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Professional Standards Manual

II. Trading Services

New Construction

Licensees should be aware that there are special considerations when dealing with transactions that see buyers acquiring properties that require the seller construct a new building on the property pre or post closing. Similarly there are special considerations when dealing with transactions that see buyers acquiring properties that have partially constructed or substantially constructed buildings on the property. Although some of these issues are discussed in the section below, a licensee who is not experienced in this area should seek guidance from their managing broker.

(a) New Home

 

(b) Agreement with Seller/Builder to Construct a New home for a Buyer

[12/03/2010 The following information updated]

Licensees should be aware that there are special considerations when dealing with transactions that see buyers acquiring properties that require the seller to construct a new building on the property pre or post closing. It is not advisable to include an agreement to build a house or substantially renovate a house in a standard form of contract of purchase and sale. Either you will need a specially crafted contract of purchase and sale or use a standard contract of purchase and sale in conjunction with a building contract.

In situations where the seller will be building the house prior to completion, or where the seller will build the house post-closing, a real estate licensee should recommend that both parties obtain independent legal advice, so that they fully understand their respective rights and obligations under the agreement. The parties should also verify the GST and Property Transfer Tax considerations through independent legal and accounting advice.

Some properties are sold with independent warranties on appliances, furnaces, roofs, etc. in addition to any new home warranty that may be provided.

(c) Building Contracts

[12/03/2010 The following information updated]

A specially crafted contract of purchase and sale may have the terms relating to the building of the house contained within that contract, or the parties may set out those provisions in a separate building contract. In either case, the contract should address the following issues (this list is not exhaustive):

  • describe the building to be constructed in significant detail, typically by attaching architectural or building plans and landscaping plans;
  • include detailed specifications as to the materials to be supplied and improvements constructed, including dollar allowances for such things as floor coverings, light fixtures, plumbing fixtures and cabinets;
  • specify who is responsible for obtaining building and all other permits required as well as any other approvals required;
  • specify the degree of finishing and the standard or quality of work;
  • provide for a mechanism to deal with any changes the buyer wants to the building after the building contract has been entered into, and how cost overruns are to be dealt with;
  • specify the work that will not be included as part of the contract;
  • establish timelines including when construction should begin, when certain stages of construction should be reached and when construction should be completed;
  • specify payments schedules and whether the contract will be for specified amount (“fixed price”) or the total cost of all work plus a fee for the builder (“cost plus”) and how and when payments will be made;
  • detail any and all warranties to be provided by the builder including any new home warranty required under the Homeowner Protection Act;
  • address who will carry insurance on the building while under construction
  • provide that the builder and all sub-trades will carry Worker Compensation Insurance and liability insurance;
  • address how deficiencies will be identified and corrected;
  • provide for a builder lien holdback (see below) as well as a deficiency holdback (see below);
  • specify what triggers the Completion Date (issuance of an occupancy permit etc.)
  • address GST issues; and
  • include dispute resolution provisions.

As you can imagine building contracts can be long, complex documents. Both parties (builder and buyer) should obtain independent legal advice prior to entering into a building contract, whether its terms are contained within a contract of purchase and sale or are contained within a separate building contract.

(d) Deficiencies

[12/03/2010 The following information updated]

The building contract should provide for a mechanism of identifying construction deficiencies, the date by which they must be repaired, any holdback mechanism and a dispute resolution process.

The typical deficiency provision will require that representatives of both the buyer and the seller (builder) jointly conduct a walk-through of the property prior to possession in order to identify any work that requires correction. The parties should prepare a written deficiency list at the time that this walk-through is completed, and both seller and the buyer must sign and date the list. A copy of the list should be retained by both parties.

If there is a dispute as to any particular deficiency, the contract should provide for a neutral third party to determine the extent of the deficiencies (typically an architect or engineer), the cost of repairing the deficiencies and whether or not they are satisfactorily completed.

If the builder agrees to a deficiency holdback, a licensee can use the following clause to provide for such a holdback.

