Chief Executive Officer
Barrett Commission of
Inquiry into the Quality of Condominium Construction
September 17, 1999
I would like to thank the Commission
for inviting me to make a presentation at your second set of
hearings. This is an opportunity to report on the activities of the
office since it opened on October 1 of last year.
History of the
As a response to many of the
recommendations in the original Barrett Report, the Homeowner
Protection Act was passed on July 28, 1998. The Act
provided for the creation of the Homeowner Protection Office
that was established on October 1, 1998.
The HPO program areas
- Assistance to owners of leaky homes
who are not able to pay for the repairs to their homes by offering
no-interest repair loans
- Delivery of the PST Relief Grant
- Administration of the residential
builder licensing and mandatory third-party warranty system, and
- A Research and Education function
to assist and inform condominium owners and buyers and the
residential construction industry.
Program Areas of the
I will now provide some details about
these program areas and the HPO activities to date.
Homeowner’s Reconstruction Loan
The first priority of the office was
to establish a no-interest loan program for homeowners who are not
able to pay for or finance the repairs to their buildings which are
suffering from premature building envelope failures.
This is not a general compensation
program, but an initiative to ensure that owners do not lose their
homes due to the financial burden of repair costs.
Loan amounts are based on the owner’s
share of the cost to repair the building envelope plus any related
legal costs to register the repair mortgage. Every bank, credit
union and trust company with the exception of the Laurentien Bank
and the National Bank have agreed to participate in the loan
program. The HPO has entered into an agreement with each of the
participating lenders. A master agreement developed through
negotiations with the Canadian Bankers Association and Credit Union
Central is used.
The financial institution that holds
the first mortgage provides the repair mortgage. Homeowners make
monthly, principal-only payments to the lending institutions at an
affordable level. The amount of the monthly payment is based on the
owner’s ability to pay and is arrived at through discussions with
the HPO loans officer. The HPO pays the interest portion of the loan
directly to the lending institution on behalf of the homeowner. For
those lenders not participating, the HPO provides the loan directly
to the homeowner.
CMHC provides mortgage loan insurance
for the repair loan based on an indemnity from the HPO that requires
the HPO to pay for any claims that may be made under the CMHC
insurance. Since CMHC has no risk, this insurance is provided at no
cost to the homeowner.
Loans are typically provided for a
five-year term. The homeowner agrees to consolidate the repair
mortgage into their first mortgage at the time of renewal. If the
owner does not qualify for conventional financing at that time, the
loan can be renewed for a further five-year term.
Homeowners who fit the following
criteria can be eligible for a no-interest loan:
- The applicant must own a home which
is suffering from premature building envelope failure
- The homeowner does not have
adequate equity in their home to qualify for a standard loan,
- The homeowner can not afford the
monthly payments of a standard loan to pay for repairs (which is
usually seniors and others on fixed incomes ).
Homeowners do not have to cash in
their RRSPs, pension assets or the first $10,000 in liquid assets.
Owners are not expected to sell vehicles or other personal items
such as jewelry to pay for the repairs. For seniors, up to $250,000
in cash assets that are used to supplement income is also
In most cases, no more than ten
percent of the homeowners in a building qualify for a no-interest
repair loan. However, in some buildings this number has been as high
as fifty percent.
To date, the HPO has sent out 6,650
requested applications and has received back over 1,450
applications. We have approved more than 1,000 no-interest loans in
200 buildings totaling $17.6 million. There are about 300 loans
applications currently in process. About 75 applications have been
withdrawn by the applicants and 100 applications were not approved
because the applicants did not meet the eligibility criteria. The
average loan amount is $17,500.
The number of loan applications the
HPO receives each day has increased dramatically over the past few
months. Recently it is not uncommon to receive twenty or more
applications per day.
Since the loan program was introduced
last October, the HPO has expanded the loan program on two
In April, the program was expanded to
include non-profit housing cooperatives. This component of the
program was developed in consultation with the Co-operative Housing
Federation of B.C.
Since members of a non-profit housing
co-operative do not hold tittle to the individual units, the
no-interest loan is provided to the co-operative as a whole. To
date, we have met with 14 housing co-operatives regarding the
financial assistance available through the HPO. Five co-operatives
have received loan approvals representing 400 homes for a total
repair cost of nearly $15 million or an average of $3 million per
The total approved loan amount under
both components of the reconstruction program is $32.5
In June 1999, the following changes
were made to the eligibility criteria of the homeowner component of
the loan program:
- The first $10,000 in liquid assets
is exempt from the eligibility calculation – an increase from the
previous exemption of $5,000.
