Third-party warranties against construction deficiencies will continue to be a market-driven feature of new home sales in Manitoba rather than a regulatory requirement. After first postponing the date the legacy legislation from its predecessor would come into force, the provincial government now plans to repeal the New Home Warranty Act.
The announcement appears in the 2019 budget, released last week, and is characterized as a move to reduce red tape and cut costs for homebuyers. More than five years have elapsed since the previous government passed the Act, which was initially scheduled to take effect in January 2017.
“Changes in the housing market have eliminated the need for a costly new provincial regulatory system,” the budget document asserts. “This will reverse the implementation of over 250 new regulatory requirements that would have increased the cost of a new home by thousands of dollars.”
The now-hypothetical rules would have given unit owners and condominium corporations in newly constructed buildings an automatic cost-recovery mechanism for various inadequacies in design, structure, materials, components and workmanship. Mandated compensation and time periods for coverage were generally more generous than the third-party warranty programs currently available in the market.
Builders would have been required to secure minimum coverage of $100,000 per suite, and at least $2.5 million for common elements in buildings with upwards of 25 units or $100,000 per unit in smaller condo complexes. The stipulated minimum coverage period was set at: one year for defects within units due to design, materials or workmanship; 15 months for defects related to materials, workmanship and design of common elements; two years for defects in the building envelope and major building systems or for non-compliance with the Manitoba Building Code; and seven years for structural defects.
Compliance requirements called for administrative approvals and associated documentation at several steps of the process — all under the auspices of a new provincial registration agency — necessitating input from builders, warranty providers and municipal officials tasked with ensuring proof of warranty before building permits could be issued.
“I don’t disagree that the regulatory system would have been costly,” says Delaney Vun, a partner with Fillmore Riley LLP in Winnipeg and vice president of the Canadian Condominium Institute’s Manitoba chapter. “There was a lot of government oversight required in the regime that was envisioned. It was going to involve a number of bodies checking boxes and verifying compliance.”
While the legislation was still under debate in 2013, the Association of Manitoba Municipalities (AMM) voiced reservations about extra tasks for municipal staff, potential liability and/or legal costs to prove building permits had been issued in good faith, and pass-through costs for builders and homebuyers.
“The additional costs for provincial staff and other resources required to administer the program likely would have been passed along through the chain,” agrees Lanny McInnes, president and chief executive officer of the Manitoba Home Builders’ Association (MHBA).
Meanwhile, many builders are voluntarily opting to carry third-party coverage in response to market demand and/or because it is one of the criteria for MHBA membership. “From our members’ perspective, not having the increased administration and bureaucracy is going to be seen as a positive thing. From a customer perspective, nothing really changes,” McInnes says.
Four companies currently providing warranties for MHBA members and their clients offer varying coverage options for the condo sector, although one provider limits policies to low-rise developments of no more than three storeys. The best available per-unit coverage is $60,000, while three of the four providers top out at $50,000. Two of the four also offer up to $2.5 million to offset defects in common elements; another sets the maximum at $500,000.
MHBA takes credit for some of the changes in the housing market, which, the provincial government maintains, make a mandatory new home warranty program unnecessary.
“I think that argument likely has a lot to do with customers being more aware and more savvy than they were in the past,” McInnes suggests. “We always tell the general public: no matter what type of new home you are thinking of buying, ask your builders about warranty protection.”
Barbara Carss is editor-in-chief of Canadian Property Management.