Walk-Through Inspection Deficiency List Clause

The Buyer and an authorized representative of the Seller will jointly conduct a walk-through inspection of the property no later than (number of days) days before the Completion Date.

The Parties will, immediately after completion of the walk-through inspection, complete a deficiency list of mutually agreed upon items that are to be remedied by the Seller (the “Deficiency List”). The Deficiency List, which will form part of the contract will identify the deficiencies and include a mutually agreed upon value for each of the deficiencies to be remedied. Both parties will sign, date and retain a copy of the Deficiency List. The quality of work and materials used to correct the deficiencies will be equal to or better than that of the surrounding construction.

In the event that the deficiencies are not rectified (number of days) days prior to the Completion Date, the Buyer’s conveyancer will hold back from the sale proceeds the amount specified for any uncorrected deficiency until all the deficiencies specified on the Deficiency List are completed, and will place this holdback in the Buyer’s conveyancer’s trust account.

The Seller agrees that if the conveyance of the Property has completed and any of the specified deficiencies have not been corrected, the Buyer’s conveyancer will retain the specified holdback until the Seller corrects the deficiencies, which shall not be later than (number of days) days after the Completion Date. The Seller agrees that if the deficiencies have not been corrected by the later date, the Buyer’s conveyancer may release the balance of holdback to the Buyer and the Buyer may correct the deficiencies himself/herself.

Any dispute concerning the identification and pricing of deficiencies, the rectification of the deficiencies, and release of the holdback will be settled by _________________ [or the following alternative language: “arbitration under the British Columbia Commercial Arbitration Act” at the expense of (the Buyer, the Seller, or both)]

* The Homeowner Protection Office has outlined a number of additional methods for resolving disputes, including mediation, arbitration and litigation. For owners of homes that are required to have new home warranty insurance under the Homeowner Protection Act (homes built by licensed residential builders with building permits applied for on or after July 1, 1999), a mandatory mediation process has been set up. Owners who are in a dispute with their home warranty insurance providers can compel them to mediation. In addition, the Notice to Mediate (Residential Construction) Regulation allows any party to a Supreme Court action involving a residential construction dispute to compel the other parties of the dispute to a structured mediation session. Both mediation processes are performed independently of the HPO. For further information, refer to the HPO website at www.hpo.bc.ca

A well drafted deficiency holdback clause will provide a dispute resolution mechanism for any dispute that arises between the parties. If the deficiencies are not corrected in accordance with the deficiency clause, the clause will typically provide that the buyer may (but not must) elect to use any retained deficiency holdback to cure the defects. Alternatively they may refer the matter to the designated arbitrator (if one is designated in the deficiency clause) or if the clause simply refers to the Commercial Arbitration Act, they may start the process of invoking that Act and choosing an arbitrator. Or they may elect to sue the seller/builder for breach of contract if arbitration is not provided for or if the arbitration clause allows for such actions. If there is a new home warranty provided as part of the transaction, the buyer may also pursue a claim through the new home warranty provider. In any case, the parties should be referred to their respective legal advisers if such a dispute arises.

(e) Builders Lien Holdback

[12/03/2010 The following information updated]

The Builders Lien Act allows contractors, sub-contractors, workers and suppliers to file a lien against the title to properties where they supply work or materials. The lien provides some level of security for the lien claimants to ensure they get paid. Liens can be filed at any time up to 45 days after the work has been completed, and thus when buying a newly constructed home, a buyer can find a validly registered lien registered against the title to their property, that was filed after their closing but within 45 days of the work being substantially completed. Buyers can protect themselves from the potential for such liens by holding back a portion of the purchase price, until the lien period has expired. The holdback can be used to pay out the lien claimant or paid into court to discharge the lien.