- Up to $250,000 in non-pension
savings for seniors is exempt. Previously there was no exemption
for non-pension assets; and,
- Individuals who own more than one
leaky unit may qualify for additional assistance.
The Homeowner Protection Office works
with the homeowner to set affordable monthly, principal-only
payments. The monthly payments can be as low as $50.
In some cases deferred payment loans
are approved for owners who cannot afford the minimum monthly
payment. Deferred payment loans do not require any payment of
principal for as long as the homeowner lives in the home. When the
home is sold in the future, the original loan amount is to be repaid
from the net sales proceeds.
Typically, deferred payment loan
recipients are seniors or other owners on fixed incomes. In the case
of deferred payment amount loans, the Homeowner Protection Office
provides the principal to the homeowner, not a lending institution.
Deferred payment loans represent 16% of the loans approved, totaling
Some homeowners who received
no-interest repair loans when their buildings were in the initial
stages of repair have returned for a second loan when additional
assessments to their homes were required once the full extent of the
damage to the building was discovered. Others applied for second
loans after the collapse of the New Home Warranty
PST Relief Grant:
In June the Province announced a PST
Relief Grant for repairs to leaking homes. This tax relief program
will provide an estimated $25 million in financial assistance to
homeowners over the next 5 to 7 years. The HPO administers this
program on behalf of the provincial government.
All repairs completed on or after July
28, 1998, which is the day the Homeowner Protection Act was
passed, are eligible. Owners of strata units, single-family homes
and cooperative housing members are able to receive the grant.
Unlike the no-interest repair loans, however, it is the strata
corporation or cooperative housing board that applies on behalf of
the residents of the building.
The grant amount is based on the
following formula, and is applied for when repairs are
Total repair cost x 40% x
About 40% of the total repair bill is
subject to PST.
The Homeowner Protection Office is
receiving and processing its first PST Relief Grant applications at
this time. Currently we have received 200 requests for applications
and have received 9 applications back. To date we have approved 4
applications totaling about $57,000 in tax relief. The HPO has
provided no-interest loans to homeowners in about 200 buildings.
Once those repairs are completed, we will process grant applications
for those buildings.
A lot of questions are always raised
about the scope of the problem. In the last year, the HPO has been
involved directly with 295 buildings either through our loans
program or through our information sessions for strata councils.
These buildings represent about 20,000 units. Given an average
repair cost of $17,500, the total repair bill for these units will
be about $350 million. The original Barrett estimate of up to $1
billion in repair costs seems reasonable at this point.
Two other program areas of the office
are residential builder licensing and the establishment of a
mandatory third-party warranty system for all new homes constructed
The development of the licensing and
warranty regulations involved an extensive consultation process with
stakeholders including homeowner groups, builders, developers, local
government, labour, warranty providers, realtors and
After the regulations on licensing and
warranty were passed, the HPO implemented an awareness strategy to
inform the stakeholders about the new requirements and their
resulting future responsibilities. These efforts included 16
information sessions around the province which were attended by
1,500 builders, building officials, lawyers and realtors. Other
efforts to increase awareness of the regulations included numerous
speaking engagements, advertising, posters at building permit
counters as well as other print materials, trade show exhibits,
direct mail campaigns, web site postings as well as providing
assistance through our toll-free information line.
Approximately one month before the
licensing and warranty regulations were to be implemented on April
30, New Home Warranty announced their intention to file a proposal
to its creditors. This meant that the 1,600 builders registered with
New Home Warranty would not have adequate time to get registered
with an alternate warranty provider in order to meet the new
licensing and warranty requirements. As a result, the provincial
government delayed the implementation of the regulations by two
months to begin on July 1, 1999. This allowed the registered
builders of New Home Warranty an opportunity to register with an
alternate warranty provider.
Without this delay, the residential
construction industry would have been virtually shut down as of
April 30. This would have had a disastrous impact, particularly in
the north and the interior which have much shorter building
As of July 1, 1999 residential
builders must be licensed and provide home warranty insurance on new
building permit applications. Standard HPO documentation that
verifies builder licensing and that the homes to be constructed are
enrolled in a policy of home warranty insurance is required prior to
building permit issuance.
Home warranty insurance can only be
provided by insurance companies that are authorized by the Financial
Institutions Commission and meet the requirements set out in the
Homeowner Protection Act.
The licensing and warranty provisions
of the Act are designed to work in tandem to strengthen
consumer protection. The two systems will ensure that builders meet
minimum standards, and if a construction defect occurs, consumers
will be protected by a strong mandatory warranty.
The new mandatory home warranty
insurance coverage includes:
- 2 years on labour and
- 5 years on the building envelope,
including water penetration, and
- 10 years on structure.
