What’s an Illegal New Home?

In Ontario a New Home Can be Illegal

Whenever the phrase “illegal new home” is mentioned, REALTORS® and buyers get a puzzled look on their face that says, “What?”

Yet in Ontario a new home can actually be illegal. That’s because the Ontario New Home Warranties Plan Act, administered by Tarion Corporation, requires that new home builders be registered. As well, each new home must be enrolled under the protection of the New Home Warranty Program. Without these requirements a new home is illegal.

Not Every New Home Has to be Registered?

If you buy or own a lot and build a home to live in as your primary residence, registration is not required. If your intention is to sell it, you have to live in it for a period of time and then sell it as a resale home. This begs the question, “How long of a period should you live in the home?” Each situation is different but here are some examples of how a builder got around non-registration and enrollment.

  • A plumber worked as a subcontractor for home builders. One day he decided to try his hand at building a new home to sell and on completion listed the home. The REALTOR® soon found a buyer who, being unfamiliar with selling new homes, talked to her broker. The broker asked whether the home was enrolled under the new home warranty program. When she asked the builder, he said no but his lawyer advised that he can personally give a personal warranty on the home for two years. The Act, however, required builder registration and home enrollment. The solution was for the builder to move into the home and the buyer signed an agreement to purchase the home one year later.
  • As an entrepreneur, this person decided to try his hand at building a home for him and his family. So he bought a lot, learned to organize the project and work with the various trades: concrete people, framers, roofers and the entire array of experts. Having gained a level of confidence from that experience, he then decided to build a second home to sell for profit. Again the buyer’s REALTOR® was told that no Tarion Warranty existed on the home. So the buyer agreed to lease the home for one year with the option to purchase at any time within five years. He bought it after the first year as it was now considered a resale home.   
  • In a couple of other instances, each of the new homes was empty. One home was furnished with a couch and the owner/builder stated that he received his mail there. Yet it could readily be seen that no one lived there and could not realistically be viewed as the owner/builder’s primary residence. Another home was nearly finished and for sale with no one living there. In both instances the agreements to purchase were conditional on the buyer’s lawyer being satisfied as to the legality of the new homes. Was there a warranty enrollment number and, if not, was there satisfactory evidence that the homes were being lived in and, therefore, considered resale homes? In both instances the buyers walked away.

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