation Regulation may also be viewed on the HPO website.

(xii) Final Inspection or Certificate of Occupancy

Some cities or municipalities will issue an occupancy permit, while others will carry out a final inspection. If there is any doubt as to whether this final step has been concluded, an inquiry should be made at the building or permits department of the municipality or city.

 

(xiii) Construction To Be Finished Before Completion Date (for New or Unfinished Construction)

Licensees should discuss the progress of construction with the builder before inserting the Completion Date in the Contract of Purchase and Sale in order to allow enough time to completely finish the house. However, if it appears that unforeseen delays in construction will prevent the house being finished on time, the parties can always agree to extend the Completion and Possession Dates.

Because the parties can disagree on whether the house is ‘‘finished’’ for the purpose of the Completion Date, the use of an Occupancy Permit provides a convenient way to rely on a qualified third party.

Occupancy Certificate Clause

It is a fundamental term of this contract that the Seller must have finished all work, and delivered to the Buyer on or before the Completion Date, an unconditional Municipal/City/Regional District Occupancy Certificate or other evidence satisfactory to the Buyer that construction is finished.

This clause is onerous on the seller because it enables a buyer of an unfinished house to back out if the house is not finished by the Completion Date.

Licensees must remember that an Occupancy Permit does not mean that all deficiencies have been finished (i.e., landscaping). It just means that the buyer can safely occupy the house; however, the clause also says the seller (builder) ‘‘must have finished all work’’, so if there are still deficiencies at the time of completion, the deficiency holdback clause should be added as an addendum to the Contract of Purchase and Sale and delivered to the conveyancer, who will then hold back the appropriate amount.

(xiv) Importance of Regulated Electrical and Gas Work Being Done Properly in Homes

It is a legal requirement in the province that regulated electrical and gas work is done properly by licensed contractors who take out permits. Homeowners can do the work themselves, provided they have the required knowledge and skills and that the home is a single family residence and does not contain a suite. In both instances, permits must be taken out for the work – these are separate permits to municipal building permits and in most case are obtained through the BC Safety Authority. Prospective new homeowners should always be encouraged to check that those permits are in place, especially if there are indications that recent electrical or gas work was done in the home. This will give them peace of mind that it was done properly and is safe.

The BC Safety Authority (BCSA) is responsible for licensing contractors, to make sure they are qualified to do regulated work, and issuing permits for electrical and gas installations in most municipalities in BC.

Regulated work includes all work where electrical wiring or gas piping is extended or modified in any way, or where new or replacement gas fireplaces, water heaters, furnaces, ranges or cook tops are installed; such work requires a permit issued by the BCSA. Connecting gas barbecues to existing gas outlets and replacement of receptacles, dimmer switches, residential furnace thermostats, lamps and lighting fixtures do not require a permit.

Regulated gas or electric work done without the necessary permits in place is considered to be a material latent defect (MLD). All known MLDs must be disclosed by a seller and his or her agent before a transaction is agreed to. Failure to do so could lead to future legal issues or safety issues.

Regulated electrical and gas work can be done by certified or qualified electricians or gas fitters; however, they must either be licensed contractors or working for a licensed contractor to do this work. Only a licensed contractor can take out the required permit. The licensed contractor must also be bonded and the BCSA can call in that bond to have any unsafe installation work made safe.

BCSA inspects all work done by homeowners, thus providing assurance the work is done safely and to required codes.

For a list of licensed contractor s or information about permits, visit the BCSA’s website at www.safetyauthority.ca. and click on the Homeowners tab. Licensees can also call the BCSA toll-free at 1-866-566-7233.

The BC Safety Authority is an independent, self-funded organization that inspires safety excellence in British Columbia by partnering with business, industry and the general public to enhance the safety of technical systems, products, equipment and work.