A decision of the Ontario Court of Justice last week highlights the importance of buying a new home only from a registered builder, and the risks to the buyer if the home is not enrolled with the Tarion Warranty Corp.

Back in September 2005, Deosaran Ramcharan bought a house on Poyntz Ave. in Toronto. The following year, he applied for permits to construct an addition and to demolish the house and rebuild a new one, declaring in the application that the Ontario New Home Warranty Program did not apply.

In May 2006, the city issued a building permit for a new house. Three years later, the house was listed on MLS at $1.15 million as a “brand new 4 bdrm 2 storey detached home in Yonge/Sheppard area. . . . This property is not fully completed, needs to complete kitchen and bathroom, which will be fully completed in 2 wks. . . . ”

The house was later transferred to a numbered company and relisted on MLS at $849,000. It was described as “vacant . . . 80% of the work is complete . . . property to be purchased in ‘as-is where-is condition.’ ”

Julie Stefko bought the house in October 2009 for $820,000 from the numbered company with Carlos Canejo signing as its representative. Stefko relisted the house on MLS in February 2010, and sold it for $1.14 million to Navin Gangadin.

At the time Gangadin and his wife, Nadia Mohamed, inspected the house, the appliances were still in their packaging and not connected. An inspection revealed no furniture or window coverings and the hot-water tank had not been installed. The bathrooms, closets and kitchen cupboards were all empty.

As well, there was no water meter and no connection to the city storm sewers. The driveway slope exceeded the permitted amount and there were no window screens. The City of Toronto had not yet issued an occupancy permit.

The transaction closed with a monetary holdback to cover the outstanding deficiencies.

Eventually, despite the fact that Stefko never registered the home with Tarion, the new owners filed three warranty claims with Tarion and received a total of $95,000 from the indemnity fund.

As a new home, the property was subject to HST, but no evidence was provided to the court that HST was ever charged, included in, or paid on the purchase price.

Eventually, Julie Stefko was charged with the offence of “selling, on her own behalf, a home not previously occupied” and acting as a vendor of the home without being registered under the Ontario New Home Warranties Plan Act.

The trial was held in Toronto on July 11, 2012, before Justice of the Peace Mary Ross Hendriks, and her judgment was released last week.

Based on extensive documentary evidence and the testimony of Mohamed, Hendriks ruled that the house was “not previously occupied” under the Tarion legislation and that Stefko was guilty of an offence under the legislation. A decision on a penalty is awaiting submissions from the lawyers involved.

A number of lessons emerge from this case:

• If a house looks brand new from foundations to roof but has never been occupied, the law requires it to be registered with Tarion.
• The courts will take a common sense approach to whether it has been previously occupied. A mattress on the floor is not enough.
• Buyers and sellers, as well as listing agents and selling agents who fail to consider the requirement for Tarion registration do so at their own risk of serious consequences.
• Buyers of new homes who fail to obtain the necessary confirmation that the seller has included HST in the price and will pay it directly to Ottawa, expose themselves to having to pay the tax themselves, in addition to the purchase price.

Buyers who fail to protect themselves against “rogue builders,” who falsely claim that they lived in the home, will not save money in the long run and may be exposed to an unusually high level of defects and deficiency claims.

(Full disclosure: I am the chair of Tarion’s consumer advisory panel and a former board member.)