This coverage is the strongest in
Canada and one of the strongest warranties in the world. It is an
insurance product. B.C. is the only jurisdiction in Canada to treat
home warranty as insurance.
The regulations are very explicit as
to what can and can not be excluded from coverage. All warranty
policies must be provided to the HPO 60 days before that policy is
put into effect.
This is not default warranty coverage
where the warranty provider remedies defects in the event that the
builder does not undertake the repairs. Any claim by the owner is
directed to the insurance company who is obliged to carry out
repairs to eligible defects. The insurer may use a variety of means
to carry out repairs including using the original builder.
On the builder licensing side, the HPO
has received 800 applications for residential builder licences and
has approved 680 licences to date. A registry of Licensed
Residential Builders is available on our Web site.
The number of builders we have
licensed during the first two and a half months of the new system is
not unexpected. By delaying the implementation of the licensing and
warranty regulations by two months to July 1, much of the 1999
building season was missed in some areas of the province. Builders
constructing homes with building permits applied for before July 1
are not subject to the Homeowner Protection Act and
regulations and, therefore, are not required to be licensed or
provide home warranty insurance at this time.
We are currently in a transition
period where some of the newly constructed homes on the market will
have the ten-year mandatory warranty as required by the Act
while other new homes on the market constructed with building
permits applied for before July 1 will have a variety of different
warranties – or even no home warranty at all. Earlier in September,
the Homeowner Protection Office distributed about 3,000 bulletins
titled "Understanding Home Warranties" to real estate boards,
mortgage lenders, legal professionals, building officials and
warranty insurance companies.
This bulletin explains the various
warranties out there during this transition period and encourages
the homebuyer to understand the full extent of any warranty that
might be offered prior to making a purchase. "Understanding Home
Warranties" is also available on our Web site or by calling our
toll-free information line.
Owner-builders are exempt from the
licensing and warranty requirements of the Homeowner Protection
Act and regulations. The Act defines an owner-builder as
an individual who builds a detached, self-contained dwelling for
their own personal use not more than once every 18 months.
Owner-builders must sign a sworn
Owner-Builder Declaration and Disclosure Notice which must be
provided to the municipality at the time of the building permit
application. All persons ordinarily resident in the same dwelling
unit are deemed to be the same owner-builder; consequently, only one
owner-builder exemption is allowed per household. They must also
provide a list of sub-contractors they plan to hire on the
Declaration. Legitimate owner-builders are those who build their
home or directly manage the construction of the new home - otherwise
they do not qualify for owner-builder status and must get a licensed
residential builder to build the home who will provide the required
While owner-built homes are not
subject to the licensing and warranty requirements, they are subject
to the ten-year statutory protection provisions of the
Statutory protection requires that all
new homes are:
- reasonably fit for
- have been built from materials of
good quality; and,
- have been designed and constructed
with ordinary competence, skill and care.
Any action under this section of the
legislation must be commenced within 10 years from the date of first
occupancy. Unlike the mandatory third party warranty provided by
insurance companies, original and subsequent purchasers of
owner-built homes must seek redress through the legal system. If the
owner-built home is sold within 10 years, a copy of the
owner-builder declaration must be provided to the purchaser which
informs them of the statutory protection provisions.
The Homeowner Protection Office is
responsible for monitoring owner-builder activities. Land title
checks for ownership, site visits and a review of sub-contractors
employed are just some of the methods used to enforce the
We have encountered several instances
where owners are being encouraged or mislead by unlicensed builders
to claim the owner-builder exemption and then to hire them to
construct or manage the project for the owner. The problem is not
with the intent of the legislation, but with those who view the
exemption as a potential loophole to avoid licensing and warranty
requirements. In these cases we discovered, the builder has been
persuaded to go through the licensing process.
An information bulletin about the
obligations of owner-builders and the rights of those purchasing
owner-built homes is available through the HPO.
The next priority for the HPO is to
put in place licensing and warranty requirements for
The regulatory work will be divided
into two parts. The first part will be the establishment of a
mandatory program covering building envelope repairs. The purpose of
this program will be to put in place consumer protection for owners
of leaky homes by ensuring that repairs are:
- effective, long-term
- performed by qualified contractors,
- backed by a third-party warranty.
The HPO has distributed a discussion
paper entitled the "Implementation of Mandatory Warranty and
Certification for Building Envelope Repairs". It sets out some of
the parameters and issues to be discussed with stakeholders. We are
currently in a consultation phase and will provide our
recommendations to government later this Fall. Our goal is to have
the regulations for major wall repairs in place later this fall for
implementation in January 2000.
