Tarion Marketing & Warranty Bond

Builders and vendors who sell new freehold homes or condominium units in Ontario before construction is completed are required by Tarion to obtain this bond. This includes developers marketing pre-construction homes or condos to the public.

The cost, or premium, typically ranges from 0.5% to 2% of the bond amount. The bond amount is determined by Tarion based on factors such as:

• • Projected Warranty Risk: Potential liabilities arising from warranty claims.
  • Size and Scope of Development: Number of units and overall project value.
  • Builder’s Financial Stability: Creditworthiness and financial health.
  • Past Performance: Builder’s history with Tarion and warranty claim records.
    For example, if Tarion requires a bond amount of $1 million, the annual premium could range from $5,000 to $20,000.

If the builder fails to address valid warranty claims, Tarion may step in to resolve the issues for the homeowner. The bond provides financial backing, allowing Tarion to access funds to cover the costs of repairs or compensation. The builder is then obligated to reimburse the surety company for any amounts paid out under the bond.

The bond remains in effect for as long as the builder has outstanding obligations under the Ontario New Home Warranties Plan Act. This includes:

• • During Construction: Until the home is completed and title is transferred to the buyer.
  • Warranty Periods: Covering the statutory warranty periods, which can extend up to seven years for major structural defects.
    The specific duration is outlined in the bond agreement and may require renewal or extension based on Tarion’s assessment.

No, if Tarion requires a Marketing & Warranty Bond for a project, the builder must obtain it to legally market and sell new homes before construction completion. Failure to comply can result in legal penalties, including fines and revocation of registration with Tarion.

The bond ensures that new home buyers are protected even if the builder becomes insolvent. Tarion can access the bond funds to address warranty claims, complete unfinished homes, or reimburse purchasers for deposits and other losses as per the warranty coverage.

Builders can apply through a licensed surety broker, such as Stanhope Simpson:

• • Submitting Required Documentation:
    • Financial Statements: Recent audited financials demonstrating stability.
    • Project Details: Information about the development, including plans, budgets, and timelines.
    • Sales and Marketing Plans: Outlining strategies and materials to ensure compliance with ethical practices.
    • Tarion Registration Information: Proof of registration and good standing with Tarion.
  • Completing the Application: Providing accurate information to facilitate the underwriting process.
  • Undergoing Evaluation: The surety assesses financial health, project feasibility, and risk factors.
  • Paying the Premium: Upon approval, the bond is issued after the premium is paid.

The Tarion warranty provides coverage for new homes in Ontario, including:

• • One-Year Warranty: Protection against defects in workmanship and materials, unauthorized substitutions, and violations of the Ontario Building Code affecting health and safety.
  • Two-Year Warranty: Coverage for defects in electrical, plumbing, heating systems, water penetration, and exterior cladding issues.
  • Seven-Year Warranty: Protection against major structural defects that significantly affect the use of the home or pose a health and safety risk.

Yes, if the project is taken over by a new registered builder, the bond can potentially be transferred, subject to:

• • Approval by Tarion: The new builder must be registered and in good standing with Tarion.
  • Surety’s Consent: The surety company must agree to underwrite the new builder, which may involve a new application and underwriting process.
  • Updated Agreements: Legal documentation must be updated to reflect the change in principals.

Yes, the Tarion Marketing & Warranty Bond ensures that builders adhere to ethical marketing and sales practices. If a builder engages in false advertising or misleading sales tactics, resulting in financial loss or other damages to purchasers, the bond can provide compensation. Tarion may also take disciplinary action against the builder, including fines or revocation of registration.