In early 2014, the New Home Buyer Protection Act will come into force. The intent of the legislation is to improve consumer protection and recourse options, increase builder accountability, and raise the standard of residential construction in Alberta. While the Act does not place any new obligations on Alberta’s REALTORS®, this article discusses important aspects of the legislation that REALTORS® should be familiar with and prepared to pass on to their clients.
All new homes will be required to have warranty coverage of a minimum of:
one year on labour and materials,
two years on delivery and distribution systems,
five years on building envelope, and
10 years on major structural components.
Warranty providers must also offer an optional two years of additional building envelope coverage.
New home warranties cover repairs and replacements relating to defects in the construction of a home.
This is different from a homeowner’s insurance policy, which addresses damage to a home due to fire and severe storms and could also include damage to other structures (e.g. storage sheds), property damage or theft, and personal liability in the event of an accident on the property. The builder is responsible for ensuring that warranty coverage is in place. Work completed by the builder’s sub-trades is included in the coverage (except for work done on excluded items, as defined in the legislation).
New home warranty coverage currently offered in Alberta does not meet the minimum coverage requirements under the new legislation. As a result, the cost of warranty for the average house will likely increase, once the Act comes into force. In January 2012, the average price of a home in Alberta was $342,000. Based on that average, warranty coverage is expected to cost less than one per cent of the price of the home. The exact cost of the warranty coverage will vary, depending on the warranty provider, the builder, and the home.
To Whom Does It Apply?
The new legislation applies to all new residential construction built under a permit applied for after the in-force date of the Act. This includes houses, condominiums, recreational properties (cottages and cabins), and modular and manufactured homes. Dorms, work camps, hotels, and rental apartments will be exempt, as they follow a different ownership model.
Warranty requirements for reconstruction and renovation will be defined in regulation and will be based on the amount of new square footage. Requirements for buildings being converted into condos will be based on the age of the original building. For buildings more than 10 years old, warranty would not be required unless the conversion met the reconstruction threshold. At the time of this writing, Alberta Municipal Affairs is working with industry to develop requirements for buildings less than 10 years old. These requirements will be defined in regulation.
When warranty coverage is in place on a home, coverage transfers to the subsequent owner(s) upon resale. Warranty requirements for resale homes depend on a number of factors. If the residence was built under a permit applied for prior to the in-force date of the Act, warranty coverage is not required. If the residence was built under a permit applied for after the in-force date of the Act, warranty coverage will be required. Options for residences that were owner-built (i.e., with an owner builder authorization) will be defined in regulation.
Alberta Municipal Affairs has been working with warranty providers and permit issuers to develop a new home registry system, including a publicly-accessible online search tool. Users will be able to quickly and easily look up a specific property and learn the status of its warranty coverage, who is providing the coverage, and whether the home was professionally or owner-built. The information visible in the public search will be monitored by New Home Buyer Protection Program staff and updated daily to help home buyers, municipalities, REALTORS®, and lending institutions make informed decisions.
For More Information
For more information on the New Home Buyer Protection Act, visit www.municipalaffairs.alberta.ca/NHBP or Alberta Municipal Affairs at 1-866-421-6929.
Ivan Moore is the Assistant Deputy Minister of the Public Safety Division of Municipal Affairs, Government of Alberta.