The Death of Caveat Emptor: Mandatory Warranties and Disclosure in New Home Transactions
| Author | Harry Herskowitz |
| Profession | Of DelZotto, Zorzi with assistance from Richard Wong |
| Pages | 143-222 |
Although
the
common
law
doctrine
of
caveat
emptor
has
long since
ceased
to
play
any
significant part
in the
sale
of
goods,
it has
lost little
of
its
pristine
force
in the
sale
of
land.
So
began
the
infamous
majority
judgment
of the
Supreme Court
of
Canada rendered
by Mr.
Justice Dickson
in
Fraser-Reid
v.
Droumtsekas,1
a
case whose decade-long journey through
the
judicial system
witnessed
a
significant
transformation
in the
realm
of
consumer protection
for
new
home purchasers
in the
province
of
Ontario,
from
the
relatively
limited protections
afforded
by the
common
law,
to the
extensive
safe-
guards mandatorily imposed
by
statute.
Fraser-Reid
epitomized
the
Canadian
judiciary's
reluctance
to
over-
rule
the
status
quo in the
common law, which implied warranties
for
fit-
ness
and
workmanship
in
respect
of a new
home that
was not
fully
completed
at the
time
of
sale,
but
which concomitantly
offered
no
pro-
tection
to the
purchaser
of a
fully
completed
new
home.
The
purchaser
was
left
to
safeguard
his or her own
interests
by
either making
the
clos-
Solicitors
at the law
firm
of
DelZotto,
Zorzi, Barristers
&
Solicitors.
103
D.L.R. (3d)
385
[hereinafter
Fraser-Reid
cited
to
S.C.R.
at
723.
143
1
I.
INTRODUCTION
Harry
Herskowitz,
with
assistance
from
Richard
Wong
in New
Home Transactions
Mandatory Warranties
and
Disclosure
The
Death
of
Caveat
Emptor:
144
Harry Herskowitz
with
Richard Wong
ing of the
transaction conditional upon
an
inspection
of the new
home
being conducted
by or on
behalf
of the
purchaser (and correspondingly
being
satisfied
with
the
results
of
such inspection), and/or
by
bargaining
for
express contractual warranties
from
the
vendor. This distinction
between incomplete homes
and
newly-completed homes
had
historical-
ly
been formulated based
on the
home building practice that existed
prior
to
World
War
I,
when homes were generally built
by a few
wealthy
and
knowledgeable builders,
on a
custom-built basis,
and
purchasers
were assumed
to
have
the
sophistication
and
bargaining power
to
con-
duct their
own
satisfactory
"due diligence" inspections
and
inquiries.
Since
then,
modern
efficiencies
have made mass-produced housing
available
to the
majority
of
Canadians, many
of
whom possess little
or
no
specialized experience
or
sophistication
in
real estate.
In
this context,
there
was
considerable pressure
on the
common
law to
create implied
warranties related
to
fitness, proper construction,
and
habitability
with
respect
to the
sale
of new
homes, irrespective
of
whether such homes
were
fully
completed
or
only partially constructed
at the
time
of
pur-
chase.
However,
the
Supreme Court
of
Canada
in
Fraser-Reid
declined
the
opportunity
to
dramatically change
the law
governing
the
war-
ranties
applicable
to the
sale
of new
homes,
by
coming
to the
conclusion
that
any
intervention
in
this area should
be
legislated, rather than
imposed
by the
judiciary. (Just like
the
Supreme Court
of
Canada
was
reluctant
to
change
the
"contract under
seal"
rule
in the
case
of
Friedmann
Equity
Developments
Inc.
v.
Adatia,2
and
much like
the
Ontario
Court
of
Appeal
has
recently declined
to
change
the
rule regarding "pos-
itive
covenants
not
running
with
the
land"
in the
case
of
Durham
Condominium
Corporation
No. 123 v.
Amberwood
Investments
Limited.3)
In
the mid
1970s,
the
province
of
Ontario
began
to
enact mandato-
ry
statutory protections against
defects
in the
construction
and
work-
manship
of new
homes,
and
around
the
same time, also
sought
to
provide mandatory protection
to
purchasers
of new
residential condo-
minium
units.4
By
1976,
all
provinces
in
Canada
had
some
form
of
war-
ranty coverage
for
purchasers
of new
homes (generally
on a
voluntary
basis,
as was the
case
in
British Columbia),
but
only Ontario
had
2
(2000),
188
D.L.R.
(4th) 269.
3 See
unreported
decision
of
Madam
Justice
Charron
of the
Ontario Court
of
Appeal rendered
20
March
2002.
4
A
chronology
and
brief
explanation
of
Ontario's
transformation
from
common
law to
statutory
safeguards
is
annexed hereto
as
Appendix
A.
The
Death
of
Caveat
Emptor
145
mandatory universal coverage
(namely,
coverage applicable
to all new
home buyers, irrespective
of the
fact
that
the new
home
had not
been
enrolled,
and
regardless
of the
fact
that
the
vendor
or the
builder
of
such
new
home
had not
been registered with
the
Ontario
New
Home
Warranty
Program).
As a
result, provinces like British Columbia were
left
without mandatory statutory protections
for new
housing until
as
late
as
1998, when
it
ultimately enacted
the
Homeowner
Protection
Act,
S.B.C.
1998,
c. 31, in the
aftermath
of the
"leaky
condo"
crisis, which
emerged
on or
about 1993.
Today,
purchasers
of new
homes
in
Ontario (comprising both con-
dominium
and
non-condominium dwellings)
enjoy
a
certain level
of
guaranteed protections,
the
most
significant
of
which
are
embodied
in
the
following
two key
statutes, namely:
a)
The
Ontario
New
Home
Warranties
Plan
Act, which generally regu-
lates
the
quality
of
construction
of the new
home
or
condominium
being sold
to the
purchaser;
and
b)
The
Act, 1998
,
the
relevant portions
of
which regulate
the
disclosure
of
significant features
and
information involving
the
condominium
project
in
which
the
proposed dwelling unit
is
situate.
This paper will review
and
examine
the
safeguards
provided
by
mandatory warranties
and
disclosure
afforded
to new
home
and
con-
dominium consumers
by
virtue
of
these
two
statutes.
1)
Inception
and
General Purpose
The
origins
of the
Ontario
New
Home Warranty Program (hereinafter
ONHWP
or
Program)
can be
traced
to the
Ontario
Law
Reform
Com-
mission Report
of
1968,
entitled, "Report
of the
Ontario
Law
Reform
Commission
on the
Trade
and
Sale
of New
Houses"
(hereinafter
1968
Report),
which made strong arguments favouring statutory
reform
of
the
unsatisfactory state
of the
common law. However,
the
public
had to
wait
until
1976
for the
Ontario
New
Home
Warranties
Plan
Act
(hereinafter
ONHWP Act)
to be
formally
enacted
by the
Ontario legislature,
and the
Minister introduced
the
legislation with
the
following stated purpose:
MANDATORY
WARRANTIES
UNDER
THE
ONTARIO
NEW
HOME
WARRANTIES
PLAN
ACT
n.
To continue reading
Request your trial