It is a common belief that buyers are entitled to retain a builders lien holdback from the seller when purchasing newly constructed property. The belief may have developed because when the current Builders Lien Act was introduced in 1997, it included provisions allowing buyers of newly constructed homes to retain a holdback. However, this provision has never been brought into force. Additionally, because the Strata Property Act does provide for a holdback for newly constructed strata lots (see below), many buyers assume that a builders lien holdback is also permitted on non-strata titled property.

For new single-family construction, a buyer is not entitled to retain a holdback under the Builders Lien Act unless the contract of purchase and sale or building contract specifically allows for it. A buyer should attempt to negotiate such a provision into their contract of purchase and sale or building contract with the builder. However, a buyer must be advised that the builder may not agree to such a provision. If a holdback is not negotiated into the contract of purchase and sale or building contract, the builder has no obligation to allow a holdback and typically will not consent to such a holdback later.

If the builder agrees to a builders lien holdback, a licensee can use the following clause to provide for a holdback. A building contract typically will have much more extensive provisions detailing the builders lien holdback process that is in place throughout the entire construction period, not just a holdback on the conveyance.

Builders Lien Holdback Clause

The Buyer will holdback from the sale proceeds, as a builders lien holdback under the Builders Lien Act, an amount equal to 10% of the value of the improvements for (number of days) days after the date of issuance of the certificate of completion or, where there is no certificate, for (number of days) days after the later of the date the head contract is completed, abandoned or terminated or the occupancy permit is issued. The Buyer’s lawyer or notary will place the holdback in an interest-bearing trust account with interest accruing to the benefit of the Seller. The parties agree the improvements are valued at $(amount).

NOTE: Licensees are advised that the timing requirements for builders lien holdbacks is a complex area of law and they are well advised to have their clients seek legal advice in situations involving new or recent construction.

If builders liens are filed against the title to the property, the builder’s liens holdback funds can be used as part of the process of clearing the lien off title. The parties should be referred to their respective legal advisers if liens are filed.

It should be noted that unless the parties agree otherwise, a builders lien holdback cannot be used as a deficiency holdback and a deficiency holdback cannot be used as a builders lien holdback, as they serve two distinct purposes at law. To fully protect a buyer, both a deficiency holdback and a builders lien holdback should be negotiated as part of the contract.

If no builders lien holdback is provided for, the buyer will still be obligated to close on their purchase. The title should be monitored by the buyer’s conveyancer to see if a lien is filed within the lien period. If it is, the buyer, typically with the assistance of a lawyer, should demand the seller take steps to have the lien discharged. If the seller fails to do so, the buyer will have to seek a discharge, which may require payment of a substantial sum to the lien claimant or at least the payment of a sum equal to the amount of the lien into trust or into court. The buyer may be able to sue the seller for damages, but that may not be an easy or successful task.

(f) Builders Lien Holdback – Strata Lots

[12/03/2010 The following information updated]

The Regulation to the Strata Property Act provides that, upon the purchase of a new strata lot from an owner/developer, the purchaser may retain a holdback of 7% of the gross purchase price whether or not such a holdback is provided for in the contract of purchase and sale. Accordingly, in contracts of purchase and sale of strata lots, no holdback clause is needed.

If the buyer is buying a strata lot from an owner other than the owner/developer, where the seller has carried out renovations to the strata lot, the buyer should attempt to negotiate a builders lien holdback into their contract of purchase and sale as the Strata Property Act only provides for a holdback where the buyer is purchasing a new strata lot from an owner/developer. The buyer should be advised that the seller may not agree to such a provision.

(g) Agreement to Purchase a New Home Already Substantially Completed

[12/03/2010 The following information updated]

When drafting a contract of purchase and sale for a new home that is largely completed at the time of writing the contract, licensees should still consider inserting a provision in the contract of purchase and sale detailing what work remains to be completed and providing that it will be completed by the seller. Licensees should also consider providing for a deficiency inspection mechanism and both a deficiency and builders lien holdback.