The fourth program area of the
Homeowner Protection Office is its Research and Education function.
The Research and Education section provides resources and
information regarding building science issues, cost effective
building techniques, best practices for retrofitting housing,
building code changes and current consumer housing issues.
The Homeowner Protection Act
provides for the formation of a Provincial Advisory Council on
Homeowner Protection. The Council has been formed to make
recommendations to the Homeowner Protection Office regarding
residential construction in BC, research and education initiatives,
and consumer information programs.
The 13 members of the Council include
representatives from consumer groups, architects, engineers,
builders and developers, labour and local government. It meets at
least quarterly and has had two meetings to date.
The Homeowner Protection Office and
the Architectural Institute of B.C. have signed a memorandum of
understanding for an AIBC contribution of $250,000 to the research
and education fund. The Provincial Advisory Council will provide
recommendations on how these funds can best be used to achieve the
goals of the Research and Education function of the
The HPO has developed a variety of
materials to assist both the industry and consumers. Some of the
information pieces include:
- Land Use Planning and Weather
Protected Buildings – this document serves as a best choices
guide to encourage local governments to review their land use
bylaws and other policies to determine how they impact the
development of improved wall assemblies. It includes a discussion
of related factors such as site coverage, height and setbacks, as
well as design features such as balconies, covered walkways, wall
details and overhangs.
- Buying a New Home: A Consumer
Protection Guide - was updated to provide information and
guidance to consumers wishing to purchase a new home. Topics
include inspection, understanding the full extent of home
warranties, financial considerations and getting information about
the builder or developer.
- Managing Major Repairs is a
100-page guide which assists strata councils and owners through
the process of repairing major wall assemblies. It was developed
in conjunction with the Ministry of Municipal Affairs and CMHC.
The HPO alone has distributed over 1,200 copies of this document
to affected homeowners.
- The HPO has also produced a related
video called Managing Leaky Condo Repairs which is
scheduled to air a second time on BCTV this Sunday at 3:00 p.m. A
Cantonese version of the video will also air this Monday on
Fairchild TV at 9:55 p.m. This video soon will be distributed to
every public library in the coastal climate zone and is available
through the HPO.
- In consultation with the
Condominium Home Owners Association (CHOA), the HPO developed an
information piece for strata corporations and property managers
affected by the financial collapse of the New Home Warranty
program. This piece provided information on topics such as the
responsibilities of strata corporations and financial assistance
available. Two town hall meetings were also sponsored by the HPO
and CHOA for affected strata councils and property
- The HPO has also produced
information bulletins about current and emerging issues.
"Understanding Home Warranties" and "Important Information for
Owner-Builders" are two pieces that have been distributed
Since the office opened, the HPO has
actively assisted stratas with the process of managing repairs to
major wall assemblies. To date, we have held meetings with 125
stratas, assisting an estimated 8,500 homeowners. We are now
planning a series of larger seminars throughout the coastal climate
zone for stratas affected by envelope repairs. A panel of experts
provide information on the process required for repairs, legal
considerations, financial assistance available and technical
information. Our first seminar is planned for Victoria next weekend.
Two of our most successful tools for
providing information has been our toll-free information line and
our Web site. Since the 1-800 line was initiated, we have assisted
about 14,500 callers. Our Web site has also had nearly 14,000 hits
since its inception last October. Currently there are an average
2,000 hits per month on the site.
Another area where the HPO has been
active is in the development of alternative dispute resolution
options for residential construction disputes.
For owners of homes which carry home
warranty insurance mandated by the Homeowner Protection Act,
a mandatory mediation process has been set up for disputes between
owners and their home warranty insurance providers. Owners who have
a dispute with their home warranty insurance provider can compel
them to mediation. This is at the sole option of the
Our office has worked with the
Attorney General’s Alternative Dispute Resolution Office to develop
the Notice to Mediate regulations for residential construction
disputes. The regulations were introduced in May.
The new process is retroactive and
allows any party involved in a residential construction dispute to
compel the other parties to participate in a structured mediation
session. The Notice to Mediate process provides parties to
residential construction disputes with an effective and less costly
dispute resolution process.
A guide on residential construction
dispute options is being developed by the Homeowner Protection
Office in conjunction with the Attorney General’s Dispute Resolution
Office. This guide which provides information on negotiation,
mediation, arbitration and litigation will be available to
homeowners this Fall. The information contained within this dispute
resolution guide is being incorporated in to our information
sessions to strata councils and owners.
This concludes my presentation. I have
prepared a package of materials, which were discussed in my
presentation. I would be pleased to address any comments or
questions you might have at this time.
Last Updated: January 17, 2005