License suspension, fines and public reprimand from the Council. This is what REALTORS® can face if they are caught selling a new built home that does not have home warranty insurance and if they neglect to inform their clients.
This rule is part of the BC Homeowner Protection Act and regulations that have been on the books since 1998. However, to this day we hear of situations that cause some concern.
The Rules
Every new single family residential house built in BC by licensed residential builders is required to have third-party home warranty insurance coverage.
Realtors are expected to ensure that their buyer clients see proof of this warranty before proceeding with a Contract of Purchase and Sale, and for Realtors not to sell a property unless and until a home warranty is confirmed.
Exceptions to home warranty insurance on new homes
As with most laws, there are exceptions. The following are exempted from the home warranty insurance laws:
- owner built homes
- manufactured homes, including mobile, floating and factory-built
- hotels and motels
- care facilities and dormitories
- multi-unit buildings owned under a single title and constructed for rental purposes
- multi-unit buildings that are strata-titled, but held under single ownership and constructed for rental purposes
- three or more dwelling units built for rental purposes and owned under a single legal title
The owner built home exemption is the most common one. To get this exemption, the owner build must go through a fairly rigorous process:
- Pass the Owner Builder Exam on home-building
- Apply for an Owner Builder Authorization
- If an owner built home goes up for sale within 10 years after first occupancy, the seller must apply for an Owner Builder Disclosure Notice for the home and provide it to any prospective buyers
Tricky situations to be aware of
- An Owner Builder Authorization may be rescinded if the owner builder fails to comply with all the requirements that the authorization imposes on them
- An owner-built home can’t be sold or rented:
- while the home is under construction
- any earlier than one year after the new home has received an occupancy permit
- prior to being occupied
The above holds except in special circumstances where the Registrar of BC Housing grants permission to sell.
- If home warranty insurance is not provided, owner-built homes are subject to the 10-year Statutory Protection provisions of the Act. These provisions hold the owner builder personally responsible to subsequent purchasers for any defects in labour, materials or design for 10 years after first occupancy. If a buyer finds defects, they must contact the owner builder directly to seek a remedy within the 10-year period.
Best practice for listing Realtors
Because of a number of possible issues related to selling owner-built homes, it’s best practice to ensure the Owner Builder Authorization and Owner Builder Disclosure Notice are obtained by the Realtor prior to listing.
Though the letter of the law says that the documents must be in place by the time of the sale, and not required at the time of listing, you expose yourself to added risk and hassle, if you list first and get the documentation later. If there is a problem, you may end up with a listing you cannot sell.
As well, the Disclosure MUST be provided to the prospective buyers prior to entering into a Contract of Purchase and Sale.
That’s why we recommend that you ensure the appropriate documentation is in order first. This is also the recommendation of the BC Housing Authority.
For all other homes built in the last ten years, we further recommend that proof of New Home Warranty be obtained at the time the listing is taken.
About home warranties in general
Usually, new homes carry a warranty that is attached to the home itself and remains in effect for the life of the warranty, even when the home is resold.
Home warranty insurance begins either on the date of occupancy or date of first occupancy permit, whichever is earliest. (On speculative properties it begins on the date of occupancy or transfer of legal title.)
At a minimum, home warranty insurance coverage includes:
- 2 years on labour and materials (some limits apply)
- 5 years on the building envelope, including water penetration
- 10 years on the structure of the home
The two-year labour and materials coverage covers any defect in labour and materials for:
- 12 months on detached homes and on non-common property in strata units (including fee simple homes)
- 15 months on the common property of strata buildings
- 24 months on all new buildings for defects when related to delivery and distribution systems, such as air conditioning, electrical, heating ventilation, plumbing, etc.
According to the Act, insurance providers can exclude some items from home warranty policies such as: landscaping, non-residential detached parking structures, commercial use areas, roads, curbs and lanes (driveways are covered), site grading and surface drainage, septic tanks and fields and water quality and quantity.
Check these sites for more info: buying and selling new homes, the Homeowner Protection Act and Regulations.