(h) Remaining Work to be Completed

[12/03/2010 The following information updated]

Where the work is substantially completed, a standard contract of purchase and sale may be used, provided it is amended or additional terms are added to the contract of purchase and sale relating to the completion of the building and that address the following issues (this list is not exhaustive):

  • include detailed specifications as to the remaining work to be completed;
  • specify that the builder is responsible for obtaining an occupancy permit;
  • specify the degree of finishing and the standard or quality of work [similar to other homes constructed by the seller or existing work etc.];
  • provide for a mechanism to deal with any changes the buyer wants to the building after the building contract has been entered into, and how cost overruns are to be dealt with;
  • specify the work that will not be included as part of the contract;
  • establish timelines including when construction should be completed;
  • specify payments regarding any extra work;
  • detail any and all warranties to be provided by the builder including any new home warranty required under the Homeowner Protection Act;
  • address how deficiencies will be identified and corrected;
  • provide for the builder lien holdbacks (see below) as well as a deficiency holdbacks (see below);
  • address GST issues; and.
  • include dispute resolution provisions;

Both parties (builder and buyer) should obtain independent legal advice prior to entering into a contract of purchase and sale that provides for completion of construction of a new home.

(i) Deficiencies to be Corrected Prior to Closing

The contract of purchase and sale should provide for a mechanism of identifying construction deficiencies, the date by which they must be repaired, any holdback mechanism and dispute resolution.

The typical deficiency provision will require that representatives of both the buyer and the seller (builder) jointly conduct a walk-through of the property prior to possession in order to identify any work that requires correction. The parties should prepare a written deficiency list at the time that this walk-through is completed, and both seller and the buyer must sign and date the list. If there is a dispute as to any particular deficiency, the contract should provide for a neutral third party to determine the deficiencies (typically an architect or engineer). A copy of the list should be retained by both parties.

The Walk-Through Inspection Deficiency List Clause set out above can be used.

(j) Builders Lien Holdback

[12/03/2010 The following information updated]

The Builders Lien Act allows contractors, sub-contractors, workers and suppliers to file a lien against the title to properties where they supply work or materials. The lien provides some level of security for the lien claimants to ensure they get paid. Liens can be filed at any time up to 45 days after the work has been completed, and thus when buying a newly constructed home, a buyer can find a validly registered lien registered against the title to their property, that was filed after their closing but within 45 days of the work being substantially completed. Buyers can protect themselves from the potential for such liens by holding back a portion of the purchase price, until the lien period has expired. The holdback can be used to pay out the lien claimant or paid into court to discharge the lien.

It is a common belief that buyers are entitled to retain a builders lien holdback from the seller when purchasing newly constructed property. The belief likely has developed because when the current Builders Lien Act was introduced in 1997, it included provisions allowing buyers of newly constructed homes to retain a holdback. However that provision was never brought into force when the Builders Lien Act was proclaimed and is still not in force. Additionally, because the Strata Property Act does provide for a holdback for newly constructed strata lots, many buyers assume that a builders lien holdback is also permitted on non-strata titled property.

For new single-family construction, a buyer is not entitled to retain a holdback under the Builders Lien Act unless their contract of purchase and sale specifically allows for it. A buyer should attempt to negotiate such a provision into their contract of purchase and sale with the builder. However, a buyer must be advised that the builder may not agree to such a provision. If a holdback is not negotiated into the contract of purchase and sale or building contract, the builder has no obligation to allow one and the builder typically will not consent to such a holdback later.

If no builders lien holdback is provided for, the buyer will still be obligated to close on their purchase. The title should be monitored by the buyer’s conveyancer to see if a lien is filed within the lien period. If it is, the buyer, typically with the assistance of a lawyer, should demand the seller take steps to have the lien discharged. If the seller fails to do so, the buyer will have to seek a discharge, which may require payment of a substantial sum to the lien claimant or at least the payment of a sum equal to the amount of the lien into trust or into court. The buyer may be able to sue the seller for damages, but that may not be an easy or successful task.

If the builder agrees to a builders lien holdback, a licensee can use the Builders Lien Holdback Clause set above.

(k) 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.