Ontario’s auditor general has released a scathing report accusing the province’s home-building regulator and warranty provider of failing tens of thousands of new homebuyers by putting the interests of builders ahead of consumer protection.

Auditor general Bonnie Lysyk found the processes of Tarion Warranty Corp. were confusing and costly to homebuyers, and that the corporation failed to flag and sanction bad builders.

Lysyk also raised issue with how the not-for-profit organization compensated its senior management, by giving bonuses based on the agency’s profits.

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In a special Tarion audit released Wednesday, Lysyk issued 32 recommendations to fix the agency’s “restrictive processes,” ranging from improvements to its customer call centre, to beefed up measures to deter the cancellation of pre-construction condos. There have been 460 developments cancelled in the last decade, according to the auditor.

“There’s been a lot of rules and regulations that favour the builder and the lack of government oversight has probably perpetuated those problems,” Lysyk said.

Calling for a builder code of conduct, she said Tarion had failed to rigorously ensure homebuilders “operated ethically and with integrity.”

“Some builders had their licences renewed even after they demonstrated problematic behaviour and, in some cases, failed to reimburse Tarion for costs incurred to resolve defects,” she said.

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The report found that in 65 per cent of cases between 2014 and 2018, builders failed to fix problems that should have been covered by the warranty.

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A homeowners’ group says Tarion is beyond repair.

“We know large numbers of Ontario’s new homeowners are suffering in newly built homes that don’t even meet the minimum Ontario building code standards,” said Karen Somerville of Canadians for Properly Built Homes (CPBH).

She co-founded the group in 2004 after she and her husband moved into an Ottawa home found to have 130 defects.

“We’re moving into winter. People need heat. We are already getting reports from homeowners who have been told by their own specialists that their homes don’t meet the Ontario building code, but their claims were denied by Tarion. They need help now,” Somerville said.

The Ontario government does not fund Tarion. Its revenue comes from the licensing fees of 5,600 builders and the registration fees they pay on about 60,000 new homes a year. At the end of last year about 380,000 homes were still covered by Tarion warranties.

If a builder doesn’t fix a defect, Tarion provides compensation and then tries to recoup the costs from the builder. The process to compensate homeowners or fix the defect is supposed to take up to 180 days. But Lysyk found it frequently took 18 months.

Last year, Tarion received 70,000 requests for assistance from homeowners. Most were resolved directly with the builder but Tarion intervened in about 1,600 cases and, in the end, paid out $17.4 million in compensation or repairs on about 800 homes.

Warranties cover between one and seven years of labour, materials and building code violations depending on the component of the home. Plumbing and electrical systems, for example, are covered for two years. Major structural defects that impair the owner’s use of their home can be covered for up to seven years.

Tarion’s call centre receives about 90,000 calls a year, handled by nine staff. The audit showed that in about 14 per cent of cases in a sample this year, 14 per cent of callers received an inaccurate or unhelpful answer.

The audit showed 9,700 consumers were denied Tarion assistance between 2014 and 2018 simply because they failed to submit a form within two 30-day periods allowed by Tarion — the first 30 days and the last 30 days in the year after they took occupancy of their new home. Tarion gives the builder 120 days to fix the problem. If the problem isn’t resolved it’s up to the homeowner to make Tarion aware.

Lysyk said the 30-day windows should be eliminated because they are preventing many people from receiving help.

Minister of Government and Consumer Services Lisa Thompson said she will ensure the auditor’s recommendations are addressed. The Progressive Conservative government has already required Tarion to post board and executive compensation and raise public awareness of the risks of buying a pre-construction condo, she said. It will announce by the end of the year how Tarion will be restructured and whether the province will look at a multi-provider system for new home warranties — something other provinces use.

The only avenues of appeal for a Tarion decision are through the courts or the Licence Appeal Tribunal (LAT). CPBH found that 85 per cent of consumers lost their appeal at the LAT. “Many people have given up because people can see you can’t win there,” said Somerville.

Read more: Province to fast-track settlement of Tarion home warranty claims

Lysyk was also critical of Tarion’s senior management reward system that paid out 30 to 60 per cent of executives’ annual salaries in bonuses based on the agency’s profits, which were achieved by minimizing payments to consumers. The approach would be more appropriately taken by the private sector than a government-delegated, not-for-profit corporation, Lysyk said.

Tarion said it accepts all the auditor’s recommendations. It said it has already enhanced disclosure for buyers of pre-construction condos and updated its builder directory. Its executives earned more than $4 million last year, including $769,410 for CEO Howard Bogach. Its directors — many of whom work directly for the building industry — collectively earned more than $500,000 last year.

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Opposition MPPs called for tougher penalties for builders and improved consumer protections.

“The entire culture and makeup of Tarion should be consumer protection first and not simply to support the desires of developers and builders, which has been happening for years and years,” said NDP Government Services and Consumer Protection critic Tom Rakocevic (Humber River-Black Creek).

The public interest has to go before “what appears to be a profit-driven incentive structure for senior executives,” said Green Party MPP Mike Schreiner.