Buying a pre-construction home? Understand your deposit and delay coverage

When you’re buying a pre-construction home, signing the contract is an exciting milestone. Not only are you taking the next big step towards owning a brand-new home, but you’re also making a financial commitment that comes with a big price tag.

Pre-construction homes and condo units often require a deposit payment and handing over thousands of dollars can feel like a leap of faith - especially when you can’t physically see what you’re buying.

The good news is that in Ontario, most new homes come with a builder’s warranty that’s supported by Tarion, a not-for-profit consumer protection organization established by the provincial government. The warranty provides important consumer protection to purchasers before the move-in date, and for up to seven years after the home is completed. A home is one of life’s biggest purchases, and the home ownership journey doesn’t always go as planned. Before you sign a purchase agreement, find out how much of your deposit is protected – and other ways that the builder’s warranty coverage protects you as a consumer.

Deposit protection

The builder’s warranty provides deposit protection up to certain limits in case the purchase isn’t completed. The warranty provides deposit coverage in the rare case that a builder goes into bankruptcy, or fundamentally breaches your purchase agreement.

In general, if your builder cannot deliver your new home and does not return your deposit, you can submit a claim to Tarion for compensation. The coverage includes money paid to the builder for any upgrades or extras for the home, like hardwood floors, granite countertops, or a fireplace. It also varies based on the type and price of the home you’re buying:

• For freehold homes: deposit coverage is based on the home’s purchase price. For example, if the home is priced at $600,000 or less, you’re covered for up to $60,000 of the deposit. For homes priced at over $600,000, you’re protected for 10 per cent of the purchase price, up to a maximum of $100,000. 
• For condo units: deposits are required by the Condominium Act to be placed in trust. If the builder terminates your purchase agreement, they have 10 days to return your full deposit. In the rare case that you don’t receive the full amount back, you can submit a claim to Tarion for up to $20,000.

Keep in mind that amounts paid beyond these limits aren’t covered by the warranty.

In addition, if you provide money to the builder before signing a purchase agreement, these payments are not protected under the warranty. For example, if you pay a fee to reserve or hold a purchase this wouldn’t be covered - but ask the builder to hold the money in trust or make sure that you get a receipt and keep it as a safeguard against potential disputes.

Coverage against delays

The builder’s warranty also comes with a guarantee that your home will be ready for you to move into by a specific date, or by a specific extended date in case of a delay. These dates and other important information are listed in the Addendum attached to your purchase agreement, in a section that’s typically called the Statement of Critical Dates.

If your freehold home’s closing date or condo unit’s occupancy date is delayed beyond the extension date noted in the Addendum, you could claim up to $7,500 in compensation from your builder. This can cover some of the costs incurred as a result of the delay, including additional moving, storage and living expenses.

With both deposit and delay protection, the amount of coverage you can claim will depend on your specific situation. More details are available at Tarion.com.

Take steps to protect your home purchase – early in the process

Understanding your deposit and delay coverage is just one way to protect your consumer rights when buying a pre-construction home. Before you sign a purchase agreement, check the Ontario Builder Directory to confirm that your builder is licensed to sell and build in the province, and get legal advice to make sure you understand all the terms and conditions of the contract.

The new home warranty program exists to protect consumer rights, but it works best when purchasers understand their coverage and responsibilities. Set yourself up for success from the very start by learning more about the builder’s warranty coverage and how to make a claim if you need to. You can find more details, tips and helpful resources at Tarion.com.